Autotrade plc acquired 90% of Socrates Ltd on 1 January 20X6 when the carrying amount of the net assets of Socrates Ltd was $22m (i.e. share capital $10m, retained earnings $12m).

It has been identified that a building of Socrates had a value of $6m in excess of its book value and useful life of 10 years on the acquisition date.

Furthermore, Socrates has an internally generated brand with a fair value of $2m and a useful life of 4 years on 1 January 20X6 that is not recognized in Socrates' individual financial statements.

The consideration transferred was as follows:

6m shares in Autotrade plc were issued on 1 January 20X6 when the market price of Autotrade plc’s shares was $3.50.

$5m payment of cash on the acquisition date.

A further payment of cash of $13m on 31 December 20X7. A discount factor of 10% should be used.

$2m payable if Socrates profits achieve at least 5% growth in profits over the next 3 years. The fair value of the cash payment is $0.5m.

The fair value of NCI in Socrates (i.e. 10%) was valued at $4m. Socrates’ retained earnings are $19m on 31 December 20X6. On the same date, an impairment loss of $5m shall be recognized against goodwill. The non-controlling interest 4 and goodwill arising on the acquisition of Socrates were calculated using the fair value method.

Requirement:

a) Show the subsidiary’s net assets relevant working.

b) Calculate the carrying amount of goodwill on 31 December 20X6.

c) Calculate the NCI on 31 December 20X6.

d) Explain whether the recognition of the subsidiary’s identifiable net assets at fair value at

the date of acquisition consists of a choice of accounting policy.m

Answer rating: 100% (QA)

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