Question $2(40$ Marks$)$

Show all your workings clearly.

The extract of statement of financial position for the year ended $31$ December $2023$ for Pinks Ltd and

Sunflower Ltd are as follows:

On $01$ January $2023,$ Pinks Ltd acquired $450,000$ ordinary shares of Sunflower Ltd and as a result, Pinks

Ltd holds $60\%$ shares in Sunflower Ltd$.$ The purchase consideration was as follows:

$$ Cash paid $ $850,000$;

$$ A deferred cash settlement of $ $500,000$ to be paid in four years$$ time; and

$$ By an exchange of two shares in Pinks Ltd for every three shares in Sunflower Ltd$.$ The market

price of Pinks Ltd share at the date of acquisition was $ $3\mathrm{.}50$ and the market price of each

Sunflower Ltd share at the date of acquisition was $ $2\mathrm{.}25.$

Legal fees associated with the acquisition were $ $90,000.$

The discount rate of Pinks Ltd is $15\%.$

$($a$)$ Calculate the fair value consideration $($Costs of investment$)$ transferred to acquire control of

Sunflower Ltd at the date of acquisition $(01$ January $2023).$ Your answer should include a brief

explanation if any of the above issue$($s$)$ is$/$are not required to be accounted in your working$($s$).$

$[10$ Marks$]$

On the acquisition date, the retained earnings of Sunflower Ltd stood at $ $110,000$ and share capital was

$ $630,000.$ Sunflower Ltd had developed an innovative software that has not been recognized in its

financial statements. The directors of Pinks Ltd are of the opinion that the software should be accounted.

The software had a fair value of $ $250,000$ and a remaining term five years to go as from the date of

acquisition. The carrying value of Furniture and Equipment was in excess by $ $490,000$ on the

Extract of statements of financial position for the year ended $31$ December $2023$

Equity and liabilities Pinks Ltd Sunflower Ltd

Equity $ $

Share capital $($$ $1$ Each$)1,500,000750,000$

Share premium $350,000-$

Retained earnings $475,000250,000$

Liabilities

Non current liabilities $125,000100,000$

Current liabilities $350,000122,500$

$4$

acquisition date. Furniture and Equipment had a lifetime of seven years at the acquisition date. Included

within the intangible assets of Sunflower Ltd $($at the acquisition and reporting date$)$ is goodwill of $

$25,000$ which arose on the purchase of the trade and assets of a sole$-$trader business.

$($b$)$ Calculate the net assets of Sunflower Ltd at the date of acquisition $(01$ January $2023)$ and at

the reporting date $(31$ December $2023).[10$ Marks$]$

Goodwill has been impaired by $ $155,000$ at the reporting date $(31$ December $2023).$

$($c$)$ Calculate the goodwill using the proportion method at the date of acquisition $(01$ January

$2023).[5$ marks$]$

$($d$)$ Calculate the non$-$controlling interest $($NCI$)$ as at $31$ December $2023.[2$ Marks$]$

Pinks Ltd has recently appointed an accountant, Mr$.$ Star, following the resignation of the previous group

accountant. When Mr$.$ Star was preparing the group accounts for the year ended $31$ December $2023,$ he

found that only the cash consideration of $ $850,000$ has been accounted. The par value of each ordinary

share for Pinks Ltd is $ $1.$

$($e$)$ Calculate the group retained earnings as at $31$ December $2023.[3$ Marks$]$

$($f$)$ Prepare an extract of equity $($Ordinary shares, Share premium, Retained earnings and NCI$)$

and liabilities section of the consolidated statement of financial position as at $31$ December $2023$

showing clearly how the deferred payment and shares exchange should be accounted. $[10$ Marks$]$