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297 Paradigm Co
(8 marks) (4 marks)
36 mins
On 1 October 20X2, Paradigm Co acquired 75% of Strata Co’s equity shares by means of a share exchange of two new shares in Paradigm Co for every five acquired shares in Strata Co. In addition, Paradigm Co issued to the shareholders of Strata Co a $100 10% loan note for every 1,000 shares it acquired in Strata Co. Paradigm Co has not recorded any of the purchase consideration, although it does have other 10% loan notes already in issue.
The market value of Paradigm Co’s shares at 1 October 20X2 was $2 each. The summarised statements of financial position of the two companies at 31 March 20X3 are:
Paradigm Co $’000
ASSETS Non-current assets
Property, plant and equipment Financial asset: equity investments (note (i)) Current assets Inventories (note (ii))
Trade receivables (note (iii)) Bank
Total assets
EQUITY AND LIABILITIES Equity
Equity shares of $1 each Retained earnings/(losses) – at 1 April 20X2 – for year ended 31 March 20X3
Non-current liabilities 10% loan notes
Current liabilities
Trade payables (note (iii)) Bank overdraft
Total equity and liabilities The following information is relevant:(i) At the date of acquisition, Strata Co produced a draft statement of profit or loss which showed it had made a net loss for the year of $2 million at that date. Paradigm Co accepted this figure as the basis for calculating the pre- and post-acquisition split of Strata Co’s profit for the year ended 31 March 20X3.
I dont understand how they have calculted the total loss as 10K for Strata & why?. please help.
solutions says:
strata as per draft 4000?
add back before purchase loss: 6000?
total 10 KHi,
Sorry but I think more information within the question would be required here to help you. Send it over and I can help.
Thanks
Hello Sir! i have a problem with this part of the consolidation
I thought the company had RE for 1 april 20×2 of -4000 and they continued to make losses up until the date of acquisition on 1 october 20×2 worth -2000.
At the end of the year RE shows a figure of +8000. I thought that they had made a profit of 14 000 ( -4000 previous re -2000 up to 1 oct then for the second half +14000 so that re earnings shows a figure of 8000) But the answer in the book is 10 000. I have been confused by this part of the question. I would be extremely grateful if you helped me 🙂P S
Equity
Equity shares of $1 each 40,000 20,000
Retained earnings/(losses) – at 1 April 20X2 19,200 (4,000)*
– for year ended 31 March 20X3 7,400 8,000* note 1*note 1 At the date of acquisition, Strata produced a draft statement of profit or loss which
showed it had made a net loss after tax of $2 million at that date. Paradigm accepted
this figure as the basis for calculating the pre? and post?acquisition split of Strata’s
profit for the year ended 31 March 20X3.Answer at acquis. at report. post acq.
Retained earnings (6,000) 4,000 10,000
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