On 1 January 2019, JOHN acquired 80% of the equity share capital of WALKER. The consideration...

 

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On 1 January 2019, JOHN acquired 80% of the equity share capital of WALKER. The consideration was satisfied by a share exchange of two shares in JOHN for every three acquired shares in WALKER. At the date of acquisition, shares in JOHN and WALKER had a market value of 3/= and 2-50/= each respectively. JOHN will also pay a further consideration in the form of 20/= loan note for every 80 shares acquired in WALKER, which will attract 10% interest per annum. None of the purchase consideration nor the outstanding interest on the loan note has been recorded by JOHN. Statements of profit or loss and other comprehensive income for the year ended 30 September 2019: JOHN WALKER 000/= Revenue Cost of sales Gross profit Distribution costs Administrative costs Finance costs Profit before tax Income tax expense Profit for the year Other comprehensive income: Revaluation gain on property (note i) Total comprehensive income The following information is relevant: (0) (ii) (iii) 000/= (iv) 62,600 30,000 (45,800) (24,000) 16,800 6,000 (2,000) (1,200) (3,500) (1,800) Equity in the separate financial statements of WALKER at 30 September 2019: Equity Ordinary shares of 1/= each Revaluation surplus Retained earnings (200) 11,100 (nil) 3,000 (3.100) (1.000) 8,000 2,000 1.500 9.500 nil 2.000 000/= 9,000 nil 3.500 12.500 At the date of acquisition, the fair values of JOHN's assets and liabilities were equal to their carrying amounts with the exception of WALKER's property which had a fair value of Tshs.4.7 million above its carrying amount. For consolidation purposes, this led to an increase in depreciation charges of Tshs. 100,000 in the post-acquisition period to 30 September 2019. WALKER has not incorporated the fair value increase on property into its entity financial statements. The policy of JOHN group is to revalue all properties to fair value at each year end. On 30 September 2019, the increase in JOHN's property has already been recorded, however, a further increase of Tshs.600,000 in the value of WALKER'S property since its value at acquisition and 30 September 2019 has not been recorded. Sales from JOHN to WALKER throughout the year ended 30 September 2019 had consistently been Tshs.300,000 per month. The inventory of WALKER includes goods bought from JOHN for Tshs.600,000. JOHN made a mark-up on cost of 25% on all these sales JOHN's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose WALKER's share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest. Due to recent adverse publicity concerning one of WALKER's major product lines, the goodwill which arose on the acquisition of WALKER has been impaired by 10% as at 30 September 2019. Assume, except where indicated otherwise, that all items of income and expenditure accrue evenly throughout the year. (v) REQUIRED: (a) Calculate the consolidated goodwill on acquisition of WALKER. (6 marks) (b) Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 30 September 2019 for JOHN Group. (19 Marks)(Total: 25 Marks) On 1 January 2019, JOHN acquired 80% of the equity share capital of WALKER. The consideration was satisfied by a share exchange of two shares in JOHN for every three acquired shares in WALKER. At the date of acquisition, shares in JOHN and WALKER had a market value of 3/= and 2-50/= each respectively. JOHN will also pay a further consideration in the form of 20/= loan note for every 80 shares acquired in WALKER, which will attract 10% interest per annum. None of the purchase consideration nor the outstanding interest on the loan note has been recorded by JOHN. Statements of profit or loss and other comprehensive income for the year ended 30 September 2019: JOHN WALKER 000/= Revenue Cost of sales Gross profit Distribution costs Administrative costs Finance costs Profit before tax Income tax expense Profit for the year Other comprehensive income: Revaluation gain on property (note i) Total comprehensive income The following information is relevant: (0) (ii) (iii) 000/= (iv) 62,600 30,000 (45,800) (24,000) 16,800 6,000 (2,000) (1,200) (3,500) (1,800) Equity in the separate financial statements of WALKER at 30 September 2019: Equity Ordinary shares of 1/= each Revaluation surplus Retained earnings (200) 11,100 (nil) 3,000 (3.100) (1.000) 8,000 2,000 1.500 9.500 nil 2.000 000/= 9,000 nil 3.500 12.500 At the date of acquisition, the fair values of JOHN's assets and liabilities were equal to their carrying amounts with the exception of WALKER's property which had a fair value of Tshs.4.7 million above its carrying amount. For consolidation purposes, this led to an increase in depreciation charges of Tshs. 100,000 in the post-acquisition period to 30 September 2019. WALKER has not incorporated the fair value increase on property into its entity financial statements. The policy of JOHN group is to revalue all properties to fair value at each year end. On 30 September 2019, the increase in JOHN's property has already been recorded, however, a further increase of Tshs.600,000 in the value of WALKER'S property since its value at acquisition and 30 September 2019 has not been recorded. Sales from JOHN to WALKER throughout the year ended 30 September 2019 had consistently been Tshs.300,000 per month. The inventory of WALKER includes goods bought from JOHN for Tshs.600,000. JOHN made a mark-up on cost of 25% on all these sales JOHN's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose WALKER's share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest. Due to recent adverse publicity concerning one of WALKER's major product lines, the goodwill which arose on the acquisition of WALKER has been impaired by 10% as at 30 September 2019. Assume, except where indicated otherwise, that all items of income and expenditure accrue evenly throughout the year. (v) REQUIRED: (a) Calculate the consolidated goodwill on acquisition of WALKER. (6 marks) (b) Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 30 September 2019 for JOHN Group. (19 Marks)(Total: 25 Marks)

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a Calculation of goodwill on acquisition of WALKER 80 of WALKERs equity share capital 80 x 9000 7200 ... View the full answer