Acquisition of Starling by Padmore — Notes and worked outline (date of acquisition)

On December 31, Year 1, Movie Inc. purchased 75% of the ordinary shares of Television Ltd. for cash of $425,000. Television’s SFP and the related FV of its identifiable net assets at the date of the acquisition were as follows:

Television Ltd.
Statement of financial position
As at December 31, Year 1
	BV	FV
Cash	$ 30,000	$ 30,000
Investments — at amortized cost	50,000	65,000
Inventory	40,000	45,000
Equipment	290,000	290,000
Brand name	0	50,000
Total assets	$410,000
Accounts payable and accrued liabilities	$35,000	35,000
Bonds payable	100,000	100,000
Ordinary shares	70,000
R/E	205,000
Total liabilities and equity	$410,000

The brand name has an indefinite life.

What is the goodwill at the date of acquisition, assuming Movie uses the FVE approach to value the NCI? Assume both companies report using the IFRS framework.

NCI is calculated using an imputed value, since the FV of the shares at acquisition is unknown.

Cost of investment (75% ownership)	$425,000
NCI: ($425,000 / 75%) × 25%	141,667
Less BV of Television $70,000 + $205,000	(275,000)
Acquisition differential	291,667
Fair value differentials:
Investments at amortized cost ($50,000 BV − $65,000 FV)	(15,000)
Inventory ($40,000 BV − $45,000 FV)	(5,000)
Brand name ($0 BV − $50,000 FV)	(50,000)
Goodwill	$221,667

Top Inc. purchased 65% of the outstanding voting shares of Side Corp. for $400,000 cash on July 1, Year 4. Immediately before the acquisition, Top and Side reported the following:

Balance sheet
As at July 1, Year 4
	Top	Side
	BV	BV	FV
Cash	$ 500,000	$ 245,000	$ 245,000
AR	60,000	40,000	40,000
Inventory	127,000	69,000	99,000
Equipment (net)	290,000	80,000	72,000
Patents	10,000	90,000	193,000
Total assets	$ 987,000	$ 524,000
Current liabilities	$  95,000	$ 160,000	160,000
Bonds payable	—	70,000	75,000
Common shares	400,000	180,000
R/E	492,000	114,000
Total liabilities and equity	$ 987,000	$ 524,000

What is the balance of consolidated inventory at the date of acquisition, assuming Top reports under ASPE?

This is calculated as:

BV of Top	$127,000
FV of Side	99,000
	$226,000

On June 1, Year 1, Pierce Inc., a Canadian public company, purchased an 80% interest in O’Hara Ltd. Pierce paid cash of $1,850,000 and agreed to pay $100,000 in contingent consideration for each of the fiscal years ending May 31, Year 2, Year 3, and Year 4, if O’Hara had sales exceeding $8,000,000 in each respective year.

The FVs at June 1, Year 1, were:

Identifiable assets	$2,900,000
Identifiable liabilities	1,050,000
Contingent consideration	220,000

Legal and other professional fees related to the business combination were $20,000. Pierce did not own any shares of O’Hara before this acquisition.

What is the purchase price for this acquisition?

The purchase price is equal to the cash payment plus the FV of any contingent consideration ($1,850,000 + $220,000). The legal and professional fees associated with the business combination do not form part of the purchase price.

On January 1, Year 1, Karen Inc. (KI), a publicly accountable corporation, purchased 60% of the outstanding common shares of Huang Corp. (HC) for $804,000 cash. Their respective statements of financial position and the FVs of Huang Corp.’s assets and liabilities immediately prior to acquisition are as follows:

Statements of financial position
January 1, Year 1
(in '000s)
	Karen Inc.	Huang Corp.
	BV	BV	FV
Cash	$1,300	$  120	$  120
AR	600	300	300
Inventory	350	250	250
PPE (net)	1,250	960	1,050
Trademarks	85	5	60
Patent	0	45	0
Total assets	$3,585	$1,680
Current liabilities	$  775	$  325	325
Non-current liabilities	1,200	400	390
Common shares	650	200
R/E	960	755
Total liabilities and equity	$3,585	$1,680

What is the value of R/E that will be reported on KI’s consolidated SFP at the acquisition date?

Only Karen’s R/E are included in the consolidated financial statements at the date of acquisition because the R/E of the subsidiary belong to the previous owners of the subsidiary.

Happy Ltd. purchased 100% of the net assets of Jubilant Corp. on July 1, Year 1, for $800,000. On that date, Jubilant had the following identifiable assets and liabilities:

	BV	FV
Cash	$80,000	$80,000
Inventory	45,000	43,000
AR	110,000	95,000
Building	220,000	250,000
Land	300,000	500,000
Accounts payable	(80,000)	(80,000)
Mortgages payable	(250,000)	(250,000)

Happy prepares its financial statements in accordance with IFRS. When Happy records the journal entry for the purchase of the net assets of Jubilant, at what amount will the accounts receivable be recorded?

The identifiable assets and liabilities purchased by Happy are recorded at their FV. Accounts receivable is recorded at the FV of $95000.00

On December 31, Year 15, Power Co. acquired 100% of the outstanding shares of Solar Co. for $20,000,000. Power is a Canadian public company. The purchase was financed by the issue of $20,000,000 face value bonds. The following is taken from the SFP of Solar immediately before the purchase transaction:

	Solar
	BV	FV
Cash and current receivables	$    702,000	$    702,000
Inventories	10,800,000	10,800,000
Land	6,300,000	8,000,000
Plant and equipment (net)	7,560,000	4,898,000
	$ 25,362,000
Current liabilities	$   2,167,400	2,167,400
Bonds payable	6,472,600	6,492,600
Common shares	11,520,000
R/E	5,202,000
	$ 25,362,000

In addition to this information, Solar owns a trademark that has an FV of $3,000,000. Power incurred $1,300,000 of professional fees related to this acquisition.

What is the goodwill arising from this acquisition?

The acquisition differential schedule is as follows:

Purchase price	$20,000,000
Net assets of Solar acquired ($11,520,000 + $5,202,000)	(16,722,000)
Acquisition differential	3,278,000
Allocation of acquisition differential:
Land ($6,300,000 BV − $8,000,000 FV)	(1,700,000)
Plant and equipment ($7,560,000 BV − $4,898,000 FV)	2,662,000
Trademark ($0 BV − $3,000,000 FV)	(3,000,000)
Bonds payable [($6,472,600) BV − ($6,492,600 FV)]	20,000
Goodwill	$1,260,000

Rib Co. purchased a 60% investment in a subsidiary. Rib reports under IFRS. Which of the following statements describes how Rib determines the consolidated SFP at the date of acquisition?

Rib's SFP and the subsidiary's SFP are added and the eliminating entries are added and deducted