Reference no: EM132956487

On 1 January 2020, Cambell acquired 90% of the equity share capital of Soup in a share exchange in which Cambell issued two new shares for every three shares it acquired in Soup. Additionally, on 31 December 2020, Cambell will pay the shareholders of Soup RM1.76 per share acquired. Cambell's cost of capital is 10% per annum. At the date of acquisition, shares in Cambell and Soup had a stock market value of RM8.50 and RM2.50 each, respectively

Below are the summarised draft financial statements of both companies.

INCOME STATEMENTS FOR THE YEAR ENDING 30 SEPTEMBER 2020

Cambell Soup RM'000 RM'000

Revenue 100,000 76,000

Cost of sales (36,000) (59,800)

Gross profit 64,000 16,200

Other investment income 5,000 (2,000)

Operating expenses (50,000) (2,400)

Finance costs (6,000) nil

Profit before tax 13,000 11,800

Income tax expense (2,000) (1,000)

Profit for the year 11,000 10,800

Equity as at 1 October 2019 Equity shares of RM1 each Retained earnings

The following information is relevant:

100,000

320,000

420,000

10,000

50,000

60,000

(i) At the date of acquisition, the fair values of Soup's assets were equal to their carrying amounts with the exception of two items: - An item of plant had a fair value of RM1.8 million above its carrying amount. The remaining life of the plant at the date of acquisition was five years. Depreciation is charged to cost of sales.

(ii) Soup had a contingent liability which Cambell estimated to have a fair value of RM450,000. This has not changed as at 30 September 2020. Soup has not incorporated these fair value changes into its financial statements.

(iii) Cambell's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, Soup'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.

(iv) Sales from Cambell to Soup throughout the year ended 30 September 2020 had consistently been RM800,000 per month. Cambell made a mark-up on cost of 25% on these sales. Soup had RM1.5 million of these goods in inventory as at 30 September 2020.

(v) Cambell's investment income is a dividend received from its investment in a 40% owned associate which it has held for several years. The underlying earnings for the associate for the year ended 30 September 2020 were RM20 million.

(vi) Although Soup has been profitable since its acquisition by Cambell, the market for Soup's products has been badly hit in recent months and Cambell has calculated that the goodwill has been impaired by RM2 million as at 30 September 2020.

Required:

Problem (a) Calculate the consolidated goodwill at the date of acquisition of Soup Berhad.

Problem (b) Prepare the consolidated income statement for Cambell for the year ended 30 September 2020.