Page 16 - CIMA OCS Workbook May 2019 - Day 1 Tasks

SUGGESTED SOLUTIONS

This premium is offered as an incentive to the current shareholders to sell their shares to VitaMine
and demonstrates the potential value created by bringing Probio into the VitaMine Group in areas
such as savings in operating and distribution costs.

Note 5 Fair Value of NCI at Acquisition.

This represents the value of the ownership of Probio that will continue to be owned by the current
shareholders. International Financial Reporting Standard 3 Business Combinations (IFRS 3), allows a
choice of method in valuing the non-controlling interest (NCIs)

Proportion of Net Assets.

Here the book value of the equity is used to calculate the goodwill. The equity is multiplied by the
percentage of non-controlling interest (40%).

Fair Value Method.

Here the value of non-controlling interest is measured using the current share price, as has been done
here - 400,000 shares x E$12 = E$4,800,000.

Whichever method is used, the fair value of NCI is added to the fair value of the investment to
establish the fair value of the entire business at the date VitaMine acquires control of Probio.

Note 6 Fair Value of Assets Acquired

This represents the value of all of the net assets owned by Probio to demonstrate that VitaMine has
control of the assets. It is for this reason that the value of NCI is included in the goodwill calculation
as it now includes 100% of the ownership and 100% of the net assets.

It can now be seen that VitaMine is paying a E$5,700,000 premium in excess of the fair value of net
assets to acquire a controlling stake in Probio. This value will be included in the consolidated
statement of financial position as an intangible asset and be subject to an annual impairment test to
ensure that its value has not been degraded.

I hope that this has provided sufficient explanation for your business case. If you require any further
detail please contact me

Thanks

Finance Officer
VitaMine

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