Question 1

Assume the date is 1 October 2021.

On 1 January 2021, Windermere bought 24m ordinary shares of Bowness Ltd (Bowness), a supplier of microchips used in the production of mobile devices.

Cash paid

At this date, Windermere paid 84m in cash as follows:

1. 24m was paid from cash reserves. In the draft company statement of financial position within Exhibit 1 of the advance information this was correctly accounted for as a debit to Investments and a credit to Bank.
2. The directors of Windermere took out a 60m bank loan which was correctly accounted for as a debit to Bank and a credit to Loan. The 60m cash was then used to acquire the shares in Bowness. This transaction was correctly accounted for as a debit to Investment (at cost) and credit to Bank. In the draft company statement of financial position within Exhibit 1 of the advance information this is correctly shown within Investment (at cost) and Loan. The debit to Bank and credit to Bank net each other out.

These are the only transactions which have been recorded in the draft company statement of financial position within Exhibit 1 of the advance information.

Consideration for the acquisition of 24m shares in Bowness

1. As part of the consideration for the investment in Bowness, Windermere offered a

share exchange of 1 share in Windermere for every 3 shares acquired in Bowness. This transaction took place on the date of acquisition on 1 January 2021. The share price of Windermere has increased throughout the year as follows:

Share price at 1 October 2020 2.10

Share price at 1 January 2021 2.60

Share price at 30 September 2021 2.95

2. Windermere has agreed to pay additional consideration of 5m in cash on 1 January 2025. An appropriate discount rate is 6%.

3. Windermere agreed to pay 1m in cash on 1 October 2021, provided Bowness made 5m in profits since the date of acquisition. No discount is required to this payment.

Additional information

The following information was available in relation to Bowness at 1 October 2020:

	m
Ordinary share capital (25p shares)	10
Share premium	21
Retained earnings	62

4. Retained earnings in Bowness at 30 September 2021 were 70m. Profits accrue evenly throughout the year.

5. At the date of acquisition, the fair values of assets in Bowness were equal to their carrying amount with one exception, a building, as follows:

m

Cost on 1 January 2010 (and at 1 January 2021) 20

Original useful economic life at 1 January 2010 40

Fair value at 1 January 2021 18

Remaining useful economic life 1 January 2021 25

6. Windermere has elected to use the fair value method for determining the noncontrolling interest for the acquisition of Bowness. On 1 January 2021, the value of each share in Bowness was 1.25, which included a 25% control premium.

7. Goodwill is impaired by 10% at 30 September 2021.

Required:

1. Calculate the value of goodwill to be recognised in Windermeres consolidated financial statements for the year ended 30 September 2021. You should show your workings. (25 marks)