QUESTION TWO Harriet, a public listed company, acquired 65% of Synow's ordinary shares on 1 July 2019. Harriet paid an immediate K3.50 per share in cash and agreed to pay a further amount on 1 July 2020 contingent upon the post-acquisition performance of Synow. At the date of acquisition the fair value of this contingent consideration was assessed at K108m, but by 31 March 2020 it had become clear that the amount due would be K125m (ignore discounting). Harriett has recorded the cash consideration of K4.50 per share and provided for the initial estimate of contingent consideration of K120m. The summarised statements of financial position of the two companies at 31 March 2020 are shown below: Harriet Synow Km Km Km Km Tangible non-current assets (note(i)) 420 320 Development costs (note (iv)) nil 40 Investments (note (ii) 300 20 720 380 Current assets 133 91 Total assets 853 471 270 80 Equity and liabilities Ordinary shares of K1 each Reserves: Share premium Revaluation surplus Retained earnings - 1 July 2019 - year to 31 March 2020 80 45 40 nil 160 190 134 75 350 745 210 330 Non-current liabilities 10% intercompany loan (note ()) Current liabilities Total equity and liabilities nil 108 853 60 81 471 The following information is relevant: (1) Harriet has a policy of revaluing land and buildings to fair value. At the date of acquisition Synow's land and buildings had a fair value K20m higher than their book value and at 31 March 2020 this had increased by a further K7m (ignore any additional depreciation). (i) Included in Harriet's investments is a loan of K65m made to Synow at the date of acquisition. Interest is payable annually in arrears. Synow paid the interest due for the year on 31 March 2020, but Harriet did not receive this until after the year end. Harriet has not accounted for the accrued interest from Synow. (i) Synow had established a line of products under the brand name of Titanware. Acting on behalf of Harriet, a firm of specialists, had valued the brand name at a value of K40m with an estimated life of ten years as at 1 July 2019. The brand is not included in Synow's statement of financial position (iv) Synow's development project was completed on 30 September 2019 at a cost of K40m. K10m of this had been amortised by 31 March 2020. Development costs capitalised by Synow at the date of acquisition were K18m. Harriet's directors are of the opinion that Synow's development costs do not meet the criteria in IAS 38 Intangible Assets for recognition as an asset. (1) Synow sold goods to Harriet during the year at a profit of K6m. One-third of these goods were still in the inventory of Harriet at 31 March 2020. (vi) An impairment test at 31 March 2020 on the consolidated goodwill concluded that it should be written down by K26m. No other assets were impaired. (vii) It is the group policy to value the non-controlling interest at full fair value. At the date of acquisition the directors estimated the fair value of the non-controlling interest to be K111m. Required: (a) Explain why consolidated financial statements are useful to the users of financial statements (as opposed to just the parent company's separate (entity) financial statements). (5 marks) (b) Calculate the following figures as they would appear in the consolidated statement of financial position of Harriet at 31 March 2020: ) The following consolidated reserves: (8 marks) 1. Share premium 2. Revaluation surplus 3. Retained earnings (ii) Goodwill (8 marks) (ii) Non-controlling interest (4 marks) Note. Show your workings. (Total = 25 marks)