QUESTION Smart Bhd is primarily engaged in the business of food and beverage industry, especially concerning Halal food. Bestari Bhd and Cerdik Bhd are among their main competitors. Smart Bhd is looking for solutions to mitigate risks associated with the competition issue. The top management of Smart Bhd believes that the idea of business combination can eliminate competition and at the same time help to stimulate its growth, increase market share, or influence supply chains to reduce future competition. Thus, Smart Bhd decides to acquire Bestari Bhd and Cerdik Bhd. The followings are the Statements of Financial Position of Smart Bhd, Bestari Bhd, Cerdik Bhd and Damai Bhd as at 31 December 2019: Statements of Financial Position as at 31 December 2019 Smart Bhd RM million Bestari Bhd RM million Cerdik Bhd RM million Damai Bhd RM million 100 60 150 100 Assets Non-current asset (carrying value) Investment in subsidiaries Investment in associates Inventories Trade receivables Bill receivables Current account - Cerdik Bhd Cash and bank balances 125 98 20 25 50 15 45 7 385 15 25 20 40 15 10 20 310 30 190 15 100 125 60 Equity and Liabilities Ordinary share capital Non-redeemable preference share capital Retained profit as at 1 January 2019 Retained profit for the year Trade payables Bill payables Current accounts - Smart Bhd Ordinary share dividend payable 150 10 115 50 30 25 80 20 55 20 . ? 100 10 18 12 5 11 9 20 40 5 385 10 310 100 Investment in Bestari Bhd On 1 January 2018, Smart Bhd acquired 80% of the ordinary shares in Bestari Bhd when the retained profit of Bestari Bhd was RM10 million. The acquisition of ordinary shares was settled by cash payment of RM20 million and shares exchange of one (1) share in Smart Bhd for every four (4) shares acquired from Bestari Bhd. The share market price of Smart Bhd and Bestari Bhd on 1 January 2018 was RM3.00 and RM2.00, respectively. At the acquisition date, the fair value of a building of Bestari Bhd was RM5 million more than its book value, and Bestari Bhd has not made any adjustment in its book to amend the new value. The remaining useful life of the building was 25 years. Investment in Cerdik Bhd On 1 April 2019, Bestari Bhd acquired 75% of the ordinary shares of Cerdik Bhd for RM100 million. At the same time, Smart Bhd also acquired 10% of the ordinary shares of Cerdik Bhd for RM3 million cash. The market price of Cerdik Bhd's ordinary shares on that date was RM1.80 each. Investment in Damai Bhd Smart Bhd acquired 30% of ordinary shares of Damai Bhd on 1 July 2019 for RM20 million. Since the acquisition date, Smart Bhd applies equity accounting to account for its investment in Damai Bhd. On 1 October 2019, Damai Bhd sold one of its plants to Smart Bhd for RM12 million. The carrying amount of the plant on the disposal date was RM10 million. The group policy is to depreciate plants at 10% on carrying amount. Additional information: 1. All bills payable of Bestari Bhd are due to Smart Bhd. Smart Bhd discounted 50% of these bills to third party companies. 2. On 1 July 2019, Smart Bhd purchased a machine from Cerdik Bhd for RM5 million when its carrying value was RM4 million. The remaining useful life of this machine was five years. It is the group policy to provide full year depreciation in the year of purchase and none in the year of disposal. 3. 40% of the closing inventories of Bestari Bhd were supplied by Smart Bhd and have not been paid yet. Smart Bhd sold the goods at cost plus 25%. Bestari Bhd managed to sell half of the inventories to its customer at the market price. 4. Smart Bhd and Bestari Bhd have not recognized the shares of dividends from their investee companies. 5. Goodwill on the acquisition of Bestari Bhd had been impaired and should be written down by 20% for the year ended 31 December 2019. 6. It is the group policy to measure the non-controlling interest using the fair value method. 