Reference no: EM132960864

Hook Ltd ('Hook') was formed in 1960 as a small family-operated soap and candle company, and is now a leading consumer products company with over $3 billion in revenues. Headquartered in Toledo, Ohio, the firm's products are sold in more than 180 countries. Hook's product range covers laundry detergents, toothpaste, baby diapers, paper towels, beauty and health products, shampoos, snacks, coffee and pet food.

The firm is better known by its brands whose maintenance along with new product development, effective advertising, innovative packaging and efficient distribution through the retail supply chain is critical to the success of the company's operations. Product innovations and marketing with streamlined production and distribution, have contributed to its growth, but the firm has also purchased brands through acquisition of other companies.

On 1 July 2020, Hook acquired 80% of capital stock of Piper Ltd company ('Piper') for $758 million, and paid in cash for the acquisition. Piper is a well- established consumer products company which operates in beauty products segment, manufactures and markets skin care, makeup, fragrance and hair care products. The branded consumer products business is very competitive, so Piper's continual innovation is essential to the firm's continuing profitability and the firm maintains an extensive research and development operation with a number of R&D projects in the pipeline. Taking control of Piper is important for Hook from a strategic point of view as it opens the door to easy access to new markets and provides it with potentially fruitful research in progress.

At the time of acquisition, on 1 July 2020 Piper's net assets consisted of $500 million in share capital, $200 million in capital reserves and $60 million in retained profits. At the same time its market capitalization was $885 million. Hook and Piper prepared their group accounts on 31 December 2020 when Piper reported its stand-alone retained profits of $100 million while its share capital and capital reserves stayed at the same level as on 1 July 2020.

Required:

Problem 1: Discuss the impact of revaluing Piper's net assets at the acquisition by Hook. Illustrate your discussion by calculating goodwill of the acquisition and explaining the possible underlying reasons.

Problem 2: Discuss why the non-controlling interest in Piper is calculated at the end of the reporting period while goodwill is calculated at the date of acquisition. Explain how the non- controlling interest in Piper is calculated at the end of the reporting period, i.e., the date of consolidation.

Problem 3: Compare and contrast the treatment of Piper's pre-acquisition profits as opposed to its post-acquisition profits. Illustrate your discussion by calculating the Piper's retained profit attributable to Hook and compare it to the non-controlling interest in Piper's retained profit as on 31 December 2020.