Page 475 - SBR Integrated Workbook STUDENT S18-J19

Answers

Chapter 19

Example 1

Step acquisition

On 31 March 20X6 Price’s investment gives it an 80% holding in the ordinary
shares of Sandbox, which is sufficient to give it control. As such, the previous
investment should be revalued to its fair value of $2 million. The gain on
revaluation of $0.4 million ($2m – $1.6m) is recorded in profit or loss.

The previously recognised gain of $0.6 million on the investment is not
reclassified to profit or loss. However, it could be transferred from other
components of equity to retained earnings.

The assets and liabilities of Sandbox should be consolidated on a line-by-line
basis. Goodwill at the acquisition date is calculated as follows:

$m
Fair value of consideration for new shares 15

Fair value of previous shares 2
NCI at acquisition ($15m × 20%) 3

Fair value of net assets at acquisition
($18m – $3m) (15)

——
Goodwill at acquisition 5

——

Note that the contingent liability should be recognised at its acquisition date
fair value of $3 million.

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