Picant-Intangible asset written off

Hello Sir, Regarding intangible asset ,there was an intangible asset during acquisition ,but it was written off shortly after acquisition. I don't why it was deducted from net assets of NCI at acquisition . subsequently at the year end it was added again as a post acquisition adjustment in NCI profit . I am not sure of that ,can you please clarify that one please, Thanks, -------------------------- Q 400 PICANT On 1 April 20X3 Picant acquired 75% of Sander’s equity shares in a share exchange of three shares in Picant for every two shares in Sander. The market prices of Picant’s and Sander’s shares at the date of acquisition were $3.20 and $4.50 respectively. In addition to this Picant agreed to pay a further amount on 1 April 20X4 that was contingent upon the post?acquisition performance of Sander. At the date of acquisition Picant assessed the fair value of this contingent consideration at $4.2 million, but by 31 March 20X4 it was clearthat the actual amount to be paid would be only $2.7 million (ignore discounting). Picant has recorded the share exchange and provided for the initial estimate of $4.2 million for the contingent consideration. On 1 October 20X3 Picant also acquired 40% of the equity shares of Adler paying $4 in cash per acquired share and issuing at par one $100 7% loan note for every 50 shares acquired in Adler. This consideration has also been recorded by Picant. Picant has no other investments. The summarised statements of financial position of the three entities at 31 March 20X4 are: Picant Sander Adler Assets $000 $000 $000 Non?current assets Property, plant and equipment 37,500 24,500 21,000 Investments 45,000 nil nil –––––– –––––– –––––– 82,500 24,500 21,000 Current assets Inventory 10,000 9,000 5,000 Trade receivables 6,500 1,500 3,000 –––––– –––––– –––––– Total assets 99,000 35,000 29,000 –––––– –––––– –––––– Equity Equity shares of $1 each 25,000 8,000 5,000 Share premium 19,800 nil nil Retained earnings – at 1 April 20X3 16,200 16,500 15,000 – for the year ended 31 March 20X4 11,000 1,000 6,000 –––––– –––––– –––––– 72,000 25,500 26,000 Non?current liabilities 7% loan notes 14,500 2,000 nil Current liabilities Contingent consideration 4,200 nil nil Other current liabilities 8,300 7,500 3,000 –––––– –––––– –––––– Total equity and liabilities 99,000 35,000 29,000 –––––– –––––– –––––– The following information is relevant: (i) At the date of acquisition the fair values of Sander’s property, plant and equipment was equal to its carrying amount with the exception of Sander’s factory which had a fair value of $2 million above its carrying amount. Sander has not adjusted the carrying amount of the factory as a result of the fair value exercise. This requires additional annual depreciation of $100,000 in the consolidated financial statements in the post? acquisition period. Also at the date of acquisition, Sander had an intangible asset of $500,000 forsoftware in its statement of financial position. Picant’s directors believed the software to have no recoverable value at the date of acquisition and Sander wrote it off shortly after its acquisition. (ii) At 31 March 20X4 Picant’s current account with Sander was $3.4 million (debit). This did not agree with the equivalent balance in Sander’s books due to some goods?in? transit invoiced at $1.8 million that were sent by Picant on 28 March 20X4, but had not been received by Sander until after the year end. Picant sold all these goods at cost plus 50%. (iii) Picant’s policy is to value the non?controlling interest at fair value at the date of acquisition. For this purpose Sander’s share price at that date can be deemed to be representative of the fair value of the shares held by the non?controlling interest. (iv) Impairment tests were carried out on 31 March 20X4 which concluded that the value of the investment in Adler was not impaired but, due to poor trading performance, consolidated goodwill was impaired by $3.8 million. (v) Assume all profits accrue evenly through the year. Required: (a) Prepare the consolidated statement of financial position for Picant as at 31 March 20X4. (15 marks) (b) At 31 March 20X4 the other equity shares (60%) in Adler were owned by many separate investors. Shortly after this date Spekulate (an entity unrelated to Picant) accumulated a 60% interest in Adler by buying shares from the other shareholders. In May 20X4 a meeting of the board of directors of Adler was held at which Picant lost its seat on Adler’s board. Required: Explain, with reasons, the accounting treatment Picant should adopt for its investment in Adler when it prepares its financial statements for the year ending 31 March 20X5. (5 marks) (Total: 20 marks) ? --------------------------------- Answer (a) Consolidated statement of financial position of Picant as at 31 March 20X4 $000 $000 Non?current assets: Property, plant and equipment (37,500 + 24,500 + 2,000 FV adj – 100 FV depn) 63,900 Goodwill (16,000 – 3,800 (W3)) 12,200 Investment in associate (W6)) 13,200 ––––––– 89,300 Current assets Inventory (10,000 + 9,000 + 1,800 GIT – 600 PUP (W7))) 20,200 Trade receivables (6,500 + 1,500 – 3,400 intra?group (W7)) 4,600 –––––– 24,800 ––––––– Total assets 114,100 ––––––– Equity and liabilities Equity attributable to owners of the parent Equity shares of $1 each 25,000 Share premium 19,800 Retained earnings (W5)) 27,500 –––––– 47,300 ––––––– 72,300 Non?controlling interest (W4)) 8,400 ––––––– Total equity 80,700 Non?current liabilities 7% loan notes (14,500 + 2,000) 16,500 Current liabilities Contingent consideration 2,700 Other current liabilities (8,300 + 7,500 – 1,600 intra? group (W7)) 14,200 –––––– 16,900 ––––––– Total equity and liabilities 114,100 ––––––– Workings (all figures in $ million) (W1) Group structure Picant 75% Adler 40% Sander (1 year ago) (6 months ago) (W2) Net assets Acquisition Reporting date Post?acq’n $000 $000 $000 Share capital 8,000 8,000 – Retained earnings 16,500 17,500 1,000 Fair value adjustments: Factory 2,000 2,000 – Fair value depreciation (100) (100) Software written off (500) 500 –––––– –––––– –––––– 26,000 27,400 1,400 –––––– –––––– –––––– W3 W4/W5