Highveldt Bpp

Dear Tutor,

I am having difficulties with the 2 additional information as below
How was the accounting treatment for that 2 addtional information?

Highveldt, a public listed company, acquired 75% of Samson’s ordinary shares on 1 April 20X4. Highveldt paid an
immediate Rs.3·50 per share in cash and agreed to pay a further amount of Rs.108 million on 1 April 20X5.
Highveldt’s cost of capital is 8% per annum. Highveldt has only recorded the cash consideration of Rs.3·50 per
share.
The summarised statements of financial position of the two companies at 31 March 20X5 are shown below:
Highveldt Samson
$million $million

Tangible non-current assets (note (i)) 420 320
Development costs (note (iv)) Nil 40
Investments (note (ii)) 300 20
Total NCA 720 380
Current assets 133 91
Total assets 853 471
Equity and liabilities
Ordinary shares of Rs.1 each 270 80
Share premium 80 40
Revaluation surplus 45 nil
Retained earnings – 1 April 20X4 160 134
-year to 31 March 20X5 190 76
Total equity 745 330

Non-current liabilities
10% inter company loan (note (ii)) Nil 60
Current liabilities 108 81
Total equity and liabilities 853 471

(ii) Included in Highveldt’s investments is a loan of Rs.60 million made to Samson at the date of acquisition.
Interest is payable annually in arrears. Samson paid the interest due for the year on 31 March 20X5, but
Highveldt did not receive this until after the year end. Highveldt has not accounted for the accrued
interest from Samson.

(iv) Samson’s development project was completed on 30 September 20X4 at a cost of Rs.50 million. Rs.10
million of this had been amortised by 31 March 20X5. Development costs capitalised by Samson at the
date of acquisition were Rs.18 million. Highveldt’s directors are of the opinion that Samson’s
development costs do not meet the criteria in IAS 38 ‘Intangible Assets’ for recognition as an asset.

Consolidated retained earnings

Highveld. Samson
Per question. 350. 76.
Accrued interest
From Samson Co
60×10%. 6
Unwinding of
discount. (8)
Amortization of
Brand. (4)
Development
Expenditure (32)
Write back amorti. 10
Unrealised profit. (2)
348. 48
Group share. 75%. 36
Impairment. 20*75%. (15)
369

1) Why do we include the finance income from the subsidiary in the retained earnings ? I thought we didn’t include income from intercompany transactions in the consolidated retained earnings.
Also when we have finance income and finance cost between the companies how do we eliminate them?
2)Also could you please explain me the calculation behind the fair value adjustments .

Thank you.