The extract of statement of financial position for the year

The extract of statement of financial position for the year ended 31 December 2020 for Paul Ltd and Sam Ltd are as follows:

Extract of statement of financial position for the year ended 31 December 2020

On 01 January 2020, Paul Ltd acquired 224,700 ordinary shares of Sam Ltd and as a result Paul Ltd holds 80% shares in Sam Ltd. The purchase consideration was as follows:

• Cash paid $ 250,000
• A deferred cash settlement to be paid in three years’ time of $ 400,000
• By an exchange of three shares in Paul Ltd for every five shares in Sam Ltd. The market price of Paul Ltd share at the date of acquisition was $ 2.5 and the market price of each Sam Ltd share at the date of acquisition was $ 3.25

Legal fees associated with the acquisition were $ 75,000. The discount rate of Paul Ltd is 12 %.

1. Calculate the fair value consideration (Costs of investment) transferred to acquire control of Sam Ltd at the date of acquisition. Your answer should include a brief explanation if any of the above issue(s) is/are not required to be accounted in your working(s).

On the acquisition date, the retained earnings of Sam Ltd stood at $ 75,000 and share capital was $ 280,875. Sam Ltd holds a patent which has not been recognized in its financial statements. The directors of Paul Ltd are of the opinion that the patent should be accounted. The patent had a fair value of $ 225,000 and a remaining term four years to go as from the date of acquisition. The carrying value of Property and Plant was in excess by $ 60,000 on the acquisition date. Property and Plant had a lifetime of three years at the acquisition date. Included within the intangible assets of Sam Ltd (at the acquisition and reporting date) is goodwill of $ 5,000 which arose on the purchase of the trade and assets of a sole-trader business.

2. Calculate the net assets of Sam Ltd at the date of acquisition (01 January 2020) and at the reporting date (31 December 2020).

Goodwill has been impaired by $ 20,000 at the reporting date (31 December 2020).

3. Calculate the goodwill using the proportion method at the date of acquisition (01 January 2020).
4. Calculate the non-controlling interest (NCI) as at 31 December 2020.

Paul Ltd has recently appointed an accountant, Mr J. Smith, following the resignation of the previous group accountant. When Mr. J. Smith was preparing the group accounts for the year ended 31 December 2020, he found that only the cash consideration of $ 250,000 has been accounted. The par value of each ordinary share for Paul Ltd is $ 1.

5. Calculate the group retained earnings as at 31 December 2020.

Prepare an extract of equity (Ordinary shares, Share premium, Retained earnings and NCI) and liabilities section of the consolidated statement of financial position as at 31 December 2020 showing clearly how the deferred payment and shares exchange should be accounted.