Illustration 40 The balance sheet of Professional Ltd. and Dynamic Ltd. as of 31-March, 20X2 is given below: in lakhs Assets Professional Ltd Dynamic Ltd Non-Current Assets: Property, plant and equipment 300 500 Investment 400 100 Current assets: Inventories 250 150 Financial assets Trade receivables 450 300 Cash and cash equivalents 200 100 Others 400 230 Total 2.000 1.380 Equity and Liabilities Equity Share capital- Equity shares of 100 each of Dynamic Ltd. and 710 each of Professional Ltd. 500 400 Other Equity 810 225 Non-Current liabilities: Financial liabilities Long term borrowings 250 200 Long term provisions 50 70 Deferred tax 40 35 Current Liabilities: Financial liabilities Short term borrowings 100 150 Trade payables 250 300 Total 2.000 1.380 Other information a. Professional Ltd. acquired 70% shares of Dynamic Ltd. on 14 April, 20X2 by issuing its own shares in the ratio of 1 share of Professional Ltd. for every 2 shares of Dynamic Ltd. The fair value of the shares of Professional Ltd was 40 per share. a. b. C. b. The fair value exercise resulted in the following: (all nos in Lakh) Fair value of PPE on 15 April20X2 was 7350 lakhs. Professional Ltd also agreed to pay an additional payment as consideration that is higher of 35 lakh and 25% of any excess profits in the first year, after acquisition, over its profits in the preceding 12 months made by Dynamic Ltd. This additional amount will be due after 2 years. Dynamic Ltd has earned 10 lakh profit in the preceding year and expects to earn another 20 Lakh. In addition to above, Professional Ltd also had agreed to pay one of the founder shareholder a payment of 20 lakh provided he stays with the Company for two year after the acquisition d. Dynamic Ltd had certain equity settled share based payment award (original award) which got replaced by the new awards issued by Professional Ltd. As per the original term the vesting period was 4 years and as of the acquisition date the employees of Dynamic Ltd have already served 2 years of service. As per the replaced awards the vesting period has been reduced to one year (one year from the acquisition date). The fair value of the award on the acquisition date was as follows: i Original award- 75 lakh . Replacement award-78 lakh. Dynamic Ltd had a lawsuit pending with a customer who had made a claim of 250 lakh. Management reliably estimated the fair value of the liability to be 25 lakh. f. The applicable tax rate for both entities is 30%. You are required to prepare opening consolidated balance sheet of Professional Ltd as on 1 April, 20X2. Assume 10% discount rate Solution e. f