Question Four

1. On 1 January 2020 JGoo Ltd acquired 100% of JBLee Ltd for Ksh.1 billion when JBLee Ltds share capital & reserves amounted to Ksh.700 million. The fair value of JBLee Ltds assets & liabilities as at that date is Ksh.800 million. JBLee Ltd has no contingent liabilities. The Ksh.100 million difference between carrying value and fair value relates to an item of property, plant and equipment with 5 years remaining useful life and nil residual value.

JBLee Limiteds profit for the year ended 31 December 2020 amounted to Ksh.400 million.

In 2020 JBLee Ltd sold inventory, which cost it Ksh.100 million to JGoo Ltd for Ksh.150 million. At 31 December 2020 JBLee Ltd.s inventory included Ksh.60 million inventory bought from JGoo Ltd.

Required:

The proforma journal entries relating to the preparation of consolidated financial statements (12 marks)

2. On 1 January 2020, Rudisha Ltd acquired 80% of the 10,000,000 Sh.1 Ordinary shares of Tawala Ltd for Ksh.1.50 per share in cash and so gained control. The fair value of Tawala Ltds net assets at that date was the same as their book value. The retained earnings as at that date amounted to KShs. 4,000,000.

Required:

1. Using the partial goodwill method, compute the goodwill acquired on acquisition and the non-controlling interest as at that date where non-controlling interest is measured at the proportionate share of the fair value of the net assets of the acquired. (6 Marks)

2. The fair value of the non-controlling interest as at 1 January 2020 was Ksh.2, 900,000. Using the full goodwill method, compute the amount of goodwill to be presented on the Consolidated Statement of Financial Position and the non-controlling interest as at that date. (7 Marks)

(Total 25 marks)