Hurrican Group Hurrican is a trader. To be able to control the full spectrum of that market Hurrican acquired 80% of the voting shares of Shiruken. This transaction happened on 1 April 2014. It is clear that Hurrican obtained the control and this transaction was a business combination. Both companies are preparing their financial statements under IFRS. On 31st December 2014 the individual balance sheets of the two entities are the following (each amounts are in thousand dollars, k$): Shiruken Hurrican (KS) 31/Dec/2014 (kS) 31/Dec/2014 Investment in Shiruken 700 Land and building 300 1 000 1000 400 Plant and equipment Inventory Receivables 400 300 600 200 1000 100 Cash and equivalent TOTAL ASSETS: 4 000 2 000 Issued capital 100 50 Share premium 100 Retained earnings 1900 450 Equity: 2 000 600 Long term loans 900 400 1 100 1 000 Account payables and other short term liabilities Liabilities 2 000 1400 | OWNERS EQUITY + LIABILITY: 4 000 2 000 The following information is relevant (acquisition): 1. The issued capital and share premium of both companies are the same since incorporation. 2. The movement in the retained earnings of the companies were the following during 2014: Hurrican Shiruken 1 000 1st January 2014 (opening) 150 Net profit of 2014 1.500 300 Dividend declared (600) 31st December 2014 1.900 450 (closing) The profit of Shiruken is NOT generated equally during the year. The following table illustrates how the profit was generated during 2014 (in percentage): Period % of revenue Q1 (January - March) 20% Q2 (April - June) 10% Q3 (July-September) 30% Q4 (October - December) 40% Total: 100% 3. The following items that belong to Shiruken - were identified at acquisition of the subsidiary: a. One of the reasons of the acquisition was to acquire the customer relations of Shiruken, so Hurrican can enter into new markets. These customer relations are recorded in a customer list. A firm that has expertise in this area professionally evaluated the customer list. The fair value of the customer list is said to be 80 k$. The list was extended by Hurrican (Hurrican wrote up his own information on the list). The list - with this addition - had a value of 120 k$. The useful life of the list - regardless of the fact if it is the extended or the original list - is 4 years. b. Shiruken had an ongoing litigation for years. The legal advisers of Shiruken said that there is a very little chance that the company will loose the case so this issue was classified being a contingent liability and was not recognized correctly - as a liability in the separate financial statement of Shiruken. The fair value of this obligation was evaluated to be 15 ks at the date of the acquisition. By the end of the year the case was closed and unexpectedly the court decided against Shiruken. Therefore Shiruken was obliged to pay 60 ks to the other party. (Noting was recorded yet in the financial statements of Shiruken due to this matter.) 4. The fair value of net assets of Shiruken was the same with their book value except the land and buildings. Shiruken only has a land (under the heading land and building). The fair value of this land at the date of the acquisition was 1 200 k$. Intercompany transactions: 5. The members of the group had the following intercompany transactions: a. Hurrican sold one of his plants to Shiruken on 1st July 2014. The cost of this asset was 100 k$ and the book value of the asset was 50 ks at the date of the sale. The selling price was 90 k$. The remaining useful life of the sold asset was four years at the date of the sale. Shiruken paid only one-third of the invoice until the end of the reporting period. b. Shiruken sold inventory to Hurrican for 200 k$. The cost of the goods sold was 120 Sk. Until the end of the year 25% of these goods were sold to customers outside the entity. On 30th December 2014 Hurrican paid 50 k$ to Shiruken. The payment was only received and credited to the bank account of Shiruken on 3rd January 2015. 6. Hurrican calculated that the goodwill on the acquisition is impaired by 44 k$. REQUIRED: Prepare the consolidated balance sheet of Hurrican Group for 31st December 2014! Hurrican Group Hurrican is a trader. To be able to control the full spectrum of that market Hurrican acquired 80% of the voting shares of Shiruken. This transaction happened on 1 April 2014. It is clear that Hurrican obtained the control and this transaction was a business combination. Both companies are preparing their financial statements under IFRS. On 31st December 2014 the individual balance sheets of the two entities are the following (each amounts are in thousand dollars, k$): Shiruken Hurrican (KS) 31/Dec/2014 (kS) 31/Dec/2014 Investment in Shiruken 700 Land and building 300 1 000 1000 400 Plant and equipment Inventory Receivables 400 300 600 200 1000 100 Cash and equivalent TOTAL ASSETS: 4 000 2 000 Issued capital 100 50 Share premium 100 Retained earnings 1900 450 Equity: 2 000 600 Long term loans 900 400 1 100 1 000 Account payables and other short term liabilities Liabilities 2 000 1400 | OWNERS EQUITY + LIABILITY: 4 000 2 000 The following information is relevant (acquisition): 1. The issued capital and share premium of both companies are the same since incorporation. 2. The movement in the retained earnings of the companies were the following during 2014: Hurrican Shiruken 1 000 1st January 2014 (opening) 150 Net profit of 2014 1.500 300 Dividend declared (600) 31st December 2014 1.900 450 (closing) The profit of Shiruken is NOT generated equally during the year. The following table illustrates how the profit was generated during 2014 (in percentage): Period % of revenue Q1 (January - March) 20% Q2 (April - June) 10% Q3 (July-September) 30% Q4 (October - December) 40% Total: 100% 3. The following items that belong to Shiruken - were identified at acquisition of the subsidiary: a. One of the reasons of the acquisition was to acquire the customer relations of Shiruken, so Hurrican can enter into new markets. These customer relations are recorded in a customer list. A firm that has expertise in this area professionally evaluated the customer list. The fair value of the customer list is said to be 80 k$. The list was extended by Hurrican (Hurrican wrote up his own information on the list). The list - with this addition - had a value of 120 k$. The useful life of the list - regardless of the fact if it is the extended or the original list - is 4 years. b. Shiruken had an ongoing litigation for years. The legal advisers of Shiruken said that there is a very little chance that the company will loose the case so this issue was classified being a contingent liability and was not recognized correctly - as a liability in the separate financial statement of Shiruken. The fair value of this obligation was evaluated to be 15 ks at the date of the acquisition. By the end of the year the case was closed and unexpectedly the court decided against Shiruken. Therefore Shiruken was obliged to pay 60 ks to the other party. (Noting was recorded yet in the financial statements of Shiruken due to this matter.) 4. The fair value of net assets of Shiruken was the same with their book value except the land and buildings. Shiruken only has a land (under the heading land and building). The fair value of this land at the date of the acquisition was 1 200 k$. Intercompany transactions: 5. The members of the group had the following intercompany transactions: a. Hurrican sold one of his plants to Shiruken on 1st July 2014. The cost of this asset was 100 k$ and the book value of the asset was 50 ks at the date of the sale. The selling price was 90 k$. The remaining useful life of the sold asset was four years at the date of the sale. Shiruken paid only one-third of the invoice until the end of the reporting period. b. Shiruken sold inventory to Hurrican for 200 k$. The cost of the goods sold was 120 Sk. Until the end of the year 25% of these goods were sold to customers outside the entity. On 30th December 2014 Hurrican paid 50 k$ to Shiruken. The payment was only received and credited to the bank account of Shiruken on 3rd January 2015. 6. Hurrican calculated that the goodwill on the acquisition is impaired by 44 k$. REQUIRED: Prepare the consolidated balance sheet of Hurrican Group for 31st December 2014