Page 281 - SBR Integrated Workbook STUDENT S18-J19

Group accounting – Basic groups

Exam focus

9.1 The SBR exam

The examining team have noted that question 1 in the SBR exam will
most likely require students to discuss how transactions should be
accounted for in the consolidated financial statements and/or to
produce extracts.

Example 11

Exam focus

Holmes acquired 80% of the ordinary shares of Watson on 1 January 20X1.
The finance director has been reviewing the consolidated financial statements
for the year ended 31 December 20X1 and has found a number of issues:

 No entries have been posted in respect of deferred cash consideration. As
part of the agreement relating to the purchase of the shares in Watson,
Holmes must pay $3 million cash on 31 December 20X3. An applicable
discount rate is 5%.

 At acquisition, the fair value of Watson’s identifiable net assets was the
same as the carrying amount with the exception of an unrecognised brand
name. This had a fair value of $10 million and a remaining useful economic
life of five years. No adjustments have been posted in respect of this brand.

 The fair value of the non-controlling interest (NCI) at acquisition was
determined by estimating the present value of the NCI’s future dividend
receipts. Watson is a listed company. The fair value of the NCI at
acquisition would have been $1 million higher if calculated using Watson’s
quoted share price.

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