Question 1(50 marks) On 1 January 2019, Plasma acquired majority of the equity shares in Solid on the following terms: a. an immediate payment of $4 per share on 1 January 2019; and b. a further amount deferred until 1 January 2020 of 55.4 million The immediate payment has been recorded in Plasma's financial statements, but the deferred payment has not been recorded. Plasma's cost of capital is 8% per annum On 1 May 2019, Plasma also acquired 25% of the equity shares of Antibody paying $12 million in cash. The summarized statements of financial position of the three companies as at 31 December 2019 are: Solid Plasma S'000 Antibody $'000 Assets $'000 35,000 20.000 Non-current assets Property, plant and equipment Intangible assets Investments - Solid (8 million shares at $4 each) - Antibody 60,000 8,000 32,000 12.000 112,000 35,000 20.000 15.000 9,400 12.000 3.500 6,400 3.500 6,000 9.550 47,550 136.900 47.900 Current assets Inventory Trade receivables Bank Total assets Equity and liabilities Equity Equity shares of $1 each Retained earnings - at 1 January 2019 Profit for year ended 31 December 2019 60,000 10,000 10,000 32,500 28,400 8.600 15,000 7.500 32,500 1.350 97.000 43,850 12.500 6,200 1,200 Non-current liabilities Deferred tax Current liabilities Bank Trade payables Total equity and liabilities 3,500 27.400 5.700 2.500 136.900 47.900 47.550 The following information is relevant (1) Plasma's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose the directors of Plasma considered a share price for Solid of $4.00 per share to be appropriate. (1) At the date of acquisition, the fair values of Solid's property, plant and equipment was equal to its carrying amount with the exception of Solid's plant which had a fair value of $5 million above its carrying amount. At that date the plant had a remaining life of four years. Solid uses straight-line depreciation for plant assuming a nil residual value Also at the date of acquisition, Plasma valued Solid's customer relationships as a customer base intangible asset at fair value of $3.5 million Solid has not accounted for this asset. Trading relationships with Solid's customers last on average for five years. (I) At 31 December 2019, Solid's inventory included goods bought from Plasma (at cost to Solid) of $3.9 million. Plasma had marked up these goods by 30% on cost. Plasma's agreed current account balance owed by Solid at 31 December 2019 was $1.5 million (IV) Impairment tests were carried out on 31 December 2019 which concluded that consolidated goodwill was not impaired, but, due to disappointing earnings, the value of the investment in Antibody was impaired by $1.8 million (V) Assume all profits accrue evenly through the year (vi) Ignore tax effect Required 1. Prepare all necessary consolidation adjustments and elimination entries for the year ended 31 December 2019 (33 marks). 2. Prepare the consolidated statement of financial position for Plasma as at 31 December 2019 (17 marks). Question 1(50 marks) On 1 January 2019, Plasma acquired majority of the equity shares in Solid on the following terms: a. an immediate payment of $4 per share on 1 January 2019; and b. a further amount deferred until 1 January 2020 of 55.4 million The immediate payment has been recorded in Plasma's financial statements, but the deferred payment has not been recorded. Plasma's cost of capital is 8% per annum On 1 May 2019, Plasma also acquired 25% of the equity shares of Antibody paying $12 million in cash. The summarized statements of financial position of the three companies as at 31 December 2019 are: Solid Plasma S'000 Antibody $'000 Assets $'000 35,000 20.000 Non-current assets Property, plant and equipment Intangible assets Investments - Solid (8 million shares at $4 each) - Antibody 60,000 8,000 32,000 12.000 112,000 35,000 20.000 15.000 9,400 12.000 3.500 6,400 3.500 6,000 9.550 47,550 136.900 47.900 Current assets Inventory Trade receivables Bank Total assets Equity and liabilities Equity Equity shares of $1 each Retained earnings - at 1 January 2019 Profit for year ended 31 December 2019 60,000 10,000 10,000 32,500 28,400 8.600 15,000 7.500 32,500 1.350 97.000 43,850 12.500 6,200 1,200 Non-current liabilities Deferred tax Current liabilities Bank Trade payables Total equity and liabilities 3,500 27.400 5.700 2.500 136.900 47.900 47.550 The following information is relevant (1) Plasma's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose the directors of Plasma considered a share price for Solid of $4.00 per share to be appropriate. (1) At the date of acquisition, the fair values of Solid's property, plant and equipment was equal to its carrying amount with the exception of Solid's plant which had a fair value of $5 million above its carrying amount. At that date the plant had a remaining life of four years. Solid uses straight-line depreciation for plant assuming a nil residual value Also at the date of acquisition, Plasma valued Solid's customer relationships as a customer base intangible asset at fair value of $3.5 million Solid has not accounted for this asset. Trading relationships with Solid's customers last on average for five years. (I) At 31 December 2019, Solid's inventory included goods bought from Plasma (at cost to Solid) of $3.9 million. Plasma had marked up these goods by 30% on cost. Plasma's agreed current account balance owed by Solid at 31 December 2019 was $1.5 million (IV) Impairment tests were carried out on 31 December 2019 which concluded that consolidated goodwill was not impaired, but, due to disappointing earnings, the value of the investment in Antibody was impaired by $1.8 million (V) Assume all profits accrue evenly through the year (vi) Ignore tax effect Required 1. Prepare all necessary consolidation adjustments and elimination entries for the year ended 31 December 2019 (33 marks). 2. Prepare the consolidated statement of financial position for Plasma as at 31 December 2019 (17 marks)