Page 19 - CIMA OCS Workbook May 2019 - Day 1 Tasks

FINANCIAL REPORTING AND TAXATION (F1) - PRACTICE TASKS

EXERCISE 2 (GROUP ACCOUNTING)

UPDATE

An opportunity has arisen for VitaMine to acquire a controlling stake in Probio, a manufacturer
that specialises in enhanced health foods, such as yoghurt drinks with active bacteria cultures,
fruit juices with added vitamin C and muesli bars with added herbs and minerals. Probio currently
sells to many of VitaMine’s existing retailers. VitaMine would hope to take advantage of synergies
arising from merging the two sets of operating activities to improve efficiency in production and
distribution activities as well as gaining purchasing economies.

Melanie Tan has been given the responsibility to lead a project team to investigate the viability of
the acquisition and to put forward a business case to the board of VitaMine recommending
whether or not a bid for Probio should be made.

TRIGGER

Today you receive the following email.

From: Melanie Tan, Sales and Marketing Director
To: Finance Officer
Subject: Acquisition of Probio
HIGHLY CONFIDENTIAL

I am currently investigating the viability of VitaMine acquiring a 60% stake in Probio. This would give
VitaMine the opportunity to generate some synergies with the two businesses particularly around the
common areas of operating costs and distribution channels and costs, whilst also allowing us access to
a very lucrative market which we do not yet fully service.

I need to prepare a business case for this acquisition to be presented to the board of VitaMine and
wish to include a section on the effects of the acquisition on the group financial statements.

Amber Khan (Finance Officer) has prepared some calculations for me to include but she does not have
time to prepare the notes relating to these calculations and she suggested that this might be a task
you would be able to complete. I have attached the calculations as reference material 1.

On reviewing these calculations I have to admit that I did not understand some of the terminology
used and I am worried that this may also be the case with some of the VitaMine Board members.

Therefore I would like you to complete the following:

• For each note required, explain each term in simple language.
• Explain each calculation.

I am very grateful to you for completing this for me
Thanks
Melanie Tan (Sales and Marketing Director)

KAPLAN PUBLISHING 37