SECTION A (178 marks) Part 1: Case Study - Acquisition of subsidiaries Attenborough Berhad is a public listed company based in Miri, Sarawak that are involved in palm oil plantation and the provision of construction and consultancy related services. The Company is doing well but in need to improve on certain areas such as development of cybersecurity and internet of things. On 1 August 2017, Attenborough Berhad acquired 85% of the share capital (cum div) and voting rights in Thunberg Sdn Bhd, a company which Attenborough Berhad believes that it would assist in its plans to achieve further competitive advantage. The business combination occurred on 1 August 2017. Legal and accounting costs incurred by Attenborough Berhad in undertaking this business combination amounted to $5 600. Costs to issue the shares to the A ordinary shareholders of Thunberg Sdn Bhd were $2 000. Attenborough Berhad obtained the following information extracts about Thunberg Sdn Bhd as at the acquisition date: Non-current assets Goodwill $30 000.40 Current liabilities Dividend payable $38 109.73 Equity Share capital - Ordinary (490 000 fully paid shares) $980 000 - Preference (99 990 fully paid shares) $179 982 Retained earnings $380 000 General reserve $110 000 Cybersecurity reserve $40 000 In acquiring Thunberg Sdn Bhd, Attenborough Berhad agreed with the following terms of acquisition: . Cash of $600 000, 70% of the amount to be paid on the acquisition date, with the balance due on 31 July 2021. The incremental borrowing rate for Attenborough Berhad is 13%. . Three shares in Attenborough Berhad for every four ordinary shares held in Thunberg Sdn Bhd. All shares issued by Attenborough Berhad have a fair value of $4.95 per share. . Preference shareholders in Thunberg Sdn Bhd are to receive four fully paid ordinary share in Attenborough Berhad for every three shares held, or alternatively, $1.00 per share in cash payable at the acquisition date. Holders of 60 000 preference shares elected to receive cash. . Due to doubts as to whether the share price would remain at or above the $4.95 level, Attenborough Berhad agreed to supply cash to the value of any decrease in the share price below $4.95. This guarantee was valid for a period of 8 months (to 31 March 2018). Attenborough Berhad believed that there was an 70% chance that the share price would remain at or above $4.95 until 31 March 2018 (and a 30% chance that it would fall to $4.80).Today is 20 December 2021. You are the Group Financial Controller for Attenborough Berhad, and your accounting team is currently compiling financial information for the consolidated financial statements relating to the financial year ended 30 September 2021 for your auditors. Fair Value Information of Thunberg Sdn Bhd (subsidiary) Attenborough Berhad analysed the assets and liabilities of Thunberg Sdn Bhd at the acquisition date and determined that the only assets and liabilities for which the fair value was different from the current recorded amount were: Note Carrying Fair value Fair value amount adjustment Trade receivables $ 350 000 $ 230 000 ? Plantation land W N - 140 000 190 000 Plantation Machinery (Accumulated 190 000 259 990 depreciation = $38 000 Inventories 100 000 160 000 Trademark 60 000 Contingent liability 6 ? NOTES: 1 . Approximately 80% of the trade receivables at acquisition date were fully collected by 30 September 2020 and the remaining 20% was fully recovered by 30 September 2021. 2. The plantation land was considered to have a further useful life of 60 years and is depreciated using the straight-line basis. 3. The plantation machinery was considered to have a further useful life of 10 years and is depreciated on a straight-line basis. 4. In relation to the inventories held on the acquisition date, 40% were sold by 30 September 2018, 55% were sold by 30 September 2020 and the remaining 5% were written off for the financial year ended 30 September 2021. 5. Attenborough Berhad also determined that the subsidiary had some internally generated trademark with a fair value of $160 000 that were not recorded by Thunberg Sdn Bhd because it did not meet the recognition criteria under AASB 138 Intangible Assets. These assets were estimated to have definite useful life of 10 years. 6. Thunberg Sdn Bhd is currently being sued by a previous customer on unfulfilled order. The expected damages are $80 000. On the acquisition date, the lawyers had estimated that there was a 60% chance of losing the case. On 8 September 2021, $63 000 was settled. 7. The Group assumes that the fair value of the non-controlling interest (NCI) in the subsidiary at acquisition date to be $330 000.Additional information: Information on the acquisition of Adams Research Son Bhd 8. On 1 July 2021, Attenborough Berhad acquired 100% of Adams Research Sdn Bhd for a consideration of $300 000 (ex-div basis), a dormant company. The share capital and reserves of Adams Research Sdn Bhd at the date of the acquisition were: Share capital $ 450 000 General reserve 200 000 Retained earnings -150 000 500 000 Previous Years' intragroup sales and purchases of inventories: 9. On 18 September 2020, Thunberg Sdn Bhd sold inventories to Attenborough Berhad for $249 999.60 at cost plus 20%. Of these inventories, 100% remained on hand on 1 October 2020 and 30% remained on hand on 30 September 2021. 