ACW366 (S1, 2022/2023)

Tutorial Exercise 2

37 Laois plc
Laois plc has investments in two companies, Carlow Ltd and Kerry Ltd, and has chosen to measure
the non-controlling interest in both using the fair value method.
The draft, summarised statements of financial position of the three companies at 31 December 2013
are shown below:

ICAEW 2023 Consolidation questions 61

 Laois plc Carlow Ltd Kerry Ltd
£ £ £
ASSETS
Non-current assets
Property, plant and equipment 2,687,000 2,196,000 591,800
Investments 1,760,000 – –
Goodwill –––––––– –––––––– 24,000
4,447,000 2,196,000 615,800
Current assets
Inventories 193,200 53,700 159,000
Trade and other receivables 288,000 92,300 207,000
Cash and cash equivalents 15,800 12,400 1,100
497,000 158,400 367,100
Total assets 4,944,000 2,354,400 982,900
EQUITY AND LIABILITIES
Equity
Ordinary share capital (£1 shares) 2,000,000 650,000 360,000
Share premium account 750,000 300,000 -
Retained earnings 1,645,400 1,078,600 176,000
4,395,400 2,028,600 536,000
Current liabilities
Trade and other payables 398,600 220,800 436,400
Taxation 150,000 105,000 10,500
548,600 325,800 446,900
Total equity and liabilities 4,944,000 2,354,400 982,900

Additional information
(1) Laois plc acquired 80% of the 650,000 ordinary shares of Carlow Ltd for cash of £1,560,000 on 1
January 2009 when the retained earnings of Carlow Ltd were £592,000. The fair values of the
identifiable assets acquired and liabilities assumed at this date were equal to their carrying
amounts, with the exception of a property which had a fair value £200,000 in excess of its
carrying amount. The property had a remaining useful life of 25 years on the date that Laois plc
acquired its shares in Carlow Ltd. The fair value of the non-controlling interest in Carlow Ltd on 1
January 2009 was £350,000.
(2) On 1 January 2013, Laois plc acquired 60% of the 360,000 ordinary shares of Kerry Ltd. The
consideration consisted of cash of £200,000 paid on 1 January 2013 and a further cash payment
of £104,000, deferred until 1 January 2014. An appropriate discount rate is 4% pa.
On 1 January 2013 Kerry Ltd’s retained earnings were £240,000 and its statement of financial
position included goodwill of £30,000 which had arisen on the acquisition of a sole trader. In the
year ended 31 December 2013 an impairment of £6,000 was recognised by Kerry Ltd in relation
to this goodwill.
The fair values of the other assets acquired and liabilities assumed were equal to their carrying
amounts. The fair value of the non-controlling interest in Kerry Ltd on 1 January 2013 was
£235,000. A reassessment of Kerry Ltd’s identifiable assets acquired, liabilities assumed and
consideration transferred took place following acquisition and no adjustments were necessary.

62 Financial Accounting and Reporting − IFRS Standards ICAEW 2023

 (3) Early in December 2013 Kerry Ltd recorded goods purchased on credit from Carlow Ltd for
£50,000. At the year end Kerry Ltd held half of these goods in its inventories. Carlow Ltd makes
all sales at cost plus a mark-up of 25%.
In addition, on 30 December 2013 Carlow Ltd had dispatched goods to Kerry Ltd and raised the
relevant sales invoice. These goods were not received by Kerry Ltd until 3 January 2014 and the
related purchase invoice was not accrued for as at the year end. These goods in transit had
originally been purchased by Carlow Ltd at a cost of £12,000.
No intra-group balances had been settled by the year end.
Requirements
37.1 Prepare the consolidated statement of financial position of Laois plc as at 31 December 2013.
(19 marks)
37.2 With reference to the acquisition of Carlow Ltd, and using calculations where appropriate,
explain the two methods of measuring non-controlling interests allowed by IFRS 3, Business
Combinations and the effect of those two methods on the calculation of goodwill.
(5 marks)
Total: 24 marks

