The Cable Holding Company Ltd (Cable) acquired 90% of the ordinary shares in a smaller competitor, the Wireless Company (Wireless), on 1 April 2020 in order to expand its product base. Purchase consideration amounted to $35 million in cash and 5 million ordinary shares in Cable, each with a market value of $7. At the acquisition date, Wireless had retained earnings amounting to $39 million. Both Cable and Wireless use 31 March as the annual financial reporting date.

At 31 March 2021, the statements of financial position of the two companies were as follows:

		Cable $000		Wireless $000
Non-current assets
Property, plant and equipment		195,000		65,000
Intangible assets (net)		30,500		-
Investment in Wireless		70,000		-
		295,500		65,000
Current assets
Inventories		41,500		14,600
Trade receivables		32,000		10,150
Cash		-		2,250
		73,500		27,000
TOTAL ASSETS		369,000		92,000
Equity
Share capital		50,000		25,000
Revaluation reserve		38,000		-
Retained earnings up to 1 April 20		100,000		39,000
Profit for the year ended 31 March 2021		25,000		6,000
		213,000		70,000
Non-current liabilities
Deferred tax liability (net of DTA)		21,500		7,600
Bank loan		82,000		-
		103,500		7,600
Current liabilities
Trade payables		28,500		11,400
Income tax payable		3,250		2,000
Other payables		8,750		1,000
Overdraft		12,000		-
		52,500		14,400
TOTAL EQUITY AND LIABILITIES		369,000		92,000

Question 1 (cont.)

Further information:

1. Cable chose to measure the non-controlling interest in Wireless as a proportion of the fair value of the net identifiable assets of the acquiree on the date of acquisition.

2. On the date of acquisition, there was a brand name Perfect-for-You which Wireless controlled and protected by trademark. The brand with a fair value of $10m is not recognized in Wirelesss individual financial statements. The Cable Group amortizes acquired brand names over 10 years.

3. During the year ended 31 March 2021, Wireless sold goods to Cable for $4 million, recording a mark-up of 25% on these sales. At the year-end, stock items costing Cable $1.5 million remained in stock. There was an amount payable of $900,000 to Wireless in the books of Cable that remained unpaid.

4. There has been no impairment of goodwill since the acquisition of Wireless.

5. Both companies locate within the same tax jurisdiction, and each has the right to offset its tax assets and liabilities. The applicable tax rate is 15%.

REQUIRED:

1. Calculate the goodwill on the acquisition of Wireless (5 marks)

2. Prepare all the journal entries for the consolidation of Cable Holding Company Limited. No consolidated worksheet is required. (10 marks)

3. Prepare the consolidated statement of financial position for Cable Group the year ended 31st March 2021, taking into account the deferred tax effect of any consolidation adjustments.

You may use the consolidation worksheet provided to prepare your answers. (15 marks)