Question 24.2.2.1: goodwill and pre-acquisition profits Sing Co acquired the or...
goodwill and pre-acquisition profits
Sing Co acquired the ordinary shares of Wing Co on 31 March 20X1 when the draft statements of financial position of each company were as follows.
Prepare the consolidated statement of financial position as at 31 March 20X1.
SING CO
STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 20X1
| $ | |
| Assets | |
| Non-current assets | |
| Investment in 50,000 shares of Wing Co at cost | 80,000 |
| Current assets | 40,000 |
| Total assets | 120,000 |
| Equity and liabilities | |
| Equity | |
| Ordinary shares | 75,000 |
| Retained earnings | 45,000 |
| Total equity and liabilities | 120,000 |
WING CO
STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 20X1
| $ | |
| Current assets | 60,000 |
| Equity | |
| 50,000 ordinary shares of $1 each | 50,000 |
| Retained earnings | 10,000 |
| 60,000 |
The technique to adopt here is to produce a new working: Goodwill. A proforma working is set out below.
| Goodwill | $ | $ |
| Consideration transferred | X | |
| Less value of identifiable assets acquired and liabilities assumed*: | ||
| Ordinary share capital | X | |
| Share premium | X | |
| Retained earnings at acquisition | X | |
| (X) | ||
| Goodwill | X |
* We use this wording because it best reflects the wording IFRS 3 uses. Don’t let it confuse you, remember that that: assets – liabilities = capital, so the value of assets acquired and liabilities assumed is equal to the share capital and reserves of the company.
Applying this to our example the working will look like this.
| $ | $ | |
| Consideration transferred* | 80,000 | |
| Less value of identifiable assets acquired and liabilities assumed: | ||
| Ordinary share capital | 50,000 | |
| Retained earnings at acquisition | 10,000 | |
| (60,000) | ||
| Goodwill | 20,000 |
*This is the cost of the investment in Sing Co’s statement of financial position.
SING CO
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 20X1
| $ | |
| Assets | |
| Non-current assets | |
| Goodwill arising on consolidation | 20,000 |
| Current assets | 100,000 |
| 120,000 | |
| Capital and reserves | |
| Ordinary shares | 75,000 |
| Retained earnings | 45,000 |
| 120,000 |