Page 303 - SBR Integrated Workbook STUDENT S18-J19

Change in a group structure

Exam focus

4.1 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 6

Share transactions

Agatha, a public limited company, bought 70% of the ordinary shares of
Hercule on 1 January 20X1. The fair value of the non-controlling interest and
the fair value of Hercule’s net assets at acquisition were $18 million and $56
million respectively. Goodwill has been calculated based on the cash
consideration paid of $50 million. Agatha also issued 1 million of its own $1
shares as purchase consideration but has posted no accounting entries in
respect of these shares, which had a fair value of $3 each on 1 January 20X1.

On 31 December 20X1, Agatha purchased another 5% of the ordinary shares
of Hercule for $4 million cash. The net assets of Hercule at this date were
carried at $66 million. The cash payment has been accounted for in the
consolidated financial statements, and has also been added to goodwill.

Explain the adjustments required to the consolidated financial
statements in respect of the above in the year ended 31 December 20X1.

297