Trifles Ltd acquired 280,000 shares in Bamburg Ltd on 01 July 2019 and as a result Trifles Ltd has a control of 80% in Bamburg. The purchased consideration transferred by Trifles Ltd in exchange of the shares in Bamburg Ltd was as follows: (i) Cash paid of $ 565,000 (ii) Cash to be paid in four year time is $ 500,000 (iii) Share exchange of two shares in Trifles Ltd for every seven shares in Bamburg Ltd. The market price of Trifles Ltd at the date of acquisition was $ 3. The par value of Trifles Ltd’s ordinary shares is $ 0.5 each. Legal fees associated with the acquisition were $ 75,000. The cost of capital of Trifles Ltd is 15%.

Bamburg Ltd’s retained earnings at the date of acquisition were $ 135,000. No ordinary shares were issued/ redeemed by the subsidiary since acquisition. The group used the proportion of the net assets of the subsidiary company to measure non-controlling interest. Bamburg Ltd holds a patent that has not been recognized in its financial statements. The directors of Trifles Ltd are of the opinion that the patent should be accounted for. The patent had a fair value of $ 125,000 and a remaining term of four years to go as from the date of acquisition. With regards to Bamburg Ltd’s Property and Plant, it is noted that the asset had a lifetime of five years at the acquisition date and the carrying value of Property and Plant was greater than the fair value by $ 40,000 on the acquisition date. Included within the intangible assets of Bamburg Ltd is the goodwill of $ 5,000 which arose on the purchase of the trade and assets of a sole-trader business.

Extract of the statement of financial position for the year ended 30 June 2020 Equity and liabilities

Trifles Bamburg

$ 000 $ 000

Share capital ($ 0.5 Each) 325 175

Share premium 200 100

Retained earnings 200 225

Noncurrent liabilities 125 50

Current liabilities 100 10

b) (i) Calculate the net assets of the subsidiary at the acquisition date and
reporting date (30 June 2020). [11 Marks]
(ii) Calculate the goodwill at the acquisition date. [2 Marks]
(iii) Calculate the group retained earnings as at 30 June 2020. [3 Marks]
c) Assume that Trifles Ltd has only recorded the cash transaction of $
565,000. Prepare the consolidated Statement of Financial Position (Equity
and Liabilities section only) to show how the deferred consideration and
the share exchange should be accounted for the year ended 30 June 2020.
[10 Marks]
Extract of statement of financial position for the year ended 30 June 2020
Equity and liabilities
Trifles Bamburg
$ 000 $ 000
Share capital ($ 0.5 Each) 325     175
Share premium 200                      100
Retained earnings 200                  225
Noncurrent liabilities 125                50
Current liabilities 100 10

Answer rating: 100% (QA)

b i Calculate the net assets of the subsidiary at the acquisition date and reporting date 30 June 20... View the full answer