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F2: Advanced Financial Reporting

CHAPTER 15 – CHANGES IN GROUP STRUCTURE

15.1 MK acquired a shareholding in RG of 15% on 1st January 20X7. The acquisition
cost $100,000 and was treated as an available for sale financial asset. No
changes in fair value had been required up to the year ended 31st December
20X7.

On the 30th June 20X8, MK acquired a further 60% of the ordinary share capital
of RG at a cost of $1,360,000. The fair value of the 15% shareholding was
deemed to be $285,000 at that point.

The fair values of the net assets of RG on the 1st January 20X7 and the 30th
June 20X8 are $1,000,000 and $1,670,000 respectively.

Which of the following statements is false regarding the accounting of RG
In the consolidated financial statements of MK?

A The MK group’s consolidated statement of profit or loss for the year ended
31st December 20X8 will include 6 months of RG’s income and expenses.

B A non-controlling interest percentage of 25% will be used within the
consolidated financial statements as at the year ended 31st December
20X8.

C A gain of $185,000 will be recognised within equity after the second
acquisition in RG.

D MK uses a cost of investment of $1,645,000 when calculating the goodwill
arising on acquisition of RG.

15.2 Sack currently owns 70% of the ordinary share capital of Ho. Sack purchased a
further 15% of the shares of Ho on 1st March 20X6 for $610,000. At this date,
the non-controlling interest in Ho had a fair value of $1,400,000.

Which of the following statements is false regarding the consolidated
financial statements of Sack group for year ended 31st December 20X6?

A The non-controlling interest’s share of the profit of Ho for the year ended
31st December 20X6 is calculated using 30% of the first 2 months of Ho’s
profits and 15% of the following 10 month’s profit.

B The statement of financial position of Sack group will show 100% of Ho’s
assets and liabilities as at the year ended 31st December 20X6.

C The share transaction on 1st March 20X6 has no effect on the calculation
of Ho’s goodwill.

D On the 1st March 20X6, a debit of $90,000 is taken to equity as a transfer
between owners.

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