Financial Accounting & Reporting 4

BKAF3073 SEM A141 TUTORIAL 1 – BUSINESS COMBINATION Submission Date: 21/9/2014 QUESTION 1 On 1 January 2013, Heavy Bhd paid RM700,000 cash, issued a three year 6% note payable with a face value of RM1,500,000 and 100,000 ordinary shares with a par RM1.00 to acquire 70% interest in Light Bhd. Heavy Bhd ordinary share has a market value of RM2.60 per share on that date. Heavy Bhd also issued 18,000 of its shares for other direct costs of the acquisition and total cost of registration for all the above ordinary shares was RM40,000 not yet paid. Summary information for both companies immediately before the acquisition is as follows: Heavy Bhd Light Bhd Light Bhd Book Value Book Value Fair Value RM RM RM 1,400,000 160,000 160,000 580,000 360,000 400,000 320,000 80,000 80,000 1,000,000 500,000 930,000 1,200,000 900,000 1,300,000 700,000 400,000 360,000 5,200,000 2,400,000 3,230,000 640,000 320,000 2,000,000 600,000 1,640,000 5,200,000 120,000 200,000 1,000,000 300,000 780,000 2,400,000 120,000 160,000

Cash Inventories Other current assets Land Building - net Machinery – net Total Assets Current liabilities Other liabilities Ordinary shares, RM1 par Share premium Retained earnings Total Liabilities and Equity

REQUIRED: (a) Calculate cost of acquisition on Light Bhd by Heavy Bhd. (Round off your answer to the nearest Ringgit) Prepare all necessary journal entries to record the acquisition of Light Bhd by Heavy Bhd. Prepare the consolidated statement of financial position of Heavy Bhd and its subsidiary immediately after acquisition assuming the group used the proportionate share of net assets method to record the non-controlling interest.

(b)

(c)

QUESTION 2 Broad Bhd acquired a 60% interest in the equity capital of Green Bhd on 31 December 2012. On this date, the market price of Green Bhd’s ordinary share is RM1.70 per share. In exchange for the shares in Green Bhd, Broad Bhd issued 15 million of its ordinary shares valued at RM3.00 each and paid the...