PUP

Hello Sir, For the calculation of NCI adjusted profit why we didn't consider the PUP of $800000 since the inventory of the subsidiary was credited for the same amount so why it had not been added to the profit of the subsidiary, for calculating the attributable share of the profit, Thanks, -------------------------------------------------------------------------------------------------------------------- Qusetion PENKETH On 1 October 20X3, Penketh acquired 90 million of Sphere’s 150 million $0.50 equity shares. Penketh willpay $1.54 cash on 30 September 20X4 for each share acquired. Penketh’sfinance cost is 10% per annum. Sphere’s share price as at 1 October 20X3 was $1.25. The statements of profit or loss and other comprehensive income for the year ended 31 March 20X4 are: Penketh Sphere $000 $000 Revenue 620,000 310,000 Cost of sales (400,000) (150,000) –––––––– –––––––– Gross profit 220,000 160,000 Distribution costs (40,000) (20,000) Administrative expenses (36,000) (25,000) Investment income 5,000 1,600 Finance costs (2,000) (5,600) –––––––– –––––––– Profit before tax 147,000 111,000 Income tax expense (45,000) (31,000) –––––––– –––––––– Profit for the year 102,000 80,000 Other comprehensive income Gain/(loss) on revaluation of land (note (ii)) (2,200) 1,000 –––––––– –––––––– Total comprehensive income for the year 99,800 81,000 –––––––– –––––––– The following information is relevant: (i) A fair value exercise on 1 October 20X3 concluded that the carrying amounts of Sphere’s net assetswere equal to their fair values with the following exceptions: – Plant with a remaining life of two years had a fair value of $6 million in excess of its carrying amount. Plant depreciation is charged to cost of sales. – Penketh placed a value of $5 million on Sphere’s good relationships with its customers. Penketh expected, on average, a customer relationship to last for a further five years. Amortisation is charged to administrative expenses. (ii) Sphere’s land, valued using the revaluation model, increased by $1 million since the acquisition. (iii) After the acquisition Penketh sold goods to Sphere for $20 million at a 25% mark?up. Sphere had one fifth of these goods still in inventory at 31 March 20X4. (iv) All items accrue evenlyover the year unless otherwise indicated. Sphere had retained earnings of $70 million at 1 April 20X3. There were no other components of equity at this date. (v) Penketh measures the non?controlling interest at fair value at the date of acquisition. To calculate fair value, the share price of Sphere should be used. Required: (a) Calculate goodwill arising on the acquisition of Sphere as at 1 October 20X3. (5 marks) (b) Prepare the consolidated statement of profit or loss and other comprehensive income of Penketh for the year ended 31 March 20X4. (15 marks ------------------------------------------------------------------------------------------------------------------------- Answer PENKETH (a) Goodwill $000 Deferred consideration (1.54 × 90,000 × 1 /1.1) 126,000 Non?controlling interest (1.25 × 60,000) 75,000 Less: Fair value of net assets at acquisition (W1) (196,000) ––––––– Goodwill on acquisition 5,000 ––––––– (b) Penketh – Consolidated statement of profit or loss and other comprehensive income for the year ended 31 March 20X4 $000 Revenue (620,000 + (310,000 × 6 /12) – 20,000 intra?group sales) 755,000 Cost of sales (W2) (457,300) ––––––– Gross profit 297,700 Distribution costs (40,000 + (20,000 × 6 /12)) (50,000) Administrative expenses (36,000 + (25,000 × 6 /12) + (5,000/5 × 6 /12 re customer list)) (49,000) Investment income (5,000 + (1,600 × 6 /12)) 5,800 Finance costs (2,000 + (5,600 × 6/12) + (126,000 × 10% × 6 /12 re deferred consideration)) (11,100) ––––––– Profit before tax 193,400 Income tax expense (45,000 + (31,000 × 6 /12)) (60,500) ––––––– Profit for the year 132,900 Other comprehensive income Loss on revaluation of land (2,200 – 1,000 gain for Sphere) (1,200) ––––––– Total comprehensive income for the year 131,700 ––––––– Profit attributable to: Owners of the parent (balance) 117,700 Non?controlling interest (W2) 15,200 ––––––– 132,900 ––––––– Total comprehensive income attributable to: Owners of the parent (balance) 116,100 Non?controlling interest (W3) 15,600 ––––––– 131,700 ––––––– Workings (W1) Net assets of Sphere at acquisition $000 Share capital 75,000 Retained earnings (70,000 b/f + 40,000 pre?acquisition) 110,000 Fair value adjustment – plant 6,000 Fair value adjustment – customer relationships 5,000 ––––––– 196,000 ––––––– (W2) Cost of sales $000 Penketh 400,000 Sphere (150,000 × 6 /12) 75,000 Intra?group purchases (20,000) Additional depreciation of plant (6,000/2 years × 6 /12) 1,500 Unrealised profit in inventory (20,000 × 1 /5 × 25/125) 800 ––––––– 457,300 ––––––– (W3) Non?controlling interest in profit for the year $000 Sphere’s profit (80,000 × 6 /12 ) 40,000 Fair value depreciation – plant (1,500) Fair value amortisation – customer list (500) ––––––– Sphere adjusted profit 38,000 ––––––– Non?controlling interest at 40% 15,200 ––––––– Non?controlling interest in total comprehensive income $000 Non?controlling interest in statement of profit or loss (above) 15,200 Other comprehensive income (1,000 × 40%) 400 ––––––– 15,600 –––––––