38 Altima plc
Altima plc has investments in three companies, Fuego Ltd, Previa Ltd and Tacoma Ltd.
Ciera Durango, the financial controller, who is an ICAEW Chartered Accountant, is concerned that
impairments in relation to all three investments have been identified. Ciera was involved in the
investment decisions and is worried about the impact that showing these impairments might have on
her current position at Altima plc.
An extract from the draft statements of financial position for Altima and its subsidiaries are shown
below:

Altima plc Fuego Ltd Previa Ltd Tacoma Ltd

£ £ £ £
Non-current assets
Property, plant and equipment 1,062,237 1,037,813 380,941 496,000
Goodwill 40,000
Investments 1,583,750 ––––––– –––––– ––––––
2,645,987 1,077,813 380,941 496,000
Current assets
Inventories 51,651 139,649 86,401 49,700
Trade and other receivables 63,218 23,382 16,092 56,600
Cash and cash equivalents 40,150 14,850 3,127 5,450
155,019 177,881 105,620 111,750
Total assets 2,801,006 1,255,694 486,561 607,750

Equity
Share capital 1,500,000 420,000 300,000 400,000
Share premium 500,000 160,000 – 50,000
Retained earnings 548,900 371,750 96,900 103,600
Total equity 2,548,900 951,750 396,900 553,600

ICAEW 2023 Consolidation questions 63

 Altima plc Fuego Ltd Previa Ltd Tacoma Ltd
£ £ £ £
Total liabilities 252,106 303,944 89,661 54,150
Total equity and liabilities 2,801,006 1,255,694 486,561 607,750

(1) Details of Altima plc’s three investments are set out in the ‘Investments’ table below.
(2) The fair value of the non-controlling interest at the date of acquisition of Tacoma Ltd was
£150,000. There had been no impairments of goodwill or investments prior to 1 April 2013.
(3) At the dates of acquisition of Fuego Ltd, Previa Ltd and Tacoma Ltd, the fair value of the
identifiable assets acquired and liabilities assumed by Altima plc was equal to the carrying
amount of net assets, with the following exceptions:
– Previa Ltd had an item of plant which had a fair value £30,000 in excess of its carrying amount.
The plant had a remaining useful life of six years at 1 July 2011, the date that Altima plc
acquired its shares in Previa Ltd.
– Fuego Ltd has internally generated brands which were not recognised in Fuego Ltd’s own
financial statements and the interim manager did not include them in the draft consolidated
financial statements. An independent expert valued the brands at £150,000, with a useful life of
five years, at 1 April 2010, the date of acquisition of Fuego Ltd by Altima plc.
– On the date of acquisition, Fuego Ltd’s statement of financial position included goodwill of
£50,000 which had arisen on the acquisition of a sole trader. In the current year an impairment
of £10,000 was recognised by Fuego Ltd in relation to this goodwill.
(4) During the year ended 31 March 2014 Altima plc sold goods to Previa Ltd for £24,000 with a
gross profit margin of 15%. At the year end Previa Ltd still held these goods in its inventories.
Investments

Fuego Ltd Previa Ltd Tacoma Ltd

Date of acquisition 1 April 2010 1 July 2011 1 April 2013
Percentage holding acquired 80% 40% 75%
Consideration £820,000 £283,500 £480,250
Retained earnings at date of
acquisition £236,700 £67,000 £126,800
NCI measurement method Proportionate basis N/A Fair value basis
Goodwill impairment year
ended 31.3.14 £15,000 – £21,000
Impairment of investment for
year ended 31.3.14 – £24,000 –

Requirements
38.1 Prepare the consolidated statement of financial position of Altima plc as at 31 March 2014.
(21 marks)
38.2 Describe the UK GAAP financial reporting treatment of the goodwill recognised on the
acquisition of Tacoma Ltd and calculate the impact of applying this UK GAAP treatment on the
consolidated financial statements of Altima plc for the year ended 31 March 2014.
(5 marks)
38.3 Identify and explain any ethical issues arising for Ciera and explain any action Ciera should
take.
(2 marks)
Total: 28 marks

64 Financial Accounting and Reporting − IFRS Standards ICAEW 2023