6 Polonium plc acquired 80% of Sodium plc's ordinary shares on 1 January 2020. Polonium paid 2.80 per share in cash on the acquisition date and a further cash payment deferred until 31 December 2021. Polonium uses a cost of capital of 10%. Sodium has retained earnings of 806,000 as at the acquisition date and has not issued any ordinary shares subsequent to that date. The draft statements of financial position of the two entities at 31 December 2020 are presented below: Polonium E'000 Sodium '000 4,610 Non-current assets Property, plant and equipment Investments in Sodium at cost Investments in Actinium at cost 7,514 5,600 660 13,774 4,610 Current assets Inventories Trade and other receivables Cash and banks 1,210 2,158 883 4,251 18,025 832 891 547 2,270 6,880 Total assets 5,000 2,000 1,860 Equity: Ordinary shares of 1 each Reserves: Share premium Other reserves Retained earnings Non-current liabilities Bank borrowing Other payables Deferred payment Current liabilities 3,510 540 5,060 14,110 1,862 5,722 764 32 2,525 100 1,120 3,745 170 18,025 796 362 6,880 The following information is relevant: (1) At the date of acquisition, Sodium's land and buildings had a fair value 500,000 higher than their book value, of which 800,000 (higher than the book value) was attributable to land. The buildings will be depreciated for another 30 years on a straight-line basis with an assumed scrap value of zero. (2) Sodium had developed a patent for its manufacturing process. An independent consultant had valued the patent at a value of 300,000 with an estimated life of 3 years as at 1 January 2020. The patent is not included in Sodium's statement of financial position since it is internally developed. (3) It is Polonium's policy to measure non-controlling interest, if any, at the proportionate share of their net assets in the acquiree. As at 31 December 2020, 7 (4 ) (6 ) an impairment test has been carried out on purchased goodwill and an impairment loss of 250,000 has been calculated. 4 On 31 December 2020, Polonium had revalued some of its lands and a revaluation surplus of 320,000 has not been recorded in its books. Polonium's accounting policy is not to depreciate land. (5) Polonium acquired 30% ordinary shares in Actinium Ltd on 1 July 2020 when the fair value of Actinium's net assets was 1,100,000, which was also the book value, for a cash consideration. On 31 December 2020, Actinium recorded net assets of 1,440,000, a post-acquisition net income of 390,000 and declared dividends 50,000 for the year ended that date. Polonium has recorded the acquisition in its books and no other subsequent records. Polonium sold goods to Sodium during the year at a price of 180,000 (a profit of 80,000), half of these goods were still in the inventory of Sodium at 31 December 2020. Sodium had not paid for the purchases from Polonium on 31 December 2020 and this outstanding amount has been presented as trade receivable and payable in the respective books of the entities. (7) Polonium and Sodium had not paid dividends during the financial year. Requirements 3.1 Prepare the consolidated statement of financial position for Polonium group as at 31 December 2020. (21 marks) 3.2 Discuss the impacts on the financial position and performance of the group if non- controlling interest is measured at fair value of the acquiree in accordance with IFRS 3, Business Combination. (5 marks) (Total 26 marks) 6 Polonium plc acquired 80% of Sodium plc's ordinary shares on 1 January 2020. Polonium paid 2.80 per share in cash on the acquisition date and a further cash payment deferred until 31 December 2021. Polonium uses a cost of capital of 10%. Sodium has retained earnings of 806,000 as at the acquisition date and has not issued any ordinary shares subsequent to that date. The draft statements of financial position of the two entities at 31 December 2020 are presented below: Polonium E'000 Sodium '000 4,610 Non-current assets Property, plant and equipment Investments in Sodium at cost Investments in Actinium at cost 7,514 5,600 660 13,774 4,610 Current assets Inventories Trade and other receivables Cash and banks 1,210 2,158 883 4,251 18,025 832 891 547 2,270 6,880 Total assets 5,000 2,000 1,860 Equity: Ordinary shares of 1 each Reserves: Share premium Other reserves Retained earnings Non-current liabilities Bank borrowing Other payables Deferred payment Current liabilities 3,510 540 5,060 14,110 1,862 5,722 764 32 2,525 100 1,120 3,745 170 18,025 796 362 6,880 The following information is relevant: (1) At the date of acquisition, Sodium's land and buildings had a fair value 500,000 higher than their book value, of which 800,000 (higher than the book value) was attributable to land. The buildings will be depreciated for another 30 years on a straight-line basis with an assumed scrap value of zero. (2) Sodium had developed a patent for its manufacturing process. An independent consultant had valued the patent at a value of 300,000 with an estimated life of 3 years as at 1 January 2020. The patent is not included in Sodium's statement of financial position since it is internally developed. (3) It is Polonium's policy to measure non-controlling interest, if any, at the proportionate share of their net assets in the acquiree. As at 31 December 2020, 7 (4 ) (6 ) an impairment test has been carried out on purchased goodwill and an impairment loss of 250,000 has been calculated. 4 On 31 December 2020, Polonium had revalued some of its lands and a revaluation surplus of 320,000 has not been recorded in its books. Polonium's accounting policy is not to depreciate land. (5) Polonium acquired 30% ordinary shares in Actinium Ltd on 1 July 2020 when the fair value of Actinium's net assets was 1,100,000, which was also the book value, for a cash consideration. On 31 December 2020, Actinium recorded net assets of 1,440,000, a post-acquisition net income of 390,000 and declared dividends 50,000 for the year ended that date. Polonium has recorded the acquisition in its books and no other subsequent records. Polonium sold goods to Sodium during the year at a price of 180,000 (a profit of 80,000), half of these goods were still in the inventory of Sodium at 31 December 2020. Sodium had not paid for the purchases from Polonium on 31 December 2020 and this outstanding amount has been presented as trade receivable and payable in the respective books of the entities. (7) Polonium and Sodium had not paid dividends during the financial year. Requirements 3.1 Prepare the consolidated statement of financial position for Polonium group as at 31 December 2020. (21 marks) 3.2 Discuss the impacts on the financial position and performance of the group if non- controlling interest is measured at fair value of the acquiree in accordance with IFRS 3, Business Combination. (5 marks) (Total 26 marks)