The extract of statement of financial position for the year ended 30 June 2023 for Persian Ltd and Sumo Ltd are as follows: On 01 July 2022, Persian Ltd acquired 551,250 ordinary shares of Sumo Ltd, that is, Persian Ltd holds 70% shares in Sumo Ltd. The purchase consideration was as follows: • Cash paid $ 950,000 • A deferred cash settlement to be paid in three years’ time of $ 475,000 • By an exchange of one share in Persian Ltd for every four shares in Sumo Ltd. The market price of Persian Ltd share at the date of acquisition was $ 2.95 and the market price of each Sumo Ltd share at the date of acquisition was $ 3.15 Legal fees associated with the acquisition were $ 10,500. The discount rate of Persian Ltd is 10 %. (a) Calculate the fair value consideration (Costs of investment) transferred to acquire control of Sumo Ltd at the date of acquisition. Your answer should include a brief explanation if any of the above issue(s) is/are not required to be accounted in your working(s). [ 10 Marks] 

P acquired 75% of the shares in S on 1 January 20X7 when S hadretained earnings of £15,000. The market price of S’s shares at thedate of acquisition was £1.60. P values non-controlling interest atfair value at the date of acquisition. Goodwill is notimpaired.

P S

Property, plant and equipment 80,000 60,000

Shares in S 68,000

Total Non Current Assets 148,000 60,000

Current Assets 52,000 35,000

Total Assets 200,000 95,000

Share capital - £1 shares 100,000 50,000

Retained earnings 70,000 25,000

Total Equity 170,000 75,000

Current liabilities 30,000 20,000

Total Equity and liabilities 200,000 95,000

1. Prepare the consolidated balance sheet of P Group

2. Explain and comment the process of consolidation?

Example of Consolidated Statement of Financial Position

Parent Subsidiary

Non-current assets

Tangible assets $1,000 $600

Investment in Subsidiary $1,200

Net current assets $500 $600

2,700 1,200

Issued capital $100 $50

Retained earnings $2,600 $1,150

$2,700 $1,200

Additional information:

Parent bought 80% of subsidiary two years ago.

Subsidiary’s reserves were $150 at the date of acquisition.

Goodwill has been impaired by $200 since the date of acquisition.

Non-controlling interest is valued at the proportionate share of the subsidiary’s identifiable net assets; it is not credited with its share of goodwill.

Required:

Prepare the consolidated statement of financial position.

Question 1

On January 2, 2013, Potter Ltd. purchased 40% ontiago Ltd. for$900,000. At the acquisition date, Santiago’s balance sheet showedtotal shareholders’ equity of $1,500,000. Any acquisitiondifferential is to be allocated to Santiago’s equipment. At theacquisition date, the equipment had a remaining useful life of 10years. For the past 5 years, Santiago has paid annual dividends of$50,000 and will continue to do so in the future.

The following information has been extracted from Santiago’sincome statement:

2014 2013

Net income (loss) before extraordinaryitems $ (90,000) $ 450,000

Extraordinary gain (net oftax) __-___ 150,000

Net income(loss) $ (90,000) $ 600,000

Required:

Assume that Potter has significant influence. Prepare Potter’sjournal entries related to its investment in Santiago for 2013 and2014.

Question 2

On September 1, 2014, Sunshine Ltd. acquired all the assets(with the exception of cash) and liabilities of Moonbeam Ltd. Underthe terms of acquisition, Moonbeam shareholders received 3 Class ASunshine Ltd. shares plus $2.00 cash for every four shares ofMoonbeam. At the acquisition date, Sunshine’s Class A shares werevalued at $2.50 per share. Sunshine had agreed to cover Moonbeam’sestimated liquidation costs of $10,000. The $1,500 of cash inMoonbeam’s bank at the acquisition date will go towards payingthese costs. The statements of financial position at theacquisition date are as follows:

Sunshine Moonbeam Ltd.

Ltd. Cost FMV

Cash $ 30,000$ 1,500 $ 1,500

Accountsreceivable 52,500 28,500 26,250

Inventory 78,000 39,750 48,000

Property and equipment(net) 449,250 224,250 248,250

Kucey Ltd. bonds(investment) _67,500 _27,000 28,500

677,250 321,000

Accountspayable 117,000 114,000 114,000

Loanpayable ___-___ _60,000 60,000

117,000 174,000

Share capital issued at$1 450,000 120,000

Retainedearnings 110,250 _27,000

560,250 147,000

$677,250 $321,000

Items not reflected in Moonbeam’s statement of financialposition:

Contingent liability related to a loan guarantee was reported inthe notes to the financial statements and has a fair value of$2,000.

