On $1$ April $20$X$3,$ Polestar acquired $75\%$ of the $12$ million $$1$equity shares of Southstar. Southstar

had been experiencing difficult trading conditions and making significant losses. Its retained

earnings at the acquisition date were $$14\mathrm{.}3$ million. In allowing for Southstar's difficulties,

Polestar made an immediate cash payment of only $$1\mathrm{.}50$ per share. In addition, Polestar will pay

a further amount in cash on $30$ September $20$X$4$ if Southstar returns to profitability by that date.

The value of this contingent consideration at the date of acquisition was estimated to be $$1\mathrm{.}8$

million, but at $30$ September $20$X$3$ in the light of continuing losses, its value was estimated at

only $$1\mathrm{.}5$ million. The contingent consideration has not been recorded by Polestar. Overall, the

directors of Polestar expect the acquisition to be a bargain purchase leading to negative goodwill.

At the date of acquisition shares in Southstar had a listed market price of $$1\mathrm{.}20$ each.

Additional information:

$($i$)$ At the date of acquisition, the fair values of Southstar's assets were equal to their carrying

amounts with the exception of a property. This had a fair value of $$2$ million above its carrying

amount.

$($ii$)$ Polestar's policy is to value the non$-$controlling interest at fair value at the date of acquisition.

For this purpose, Southstar's share price at that date can be deemed to be representative of the fair

value of the shares held by the non$-$controlling interest.

Comment on the above with workings.