Piecemeal or Step acquisition- Class examples PDF

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Example 1: Step acquisition achieving control The statement of financial positions of two companies A and B as at 31 December 2017 are as follows.

Investment in B Ltd PPE Current assets

Ordinary Share capital Retained earnings Long term loans Current liabilities

A Ltd N$000 160 290 100 550

B Ltd N$ 000

200 250 60 40 550

100 122 50 30 302

222 80 302

A Ltd acquired 40% of B Ltd on 31 December 2012 for N$ 90 000. At this time the reserves of B stood at N$ 76 000. A further 20% of shares in B was acquired by A Ltd of shares in B Ltd was acquired by A Ltd three years later for N$ 70 000. On this date the fair value of the existing holding in B Ltd was N$ 105 000. B Ltd’s reserves were N$ 100 000 on the second acquisition date.

Required. Produce the consolidated SFP of the a A group Ltd at 31 December, assuming that it is a group policy to value NCI using the proportion of net asset method

Example 2. Step acquisition not resulting in change of control Statement of financial position of two companies C Ltd and D Ltd as at 31 December 2017 are as follows.

Investment in D Ltd PPE Current assets

Ordinary share capital ( N$ 1) Retained earnings Long-term loans Current liabilities

C Ltd 400 600 100 1100

D Ltd

200 800 60 40 1 100

100 450 50 30 630

550 80 630

Date

Proportion acquired

Cost of investment

30/09/2016 31/07/2017

60% 20%

250 150

D’ Ltd’ Retained earnings 300 400

Goodwill is calculated on the proportion of net asset method.

Required: Produce the consolidated SFP of the group at 31 December 2017, assuming that it is a group policy to value NCI using the proportion of net asset method....