Equity Investment & Other Components of Equity

Hi can you please explain how to calculate the equity investments in W2 (net assets) and also the other equity components in the SOFP. Thank you!

On 1 January 2015, Palistar acquired 75% of Stretcher’s equity shares by means of an immediate
share exchange of two shares in Palistar for five shares in Stretcher. The fair value of Palistar and
Stretcher’s shares on 1 January 2015 were $4·00 and $3·00 respectively. In addition to the share
exchange, Palistar will make a cash payment of $1·32 per acquired share, deferred until 1 January
2016. Palistar has not recorded any of the consideration for Stretcher in its financial statements.
Palistar’s cost of capital is 10% per annum.
The summarised statements of financial position of the two companies as at 30 June 2015 are:
Palistar Stretcher
$’000 $’000
Assets
Non-current assets (note (ii))
Property, plant and equipment 55,000 28,600
Financial asset equity investments (note (v)) 11,500 6,000
66,500 34,600
Current assets
Inventory (note (iv)) 17,000 15,400
Trade receivables (note (iv)) 14,300 10,500
Bank 2,200 1,600
33,500 27,500
Total assets 100,000 62,100
Equity and liabilities
Equity
Equity shares of $1 each 20,000 20,000
Other component of equity 4,000 nil
Retained earnings – at 1 July 2014 26,200 14,000
– for year ended 30 June 2015 24,000 10,000
74,200 44,000
Current liabilities (note (iv)) 25,800 18,100
Total equity and liabilities 100,000 62,100
The following information is relevant:
(i) Stretcher’s business is seasonal and 60% of its annual profit is made in the period 1
January to 30 June each year.
(ii) At the date of acquisition, the fair value of Stretcher’s net assets was equal to their carrying
amounts with the following exceptions:
The fair value of Stretcher’s investments was $7 million (see also note (v)).
Stretcher owned the rights to a popular mobile (cell) phone game. At the date of acquisition,
a specialist valuer estimated that the rights were worth $12 million and had an estimated
remaining life of five years.
(iii) Following an impairment review, consolidated goodwill is to be written down by $3 million
as at 30 June 2015.
(iv) Palistar sells goods to Stretcher at cost plus 30%. Stretcher had $1·8 million of goods in its
inventory at 30 June 2015 which had been supplied by Palistar. In addition, on 28 June
2015, Palistar processed the sale of $800,000 of goods to Stretcher, which Stretcher did
not account for until their receipt on 2 July 2015. The in-transit reconciliation should be
achieved by assuming the transaction had been recorded in the books of Stretcher before
the year end. At 30 June 2015, Palistar had a trade receivable balance of $2·4 million due
from Stretcher which differed to the equivalent balance in Stretcher’s books due to the sale
made on 28 June 2015.
(v) At 30 June 2015, the fair values of the financial asset equity investments of Palistar and
Stretcher were $13·2 million and $7·9 million respectively.
(vi) Palistar’s policy is to value the non-controlling interest at fair value at the date of acquisition.
At 1 January 2015, this was valued at $15 million.

This question is from the Kaplan RK Q.410- Palistar