SBR Tuition exam for DECEMBER 2022

Can Someone help me answer the following question in an exam style way…

Required:
(a) Draft an explanatory note to the directors of Hill Co addressing the following:

(i) how goodwill should have been calculated in respect of the investment in Chandler Co.
Your answer should include suitable calculations and show the adjustments which need
to be made to the consolidated financial statements for this as well as any implications of
the recoverable amount calculated at 30 September 20X6. (13 marks)

(ii) a calculation of the profit or loss arising from the disposal of the investment in Doyle Co
for inclusion in the consolidated financial statements for the year ended 30 September
20X6. (4 marks)

(iii) how the convertible bond should be accounted for, with suitable calculations, in the
consolidated financial statements for the year ended 30 September 20X6. (5 marks)

Exhibit 1: Financial statement extracts
Extracts from the draft individual statements of profit or loss for Hill, Chandler and Doyle for the
year ended 30 September 20X6 are presented below.
Hill Chandler Doyle
$m $m $m
Profit/(loss) before taxation (45) 67 154
taxation 9 (15) (31)
Profit/(loss) for the period (36) 52 123

Exhibit 2: Acquisition of 80% of Chandler
Hill purchased 80% of the ordinary shares of Chandler on 1 October 20X5. Cash consideration of
$150 million has been included when calculating goodwill in the consolidated financial statements. The
purchase agreement specified that a further cash payment of $32 million becomes payable on
1 October 20X7 but no entries have been posted in the consolidated financial statements in respect of
this. A discount rate of 5% should be used.
In the goodwill calculation, the fair value of Chandler’s identifiable net assets was deemed to be
$170 million. Of this, $30 million related to Chandler’s non-depreciable land. However, on
31 December 20X5, a survey was received which revealed that the fair value of this land was actually
only $20 million as at the acquisition date. No adjustments have been made to the goodwill calculation
in respect of the results of the survey. The non-controlling interest at acquisition was measured using
the proportionate method as $34 million ($170m × 20%).
As at 30 September 20X6, the recoverable amount of Chandler was calculated as $250 million. No
impairment has been calculated or accounted for in the consolidated financial statements