ABCDEF Company

Statements of Financial Position

As at December-31, 2020

AB		CD			EF
$000		$000			$000
ASSETS
Non-current assets
Property, plant and equipment	20,000		12,000	8,000
Investments (held at fair value)	15,000		-	-
35,000		12,000			8,000
Current assets	16,000		6,000	4,000
Total assets	51,000		18,000	12,000
EQUITY AND LIABILITIES
Share capital ($1 shares)	10,000		1,000	1,000
Retained earnings	25,000		13,000	9,000
Other reserves	4,000		-	-
Total equity	39,000		14,000	10,000
Total liabilities	12,000		4,000	2,000
Total equity and liabilities	51,000		18,000	12,000

Additional information

1. AB acquired 80% of the 1 million $1 equity shares of CD on 1 January 2015 when CD's retained earnings were $8,300,000. The consideration for the acquisition consisted of the following:

$643,000 cash paid on the acquisition date

$1,000,000 cash paid on 31 December 2016 (a discount rate of 8% was used to value the liability in the financial statements of AB)

The transfer of 1,000,000 $1 equity shares in AB with a deemed value of $7 at the date of acquisition

The non-controlling interest in CD was measured at its fair value of $2,200,000 at the date of acquisition.

The fair value of CD's net assets was the same as book value on 1 January 2015, with one exception, property, plant and equipment. Property with a carrying value of $1,200,000 had a fair value of $2,000,000 on that date. The assets were estimated to have a remaining useful life of 8 years from the date of acquisition and AB depreciates property on a straight line basis.

An impairment review performed on 31 December 2020 indicated that goodwill arising on the acquisition had been impaired by 20%. There have been no previous impairments.

2. AB acquired 40% of the 1 million $1 equity shares of EF in 2017 for $2,500,000 when EF's retained earnings were $5,000,000. AB was able to exert significant influence over EF.

3. CD sold goods to AB in the year to 31 December 2020 for $3,000,000. Goods with a sales value of $1,000,000 remain in AB's inventories at 31 December 2020. CD makes 20% margin on all sales.

4. AB classifies the investments in both CD and EF as available for sale and subsequently measures these investments in accordance with IAS 39 Financial Instruments: Recognition and measurement. The balance on AB's other reserves relates solely to the movements on these investments.

Required:

1. Prepare the consolidated statement of financial position for the AB Group as at 31 December 2020.

Answer: Total of Balance sheet would be $58580 in $000.

On 1 March 2021 AB acquired a further 300,000 of the $1 equity shares of EF for $3,400,000. The fair value of the existing 40% held was estimated to be $4,200,000 at 1 March 2021. The non-controlling interest in EF was measured at its fair value of $3,200,000 at the date of the second acquisition. The fair value of the net assets of EF was considered to be equal to the carrying value at 1 March 2021 and the retained earnings were $9,400,000.

Required:

2. (i) Explain how this acquisition could be accounted for and the impact it would have on the preparation of the consolidated financial statements for the AB Group for the year to 31 December 2021.

(ii) Calculate the goodwill arising in respect of EF on 1 March 2021.

Answer: Goodwill-$400,000