ded Question 3 On 1 January 20X3, XYZ bought a $200,000 5% bond at nominal value. Interest is received in arrears. The bond will be redeemed at a premium of $26,225 over nominal value on 31 December 20X5. The effective rate of interest is 9%. The fair value of the bond was as follows: 31 Dec 20X3: $212,000 31 Dec 20X4: $215,000 Required: Show your calculations how the bond will be accounted for at the years ended 31 December 20X3 and 20X4 if: a) XYZ's business model is to trade bonds in the short term. Assume that XYZ sold this bond for its fair value of on 1 January 20X4. b) XYZ's business model is to hold bonds until the redemption date. c) XYZ's business model is to hold bonds until redemption but also to sell them if investments with higher returns become available. (20 marks) Question 4 Autotrade plc acquired 90% of Socrates Ltd on 1 January 20X6 when the carrying amount of the net assets of Socrates Ltd was $22m (i.e. share capital $10m, retained earnings $12m). It has been identified that a building of Socrates had a value of $6m in excess of its book value and a useful life of 10 years on the acquisition date. Furthermore, Socrates has an internally generated brand with a fair value of $2m and a useful life of 4 years on 1 January 20X6 that is not recognised in Socrates individual financial statements. The consideration transferred was as follows: 6m shares in Autotrade plc issued on 1 January 20X6 when the market price of Autotrade plc's shares was $3.50. $5m payment of cash on the acquisition date. A further payment of cash of $13m on 31 December 20X7. A discount factor of 10% should be used. $2m payable if Socrates profits achieve at least 5% growth in profits over the next 3 years. The fair value of the cash payment is $0.5m. The fair value of NCI in Socrates (i.e. 10%) was valued at $4m. Socrates' retained earnings are $19m on 31 December 20X6. On the same date, an impairment loss of $5m shall be recognised against goodwill. The non-controlling interest and goodwill arising on the acquisition of Socrates were calculated using the fair value method. Requirement: a) Show subsidiary's net assets relevant working. b) Calculate the carrying amount of goodwill 31 December 20X6. c) Calculate the NCI on 31 December 20X6. d) Explain whether the recognition of subsidiary's identifiable net assets at fair value at the date of acquisition consists of a choice of accounting policy. (16 marks) Multiple Choice Questions (MCO) (4 marks each, total: 24 marks) MCQ 1 P acquired 80% of the share capital of S on 1 January 20X1. Part of the purchase consideration was to pay additional cash on 1 January 20X4 of $400,000. The applicable cost of capital is 8%. What will the deferred consideration liability be at 31 December 20X2? $400,000 A B $342,936 $370,370 D $317,533 MCQ 2 Philip acquired 80% of the share capital of Stanley on 1 September 20X4. The profit for the year ended 31 December 20X4 for Stanley was $72,000. Profits are deemed to accrue evenly over the year. At 31 December 20X3 Stanley's statement of financial position showed: Equity share capital $200,000 Retained earnings $380,000. What are the subsidiary's net assets on acquisition? ,000 5 MCQ 3 Which of the scenario