Explain how the negative goodwill will be treated

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Reference no: EM131105146

Ham plc acquired 100% of the common shares of Burg plc on 1 January 20X0 and gained control. At that date the statements of financial position of the two companies were as follows:


Ham £000

Burg £000

ASSETS



Non-cur rent assets



Property, plant and equipment

250

100

Investment in Burg

90


Current assets

100

70

Total assets

440

170

EQUITY AND LIABILITIES



Capital and reserves



£1 shares

200

100

Retained ear nings

160

10


360

110

Current liabilities

80

60

Total equity and liabilities

440

170

Notes:

1 The fair value is the same as the book value.

2 £15,000 of the negative goodwill arises because the net assets have been acquired at below their fair value and the remainder covers expected losses of £3,000 in the year ended 31/12/20X0 and £2,000 in the following year.

Required:

(a) Prepare a consolidated statement of financial position for Ham plc as at 1 January 20X0.

(b) Explain how the negative goodwill will be treated.

Reference no: EM131105146

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