Question
On 1.1.2020 V Ltd acquired 90% of share capital of G Ltd. V Ltd issued 2 new shares for every 3 shares of G Ltd
On 1.1.2020 V Ltd acquired 90% of share capital of G Ltd. V Ltd issued 2 new shares for every 3 shares of G Ltd acquired, when the market value of the share of V Ltd was $6 and the market value of the share of G Ltd was $3. On 31.12.2020, V Ltd will pay $1.75 per share acquired to shareholders of G Ltd. Cost of capital is 10% per annum.
Statement of profit or loss for the year ended 30.09.2020
V Ltd G Ltd
$000 $000
Revenue 65000 40000
Cost of sales 50000 25000
Gross profit 15000 15000
Distribution costs 2000 2000
Administrative expenses 4000 3000
Investment income 500 -
Finance cost 500 -
PBT 9000 10000
Taxation 3000 2000
Profit for the year 6000 8000
Equity 1.10.2019
Equity shares $1 each 30000 10000
Retained earnings 55000 35000
Notes
- At the date of acquisition, the fair value of G Ltd assets was equal to their carrying amounts with 2 exemptions (the fair value changes of which has not been incorporated into the financial statements of G Ltd).
- An item of plant had a fair value of 2 million above its carrying amount, its remaining life was 3 years and depreciation is charged to cost of sales
- G Ltd had a contingent liability which V Ltd estimated to have a fair value of $500000 which did not change as at 30.09.2020
- V Ltd values NCI at fair value at acquisition date by using the market value of G Ltd shares at that date which is representative of the fair value of the shares held by NCI
- Sales from V Ltd to G Ltd during the year ended 30.09.2020 were 750000 per month at a mark up of 20% on cost. G Ltd had $1.5 million of these goods in stock at 30.09.2020
- V Ltd investment income is a dividend received from investment in a 40% owned associate, held for few years, the profit of which was $2 million for the year ended 30.09.2020.
- Although G Ltd was profitable since the acquisition by V Ltd, the market for G Ltd products was hit in recent months and V Ltd calculated that goodwill was impaired by $2 million as at 30.09.2020
Required
- Calculate goodwill arising on acquisition of G Ltd
- Prepare consolidated statement of profit or loss for V Ltd for the year ended 30.09.2020
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