7. All profits are deemed to accrue evenly throughout the year. Required: a. Compute Goodwill/Bargain purchase on the acquisition of Bestari Bhd. (6 marks) b. Compute Goodwill/Bargain purchase on the acquisition of Cerdik Bhd. (5 marks) C. Compute Goodwill/Bargain purchase on the acquisition of Damai Bhd (3 marks) QUESTION Smart Bhd is primarily engaged in the business of food and beverage industry, especially concerning Halal food. Bestari Bhd and Cerdik Bhd are among their main competitors. Smart Bhd is looking for solutions to mitigate risks associated with the competition issue. The top management of Smart Bhd believes that the idea of business combination can eliminate competition and at the same time help to stimulate its growth, increase market share, or influence supply chains to reduce future competition. Thus, Smart Bhd decides to acquire Bestari Bhd and Cerdik Bhd. The followings are the Statements of Financial Position of Smart Bhd, Bestari Bhd, Cerdik Bhd and Damai Bhd as at 31 December 2019: Statements of Financial Position as at 31 December 2019 Smart Bhd RM million Bestari Bhd RM million Cerdik Bhd RM million Damai Bhd RM million 100 60 150 100 Assets Non-current asset (carrying value) Investment in subsidiaries Investment in associates Inventories Trade receivables Bill receivables Current account - Cerdik Bhd Cash and bank balances 125 98 20 25 50 15 45 7 385 15 25 20 40 15 10 20 310 30 190 15 100 125 60 Equity and Liabilities Ordinary share capital Non-redeemable preference share capital Retained profit as at 1 January 2019 Retained profit for the year Trade payables Bill payables Current accounts - Smart Bhd Ordinary share dividend payable 150 10 115 50 30 25 80 20 55 20 . ? 100 10 18 12 5 11 9 20 40 5 385 10 310 100 Investment in Bestari Bhd On 1 January 2018, Smart Bhd acquired 80% of the ordinary shares in Bestari Bhd when the retained profit of Bestari Bhd was RM10 million. The acquisition of ordinary shares was settled by cash payment of RM20 million and shares exchange of one (1) share in Smart Bhd for every four (4) shares acquired from Bestari Bhd. The share market price of Smart Bhd and Bestari Bhd on 1 January 2018 was RM3.00 and RM2.00, respectively. At the acquisition date, the fair value of a building of Bestari Bhd was RM5 million more than its book value, and Bestari Bhd has not made any adjustment in its book to amend the new value. The remaining useful life of the building was 25 years. Investment in Cerdik Bhd On 1 April 2019, Bestari Bhd acquired 75% of the ordinary shares of Cerdik Bhd for RM100 million. At the same time, Smart Bhd also acquired 10% of the ordinary shares of Cerdik Bhd for RM3 million cash. The market price of Cerdik Bhd's ordinary shares on that date was RM1.80 each. Investment in Damai Bhd Smart Bhd acquired 30% of ordinary shares of Damai Bhd on 1 July 2019 for RM20 million. Since the acquisition date, Smart Bhd applies equity accounting to account for its investment in Damai Bhd. On 1 October 2019, Damai Bhd sold one of its plants to Smart Bhd for RM12 million. The carrying amount of the plant on the disposal date was RM10 million. The group policy is to depreciate plants at 10% on carrying amount. Additional information: 1. All bills payable of Bestari Bhd are due to Smart Bhd. Smart Bhd discounted 50% of these bills to third party companies. 2. On 1 July 2019, Smart Bhd purchased a machine from Cerdik Bhd for RM5 million when its carrying value was RM4 million. The remaining useful life of this machine was five years. It is the group policy to provide full year depreciation in the year of purchase and none in the year of disposal. 3. 40% of the closing inventories of Bestari Bhd were supplied by Smart Bhd and have not been paid yet. Smart Bhd sold the goods at cost plus 25%. Bestari Bhd managed to sell half of the inventories to its customer at the market price. 4. Smart Bhd and Bestari Bhd have not recognized the shares of dividends from their investee companies. 5. Goodwill on the acquisition of Bestari Bhd had been impaired and should be written down by 20% for the year ended 31 December 2019. 6. It is the group policy to measure the non-controlling interest using the fair value method. 7. All profits are deemed to accrue evenly throughout the year. Required: a. Compute Goodwill/Bargain purchase on the acquisition of Bestari Bhd. (6 marks) b. Compute Goodwill/Bargain purchase on the acquisition of Cerdik Bhd. (5 marks) C. Compute Goodwill/Bargain purchase on the acquisition of Damai Bhd