Fiqh acquires the whole of Aimst on 1 January 2020 for a cash consideration of RM150,000,000. On
Question:
Fiqh acquires the whole of Aimst on 1 January 2020 for a cash consideration of RM150,000,000. On this date, the retained profits of Aimst are RM60,000,000. The summarized accounts of the two companies for the year ended 31 December 2020 are as follows:
Statement of Profit or Loss for the year ended 31 December 2020.
Fiqh | Aimst | |
RM’000 | RM’000 | |
Revenue | 225,000 | 150,000 |
Operating expenses | (150,000) | (86,250) |
Termination Benefits | - | (7,500) |
Provision for restructuring costs | - | (11,250) |
Profit before taxation | 75,000 | 45,000 |
Taxation | (19,500) | (12,600) |
Profit after taxation | 55,500 | 32,400 |
Retained profits brought forward | 64,500 | 30,000 |
Retained profits carried forward | 120,000 | 62,400 |
Statement of Financial Position as at 31 December 2020.
Fiqh | Aimst | |
Assets: | RM’000 | RM’000 |
Property, plant and equipment | 240,000 | 120,000 |
Investment in Sun Bhd | 75,000 | - |
Current Assets | 60,000 | 44,250 |
Total assets | 375,000 | 164,250 |
Equity and Liabilities: | ||
Ordinary Share (par value RM1) | 150,000 | 37,500 |
Retained profits | 120,000 | 62,400 |
Non Current Liabilities | 75,000 | 22,500 |
Provisions | - | 18,750 |
Current Liabilities | 30,000 | 23,100 |
375,000 | 164,250 |
Additional information:
- At 1 January 2020, Aimst has created a provision called termination benefit expense to pay employees if the company is acquired. The estimated fair value of the termination benefit expense (treated as contingent liability) is RM15,000,000. The amount should be recognized as termination benefit expense in the statement of profit or loss and will be included in the provisions account.
- The management of Fiqh has agreed to restructure Aimst after the acquisition periods of 2020 and 2021. During the year, the plan for restructuring is finalized and a provision for restructuring cost of RM22,500,000 is recognised as a liability.
- Both termination benefit expenses and restructuring costs are allowable for tax deductions when paid to employees at tax rate of 19.5%.
Required:
Prepare the consolidated Statement of Profit or Loss and Statement of Financial Position of Fiqh for the financial year 2020. Show all relevant working on goodwill calculation and the consolidation adjustment to recognise the goodwill and elimination of intercompany investment.
South western Federal Taxation 2017 Corporations, Partnerships, Estates and Trusts
ISBN: 9781305874336
40th edition
Authors: William H. Hoffman, William A. Raabe , David M. Maloney, James C. Young