On 1 July 2020 Techniq invested in 70% of the ordinary share capital of Panels Ltd (Panels), a supplier of doors for the One. At this date, Techniq paid 60m in cash.

Additional information

• As part of the investment in 14 million shares of Panels, Techniq offered 1 share in Techniq for every 3 shares acquired. On 1 July 2020 the market value of each Techniq share was 5.10.

• Techniq has agreed to pay 9m in cash in 3 years time. An appropriate discount rate is 5%.

• The net assets of Panels in the individual company accounts on 1 July 2020 was 72m. 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.

• At the date of acquisition, an independent specialist concluded that the value of Panels patented technology was 9m. This intangible asset is internally generated and has a useful economic life at the acquisition date of 15 years.

• 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 3m. This possible legal case had not been settled at the date of acquisition.

• Techniq 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 6.70, which included a control premium of 0.60.

  Required:

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