Principle of calculation of goodwill, Financial Management

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This question tested the core area of specifically gradually consolidation and acquisitions (control to control). The principle of calculation of goodwill at the date where control is gained was a key aspect of this question, in addition to the modification to parent's equity as the gaining of the additional 20% was a transaction between owners.

The most logical way to approach a statement of monetary position question of this sort was to increasing the balances on the face of the statement and then processes any modifications in the brackets. Time should have been devoted to considering the dates of control and the group structure preceding to and after the 20% additional purchase.

Statement of financial position for the ZX Group as at 31 December 2012 ASSETS (all workings in $000)					$000
Non-current assets
Property, plant and equipment (20,250 + 11,000)					31,250
Goodwill (W1)					2,324
33,574
Current assets (16,000 + 5,000)					21,000
Total assets					54,574
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital ($1.00 shares)					5,000
Retained earnings (W2)					27,734
32,734
Non-controlling interest (W3)					2,240
Total equity					34,974
Total liabilities (14,800 + 4,800)					19,600
Total equity and liabilities					54,574
W1 Goodwill	$000					$000
Consideration transferred			8,750
Non-controlling interest (40% x $10,280,000)			4,112
12,862
Net assets at date of acquisition:
Share capital			1,000
Retained earnings at acquisition date	9,280					(10,280)
Goodwill at acquisition			2,582
Impairment 10% in 2011			(258)
Goodwill at 31 December 2012			2,324
W2 Consolidated retained earnings		ZX Group					CV
$000				$000
As reported in SOFP		28,200					10,200
Less pre-acquisition retained earnings				(9,280)
920
Group share of CV ($920,000 x 60%)				552
Impairment of goodwill (as in W1 above)				(258)
Adjustment to parent's equity (W4)				(760)
Consolidated retained earnings				27,734
W3 Non-controlling interest				$000
Non-controlling interest at acquisition (W1)				4,112
Plus NCI share of post acquisition retained earnings (as in W2 above) (40% x $920,000)				368
NCI at date of transfer of additional 20% to ZX				4,480
50% transferred on 31 December 2012				(2,240)
NCI at 31 December 2012				2,240
W4 Adjustment to parent's equity				$000
Consideration transferred				3,000
Net assets transferred (W3)				(2,240)
Debit to group retained earnings				760

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