10. Attenborough Berhad sold inventories with a sales margin of 35% to Thunberg Sdn Bhd for $150 000 on 25 September 2020. A quarter of these inventories was still held by Thunberg Sdn Bhd on 30 September 2021. Current Year's intragroup sales and purchases of inventories: 11. On 15 April 2021, Attenborough Berhad had on hand inventories worth $200 000 transferred from Thunberg Sdn Bhd. The inventories had previously cost Thunberg Sdn Bhd $90 000. By 30 September 2021, Attenborough Berhad had sold $50 000 of the inventories to Carol Lid, an external party. 12. The inventories of Attenborough Berhad included inventories purchased from Thunberg San Bhd for $230 000 in August 2021. Thunberg Sdn Bhd transferred these inventories to Attenborough Berhad at cost plus 25%. Other downstream transactions: 13. On 1 January 2019, Attenborough Berhad sold a software equipment to Thunberg Sdn Bhd for $150 000. The software equipment had originally cost Attenborough Berhad $250 000 and the accumulated depreciation at the date of the disposal was $40 000. The asset was assessed as having a remaining useful life of six years. 14. During the current financial year, Attenborough Berhad charged its subsidiary rental fee of $57 600 per year. Thunberg Sdn Bhd still owed its holding company RM12 960 of the outstanding amounts at year end. The amount was included under the 'Other receivables' and 'Trade and other payables' accounts, respectively.Additional information (contd,): Other upstream transactions: 15. On 1 April 2018, Attenborough Berhad provided a loan amounted to $700 000 to Thunberg Sdn Bhd. This loan was payable over 6 years with an interest rate of 8.5% per annum. Interest on the loan is paid yearly on the 31 December. Both companies accrue interest amounts every month. Interest income account was classified as 'other income' in Attenborough Berhad.'s books and interest expense account were classified as 'finance costs' in Thunberg Sdn Bhd.'s books. Thunberg Sdn Bhd has yet to make any repayments on the loan. 16. On 1 May 2019, Thunberg Sdn Bhd sold its internally generated internet of things software equipment to Attenborough Berhad for $120 000. At the time of its disposal, it was estimated to have a definite useful life of 5 years using straight-line amortisation basis. 17. An interim dividend of $0.20 per share of 490 000 ordinary shares was paid by Thunberg Sdn Bhd during the current financial year. 18. The final dividend of $0.13 each share for the 490 000 shares was declared by Thunberg Sdn Bhd on 28 September 2021 from retained earnings and was paid subsequently on 15 October 2021. The constitution of the subsidiary allows directors to declare final dividend at any time and this is not subject to any further approval, authorisation, or discretion. 19. Historically, the subsidiary raised further financing from external parties through the issuance of preference shares. Preference shares dividends of $15 000 was paid by the subsidiary during the financial year. Other events: 20. Thunberg Sdn Bhd is a separate cash-generating unit (CGU) for the group. As such, the management conducted an impairment test for purchased goodwill for indication of impairment on an annual basis. Attenborough Berhad assessed that 10% of the total goodwill acquired by the Group was impaired at group level for the financial year ended 30 September 2020 in its investment in the subsidiary. It was further assessed that the goodwill above was impaired by additional 15% for the financial year ended 30 September 2021. Impairment losses were classified as 'Other expenses' accounts. 21. The trademark was assessed to be impaired by 5% at the Group on 30 September 2021. 22. The Group has legally enforceable rights to offset its tax liabilities with its tax assets.Additional information (contd,): Other events after the reporting period: 23. On 21 October 2021, Thunberg Sdn Bhd's warehouse is destroyed by fire. The total carrying amount of the warehouse, which was uninsured, is $285 000. 24. Having reviewed the draft financial statements as at 30 September 2022, the directors of Thunberg Sdn Bhd approved an interim dividend of $0.25 per ordinary share. This dividend was declared on 15 November 2021. 25. The directors of Attenborough Berhad declared on 29 September 2021 that employees are provided with an annual bonus of two months which is 10% of net profit. This bonus will be paid by 29 December 2021. The Company has not reflected the effects of this bonus in the current financial year and directors are seeking your advice in this matter. Accounting policies of the Group (extracts) The tax rate is 24%. Attenborough Berhad Group uses the full goodwill method to prepare its consolidated financial statements in compliance with AASB 3/IFRS 3 Business Combinations and AASB 10/IFRS 10 Consolidated Financial Statements. Any adjustments for differences between carrying amounts at the acquisition date and fair values are made on consolidation. Revaluation surplus recognised on consolidation reserve (RSROC) created are transferred on consolidation to retained earnings when assets are sold or fully consumed. The full effects of intragroup transactions are eliminated upon consolidation. When revalued assets are sold or fully consumed, any related revaluation surpluses are transferred to retained earnings.Required for Section A (178 marks): [Group online submissions] 1) Prepare the Acquisition Analysis for the acquisitions of the two subsidiaries, Thunberg Sdn Bhd and Adams Research Sdn Bhd