55)

On 1 October 20X0, Paladin secured a majority equity

shareholding in Saracen on the following terms.

An

immediate payment of $4 per share on 1 October 20X0; and a further amount deferred until 1 October

20X1 of

$5.4 million.

The immediate payment has been recorded in Paladin's financial statements, but the

deferred payment has not been

recorded. Paladin's cost of capital is 8% per annum, giving the deferred

payment a current cost at 1 October 20X0 of

$5 million.

On 1 February 20X1, Paladin also acquired 25% of

the equity shares of Augusta paying $10 million

in cash.

The summarised statements of financial position of

the three companies at 30 September 20X1 are:

Paladin

Saracen

Augusta

Assets

$'000

$'000

$'000

N

on

-

current assets

Property, plant and equipment

40,000

31,000

30,000

Intangible assets

7,500

Investments

-

Saracen (8 million shares at $4

each)

32,000

Augusta

10,000

nil

nil

89,500

31,000

30,000

Current assets

Inventory

11,200

8

,400

10,000

Trade receivables

7,400

5,300

5,000

Bank

3,400

nil

2,000

Total assets

111,500

44,700

47,000

Equity and liabilities

Equity

Equity shares of $1 each

50,000

10,000

10,000

Retained earnings

-

at 1 October 20X0

25,700

12,000

31,800

-

for year ended 30 September 20X1

9,200

6,000

1,200

84,900

28,000

43,000

C

ompiled

by Dakito Alemu (Ph.D)

N

on

-

current liabilities

Deferred tax

15,000

8,000

1,000

Current liabilities

Bank

nil

2,50

0

nil

Trade payables

11,600

6,200

3,000

Total equity and liabilities

111,500

44,700

47,000

The following information is relevant:

(i)

Pa

ladin's policy is to value the non

-

controlling interest at fair value at the date of acquisition. The directors of

Paladin considered the fair value of the non

-

controlling interest in Saracen to be $7 million.

(ii)

At the date of acquisition, the fair valu

es of Saracen's property, plant and equipment was equal to its carrying

amount with the exception of Saracen's plant which had a fair value of $4 million above its carrying amount. At

that date the plant had a remaining life of four years. Saracen uses str

aight

-

line depreciation for plant

assuming a

nil residual value.

Also at the date of acquisition, Paladin valued Saracen's customer relationships as a customer

base intangible

asset at fair value of $3 million. Saracen has not accounted for this asset. Tra

ding relationships with

Saracen's customers last on average for six years.

(iii)

At 30 September 20X1, Saracen's inventory included goods bought from Paladin (at cost to Saracen) of

$2.6

million. Paladin had marked up these goods by 30% on cost. Paladin's

agreed current account balance

owed by

Saracen at 30 September 20X1 was $1.3 million.

(iv)

Impairment tests were carried out on 30 September 20X1 which concluded that consolidated goodwill was

not impaired, but, due to disappointing earnings, the value of

the investment in Augusta was impaired by $2.5

million.

(v)

Assume all profits accrue evenly through the year.

Required

Prepare the consolidated statement of financial position for Paladin as at 30