Moonbeam had expensed $15,000 in research and development costsin the past year. At the acquisition date, Sunshine has determinedthat the value of the research in progress is $3,000.

Sunshine’s statement of financial position does not include$5,000 in fees for valuation and accounting advice related to theacquisition of Moonbeam. Sunshine expects to pay these feesshortly.

Required:

1) Prepare the acquisition analysis and calculate thegoodwill.

2) Prepare all the journal entries in Sunshine’s books to recordthe acquisition of Moonbeam.

3) Prepare Sunshine’s statement of financial positionimmediately following the acquisition.

Question 3

On May 1, 2013, Peat Co. purchased all of Sorbet Ltd.’s issuedcommon shares for $630,000. At the acquisition date, Sorbet’sfinancial statements included the following balances:

Sharecapital $400,000

Retainedearnings 210,000

Goodwill 10,000

At the acquisition date, Sorbet’s identifiable assets andliabilities were equal to their fair values, except in the case ofinventory that had a book value of $80,000 and a fair value of$86,000, and equipment that had a book value of $360,000 and a fairvalue of $370,000. The equipment was originally purchased for$480,000. At the acquisition date, the equipment had a remaininguseful life of 5 years and was amortized using the straight-linemethod. All the inventory that Sorbet had on hand at theacquisition date was sold by October 2013. Sorbet’s goodwill hasnot shown indications of impairment. Both Peat and Sorbet haveApril 30^th year-ends and did not have any intercompanysales with each other.

The financial statements for Peat and Sorbet at April 30, 2015are presented on the following pages.

Statement of Financial Position

April 30, 2015

Peat Co. SorbetLtd.

Assets:

Current assets:

Cash $ 52,000 $ 161,600

Accountsreceivable 100,000 80,000

Inventory 120,000 170,000

272,000 411,600

Non-current assets:

Equipment,net 558,000 368,000

Furniture and fixtures,net 51,000 51,600

Investment in SorbetLtd. 630,000 -

Goodwill ___-___ 10,000

1,239,000 429,600

Totalassets $1,511,000 $841,200

Liabilities and shareholders’ equity:

Current liabilities:

Accountspayable $ 69,000 $ 19,600

Non-current liabilities:

Loanpayable 22,000 32,000

Totalliabilities 91,000 51,600

Shareholders’ equity:

Sharecapital 1,000,000 400,000

Retainedearnings 420,000 389,600

1,420,000 789,600

Total liabilities and shareholders’equity $1,511,000 $841,200

Condensed Statement of Income

For the year ended April 30, 2015

Peat Co. SorbetLtd.

Sales $250,000 $180,000

Expenses 170,000 130,000

Netincome $ 80,000 $ 50,000

Statement of Changes in Equity

For the year ended April 30, 2015

Peat Co. SorbetLtd.

Sharecapital $1,000,000 $400,000

Retained earnings, May 1,2014 340,000 339.600

Netincome 80,000 50,000

Retained earnings, April 30,2015 420,000 389,600

Total shareholders’equity $1,420,000 $789,600

Required:

Prepare Peat’s consolidated financial statements for April 30,2015. Ignore income taxes.

Question 4

On June 30, 2014, Pewter Ltd. gave 28,000 shares to Sterling Co.in exchange for 70% of Sterling’s outstanding shares. At the timeof the exchange, Pewter’s shares had a fair value of $22.50 pershare. The post-acquisition statements of financial position andSterling’s fair values are shown below.

Statement of Financial Position

As of June 30, 2014

Sterling Co.______

Pewter Ltd. Book value Fair Value

Assets:

Current assets:

Cash $ 750,000 $ 37,500 $ 37,500

Accountsreceivable 1,500,000 112,500 112,500

Inventory 150,000 37,500 37,500

2,400,000 187,500

Non-current assets:

Land 750,000 225,000 300,000

Equipment 2,250,000 375,000 412,500

Accumulatedamortization (900,000) (112,500)

Investment inSterling 630,000 __ -___

2,730,000 487,500

Totalassets $5,130,000 $ 675,000

Liabilities and shareholders’ equity:

Current liabilities:

Accountspayable $ 750,000 $ 75,000 75,000

Loanpayable 300,000 _____

1,050,000 75,000

Shareholders’ equity:

Commonshares 2,580,000 150,000

Retainedearnings 1,500,000 450,000

4,080,000 600,000

Total liabilities and shareholders’equity $5,130,000 $ 675,000

Required:

a) Calculate Pewter’s consolidated goodwill.

b) Prepare Pewter’s consolidated statement of financial positionat
June 30, 2014 using the entity theory method of consolidation.