Page 39 - MCS August Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

Goodwill at the date of acquisition is calculated as the fair value of consideration paid, plus the
fair value of any non‐controlling interest, less the fair value of the net assets at that date.

The fair value of consideration paid consists of cash paid at the date of acquisition, plus the
present value of any deferred consideration or contingent consideration plus the fair value of any
shares issued as part of the transaction.

Goodwill arising on consolidation of a subsidiary is not amortised; instead, it is subject to an
annual impairment review.

Application to Montel – business combinations
Consolidated financial statements have been prepared, so Montel must have one or more
subsidiaries. It would therefore calculate goodwill on acquisition of each subsidiary. If Montel
owned less than 100% of the equity capital of a subsidiary, it would also need to recognise non‐
controlling interests.

It may be that one or more subsidiaries was acquired during 2018 as the carrying amount for
goodwill in the consolidated SOFP has increased from F$18,765m in 2017 to F$21,485m in 2018. It
may be that part or all of this increase is due to an exchange retranslation differences relating to
foreign subsidiaries, but there is insufficient information available to confirm this. There is no
indication of any impairment to goodwill relating to any subsidiary during 2018.

Group accounting issues ‐ IFRS 10 Consolidated Financial Statements

IFRS 10 requires that consolidated financial statements are prepared when one entity acquires
control of another via a business combination. In order to confirm that control has been acquired,
it is necessary to comply with three criteria:
 power of the investor over the investee
 exposure or rights to variable returns in the investee
 ability to use power to affect the variable returns
In practical terms, control is normally demonstrated by one entity holding the majority of equity
shares in another. This enables the investor to control the membership of the board of directors
and, consequently, to control the strategic and operating policies of the investee. It will therefore
be in a position to exert power and receive the benefit of the variable returns generated by the
investee.

When preparing consolidated financial statements, intra‐group transactions and balances should
be removed. In addition, any unrealised profits arising upon sale of goods between group
members should also be removed from the consolidated financial statements.

Application to Montel ‐ IFRS 10 Consolidated Financial Statements
It is possible that one or more subsidiaries were acquired during 2018 as goodwill increased
during the year as previously noted. It would appear that all subsidiaries are wholly‐owned as
there is no disclosure of non‐controlling interests.

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