On 1 July 2020 Kkc invested in 70% of the ordinary share capital of Panels Ltd (Panels), a

supplier of doors for the One. At this date, Kkc paid 60m in cash.

Additional information

1. As part of the investment in 14 million shares of Panels, Kkc offered 1 share in

Kkc for every 2 shares acquired. On 1 July 2020 the market value of each

Kkc share was 3.20.

2. Kkc has agreed to pay 11m in cash in 3 years time. An appropriate discount

rate is 4%.

3. The net assets of Panels in the individual company accounts on 1 July 2020 was

70m. At this date, the carrying value of net assets were deemed to be equal to their

fair values except for patented technology, an intangible asset, details about which

are noted below.

4. At the date of acquisition, an independent specialist concluded that the value of

Panels patented technology was 10m. This intangible asset is internally generated

and has a useful economic life at the acquisition date of 20 years.

5. At the date of acquisition, Panels had disclosed in their latest financial statements, a

contingent liability for a possible legal case with a value of 2m. This possible legal

case had not been settled at the date of acquisition.

6. Kkc has elected to use the fair value method for determining the non-controlling

interest for the acquisition of Panels. On 1 July 2020, the market value of each share

in Panels was 6.60, which included a control premium of 0.40.

Required:

a) Calculate the value of goodwill at acquisition. You should show your workings.

b) Explain the accounting treatment and classification of goodwill arising on acquisition.

c) Discuss why companies may need to write off goodwill. As part of your answer, you

should specifically consider the impact on car manufacturers arising from Covid-19.

d) Evaluate the accounting treatment for intangible assets (other than goodwill) and

contingent liabilities within consolidated financial statements.