(b) On 1 January 2019 Expand Plc acquired 90% of the equity share capital of Constant...

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(b) On 1 January 2019 Expand Plc acquired 90% of the equity share capital of Constant in a share exchange in which Expand issued two new shares for every three shares it acquired in Constant Plc. At the date of acquisition, shares in Expand Plc and Constant Plc had stock market values of £6.50 and £2.50 each, respectively. Statement of Profit and Loss and Other Comprehensive Income for the year ended 30 September 2019 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Investment income Finance costs Profit before tax Income tax expense Profit for the year Revaluation surplus Comprehensive income Additional information. Equity as at 1 October 2018: Equity shares of £1 each Retained earnings Expand £'000 64,600 38,000 (51.200) (26,000) 13,400 12,000 (1,600) (1,800) (3,800) (2,400) 500 nil (420) (100) 8,080 7,700 (2,800) 5,280 Constant £'000 550 5,830 (1,500) 6,200 470 6,670 30,000 10,000 54,000 35,000 UNIVERSITY The following information is also relevant: (i) At the date of acquisition, the fair values of Constant's assets were equal to their carrying amounts with the exception of: - an item of plant had a fair value of £1.8 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales. Expand had not incorporated this fair value change into its financial statements. (ii) Sales from Expand to Constant throughout the year ended 30 September 2019 had consistently been £800,000 per month. Expand made a mark-up on cost of 25% on these sales. Constant had £1.5 million of these goods in inventory as at 30 September 2019. (iii) At the date of acquisition Expand Plc had loaned Constant Plc £5 million at a preferential annual rate of 2%. Both companies had accounted for the interest. (iv) Although Constant Plc has been profitable since its acquisition by Expand Plc, the market for Constant Plc's products has been badly hit in recent months and Expand Plc has calculated the goodwill has been impaired by £2 million as at 30 September 2019. (v) The revaluations in both companies arose at the end of the year. Required: (1) Calculate the consolidated goodwill at the date of acquisition. (5 marks) (2) Prepare the consolidated profit and loss and other comprehensive income for Expand for the year ended 30 September 2019. [15 marks] (b) On 1 January 2019 Expand Plc acquired 90% of the equity share capital of Constant in a share exchange in which Expand issued two new shares for every three shares it acquired in Constant Plc. At the date of acquisition, shares in Expand Plc and Constant Plc had stock market values of £6.50 and £2.50 each, respectively. Statement of Profit and Loss and Other Comprehensive Income for the year ended 30 September 2019 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Investment income Finance costs Profit before tax Income tax expense Profit for the year Revaluation surplus Comprehensive income Additional information. Equity as at 1 October 2018: Equity shares of £1 each Retained earnings Expand £'000 64,600 38,000 (51.200) (26,000) 13,400 12,000 (1,600) (1,800) (3,800) (2,400) 500 nil (420) (100) 8,080 7,700 (2,800) 5,280 Constant £'000 550 5,830 (1,500) 6,200 470 6,670 30,000 10,000 54,000 35,000 UNIVERSITY The following information is also relevant: (i) At the date of acquisition, the fair values of Constant's assets were equal to their carrying amounts with the exception of: - an item of plant had a fair value of £1.8 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales. Expand had not incorporated this fair value change into its financial statements. (ii) Sales from Expand to Constant throughout the year ended 30 September 2019 had consistently been £800,000 per month. Expand made a mark-up on cost of 25% on these sales. Constant had £1.5 million of these goods in inventory as at 30 September 2019. (iii) At the date of acquisition Expand Plc had loaned Constant Plc £5 million at a preferential annual rate of 2%. Both companies had accounted for the interest. (iv) Although Constant Plc has been profitable since its acquisition by Expand Plc, the market for Constant Plc's products has been badly hit in recent months and Expand Plc has calculated the goodwill has been impaired by £2 million as at 30 September 2019. (v) The revaluations in both companies arose at the end of the year. Required: (1) Calculate the consolidated goodwill at the date of acquisition. (5 marks) (2) Prepare the consolidated profit and loss and other comprehensive income for Expand for the year ended 30 September 2019. [15 marks]

Answer rating: 100% (QA)

1 Calculation of Consolidated Goodwill at the Date of Acquisition At the date of acquisition Expand Plc acquired 90 of the equity share capital of Constant Plc in a share exchange in which Expand issu... View the full answer