Ind AS 110 'Consolidated Financial Statements' 19. On 1 st April 20X1, A Limited acquired 80% of the share capital of S Limited. On the acquisition…

CA Final · Financial Reporting · RTP · November 2024
Ind AS 110 'Consolidated Financial Statements' 19. On 1 st April 20X1, A Limited acquired 80% of the share capital of S Limited. On the acquisition date the share capital and reserves of S Ltd. stood at 5,00,000 and - 1,25,000 respectively. A Limited paid initial cash consideration of 10,00,000. Additionally, A Limited issued 2,00,000 equity shares with a nominal value of 1 per share at current market value of 1.80 per share. It was also agreed that A Limited would pay a further sum of 5,00,000 after three years. A Limited's cost of capital is 10%. The appropriate discount factor for 1 @ 10% receivable at the end of 1 st year: 0.91 2 nd year: 0.83 3 rd year: 0.75 The shares and deferred consideration have not yet been recorded by A limited. Below are the Balance Sheet of A Limited and S Limited as at 31 st March, 20X3: A Limited (000) S Limited (000) Non-current assets: Property, plant & equipment 5,500 1,500 Investment in S Limited at cost 1,000 Current assets: Inventory 550 100 Receivables 400 200 Cash 200 50 7,650 1,850 Equity: Share capital 2,000 500 Retained earnings 1,400 300 3,400 800 Non-current liabilities 3,000 400 Current liabilities 1,250 650 7,650 1,850 Further information: (i) On the date of acquisition, the fair values of S Limited's plant exceeded its book value by - 2,00,000. The plant had a remaining useful life of five years at this date; (ii) The consolidated goodwill has been impaired by - 2,58,000; and (iii) The A Limited Group, values the non-controlling interest using the fair value method. At the date of acquisition, the fair value of the 20% non-controlling interest was - 3,80,000. You are required to prepare Consolidated Balance Sheet of A Limited as at 31 st March, 20X3. (Notes to Account on Consolidated Balance Sheet is not required).

Suggested Answer and Working Notes:

Consolidated Balance Sheet of A Ltd. and its subsidiary, S Ltd. as at 31 st March, 20X3 Particulars ₹ in 000s 1. Assets (1) Non-current assets (i) Property Plant & Equipment (W.N.4) 7,120.00 (ii) Intangible asset – Goodwill (W.N.3) 1,032.00 (2) Current Assets (i) Inventories (550 + 100) 650.00 (ii) Financial Assets (a) Trade Receivables (400 + 200) 600.00 (b) Cash & Cash equivalents (200 + 50) 250.00 Total Assets 9,652.00 II. Equity and Liabilities (1) Equity (i) Equity Share Capital (2,000 + 200) 2,200.00 (ii) Other Equity (a) Retained Earnings (W.N.6) 1190.85 (b) Securities Premium 160.00 (2) Non-Controlling Interest (W.N.5) 347.40 (3) Non-Current Liabilities (3,000 + 400) 3,400.00 (4) Current Liabilities (W.N.8) 2,353.75 Total Equity & Liabilities 9,652.00 Notes: 1. Since the question required not to prepare Notes to Account, the column of Note to Accounts had not been drawn. 2. It is assumed that shares were issued during the year 20X2-20X3 and entries are yet to be made. Working Notes: 1. Calculation of purchase consideration at the acquisition date i.e. 1 st April, 20X1 ₹ in 000s Payment made by A Ltd. to S Ltd. Cash 1,000.00 Equity shares (2,00,000 shares x 1.80) 360.00 Present value of deferred consideration (₹ 5,00,000 x 0.75) 375.00 Total consideration 1,735.00 2. Calculation of net assets i.e. net worth at the acquisition date i.e. 1 st April, 20X1 ₹ in 000s Share capital of S Ltd. 500.00 Reserves of S Ltd. 125.00 Fair value increase on Property, Plant and Equipment 200.00 Net worth on acquisition date 825.00 3. Calculation of Goodwill at the acquisition date i.e. 1 st April, 20X1 and 31 st March, 20X3 ₹ in 000s Purchase consideration (W.N.1) 1,735.00 Non-controlling interest at fair value (as given in the question) 380.00 2,115.00 Less: Net worth (W.N.2) (825.00) Goodwill as on 1 st April 20X1 1,290.00 Less: Impairment (as given in the question) (258.00) Goodwill as on 31 st March 20X3 1,032.00 4. Calculation of Property, Plant and Equipment as on 31 st March 20X3 ₹ in 000s A Ltd. 5,500.00 S Ltd. 1,500.00 Add: Net fair value gain not recorded yet 200.00 Less: Depreciation [(200/5) x 2] (80.00) 120.00 1,620.00 7,120.00 5. Calculation of post-acquisition gain (after adjustment of impairment on goodwill) and value of NCI as on 31 st March 20X3 ₹ in 000s NCI (20%) ₹ in 000s A Ltd. (80%) Acquisition date balance 380.00 Nil Closing balance of Retained Earnings 300.00 Less: Pre-acquisition balance (125.00) Post-acquisition gain 175.00 Less: Additional Depreciation on PPE [(200/5) x 2] (80.00) Share in post-acquisition gain 95.00 19.00 76.00 Less: Impairment on goodwill 258.00 (51.60) (206.40) 347.40 (130.40) 6. Consolidated Retained Earnings as on 31 st March 20X3 ₹ in 000s A Ltd. 1,400.00 Add: Share of post-acquisition loss of S Ltd. (W.N.5) (130.40) Less: Finance cost on deferred consideration (37.5 + 41.25) (W.N.7) (78.75) Retained Earnings as on 31 st March 20X3 1,190.85 7. Calculation of value of deferred consideration as on 31 st March 20X3 ₹ in 000s Value of deferred consideration as on 1 st April 20X1 (W.N.1) 375.00 Add: Finance cost for the year 20X1-20X2 (375 x 10%) 37.50 412.50 Add: Finance cost for the year 20X2-20X3 (412.50 x 10%) 41.25 Deferred consideration as on 31 st March 20X3 453.75 8. Calculation of current Liability as on 31 st March 20X3 ₹ in 000s A Ltd. 1,250.00 S Ltd. 650.00 Deferred consideration as on 31 st March 20X3 (W.N.7) 453.75 Current Liability as on 31 st March 20X3 2,353.75

Topics: Ind AS 110

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