QUESTION 1 (30 marks) The Cable Holding Company Ltd (Cable) acquired 90% of the ordinary shares in a smaller competitor, the Wireless Company (Wireless), on 1 April 2020 in order to expand its product base. Purchase consideration amounted to $35 million in cash and 5 million ordinary shares in Cable, each with a market value of $7. At the acquisition date, Wireless had retained earnings amounting to $39 million. Both Cable and Wireless use 31 March as the annual financial reporting date. At 31 March 2021, the statements of financial position of the two companies were as follows: Cable $000 Wireless $000 Non-current assets Property, plant and equipment 195,000 65,000 Intangible assets (net) 30,500 - Investment in Wireless 70,000 - 295,500 65,000 Current assets Inventories 41,500 14,600 Trade receivables 32,000 10,150 Cash - 2,250 73,500 27,000 TOTAL ASSETS 369,000 92,000 Equity Share capital 50,000 25,000 Revaluation reserve 38,000 - Retained earnings up to 1 April 20 100,000 39,000 Profit for the year ended 31 March 2021 25,000 6,000 213,000 70,000 Non-current liabilities Deferred tax liability (net of DTA) 21,500 7,600 Bank loan 82,000 - 103,500 7,600 Current liabilities Trade payables 28,500 11,400 Income tax payable 3,250 2,000 Other payables 8,750 1,000 Overdraft 12,000 - 52,500 14,400 TOTAL EQUITY AND LIABILITIES 369,000 92,000 Question 1 (cont.) Further information: Cable chose to measure the non-controlling interest in Wireless as a proportion of the fair value of the net identifiable assets of the acquiree on the date of acquisition. On the date of acquisition, there was a brand name Perfect-for-You which Wireless controlled and protected by trademark. The brand with a fair value of $10m is not recognized in Wirelesss individual financial statements. The Cable Group amortizes acquired brand names over 10 years. During the year ended 31 March 2021, Wireless sold goods to Cable for $4 million, recording a mark-up of 25% on these sales. At the year-end, stock items costing Cable $1.5 million remained in stock. There was an amount payable of $900,000 to Wireless in the books of Cable that remained unpaid. There has been no impairment of goodwill since the acquisition of Wireless. Both companies locate within the same tax jurisdiction, and each has the right to offset its tax assets and liabilities. The applicable tax rate is 15%. REQUIRED: Calculate the goodwill on the acquisition of Wireless (5 marks) Prepare all the journal entries for the consolidation of Cable Holding Company Limited. No consolidated worksheet is required. (10 marks) Prepare the consolidated statement of financial position for Cable Group the year ended 31st March 2021, taking into account the deferred tax effect of any consolidation adjustments. You may use the consolidation worksheet provided to prepare your answers. (15 marks)

reporting date. Further information: Cable Group amortizes acquired brand names over 10 years. payable of $900,000 to Wireless in the books of Cable that remained unpaid. 4. There has been no impairment of goodwill since the acquisition of Wireless. 5. Both companies locate within the same tax jurisdiction, and each has the right to offset its tax assets and liabilities. The applicable tax rate is 15%. REQUIRED: 1. Calculate the goodwill on the acquisition of Wireless (5 marks) 2. Prepare all the journal entries for the consolidation of Cable Holding Company Limited. No consolidated worksheet is required. (10 marks) You may use the consolidation worksheet provided to prepare your answers. ( 15 marks) reporting date. Further information: Cable Group amortizes acquired brand names over 10 years. payable of $900,000 to Wireless in the books of Cable that remained unpaid. 4. There has been no impairment of goodwill since the acquisition of Wireless. 5. Both companies locate within the same tax jurisdiction, and each has the right to offset its tax assets and liabilities. The applicable tax rate is 15%. REQUIRED: 1. Calculate the goodwill on the acquisition of Wireless (5 marks) 2. Prepare all the journal entries for the consolidation of Cable Holding Company Limited. No consolidated worksheet is required. (10 marks) You may use the consolidation worksheet provided to prepare your answers. ( 15 marks)