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BKAF3073 SEM A151

TUTORIAL 1 – BUSINESS COMBINATION

Submission Date:

QUESTION 1

On 1 July 2014 Mikano Bhd, a home furnishing company, bought 30% of ordinary shares in

Tikea Bhd. Seven other shareholders hold the balance of the voting rights. Mikano Sdn Bhd

has two representatives in the board of directors of Tikea Bhd. It also has the right to appoint,

remove and set the remuneration of key management personnel. However, it has yet to

exercise the right. The other shareholders were independent of each other and did not have

any arrangement between them.

The consideration paid by Mikano Bhd involved a cash payment of RM25,000, issuance of

10,000 unit of Mikano Bhd ordinary shares with RM1.00 par value at RM4.00 per share and

a cash payment of RM750,000 to be paid on 1 July 2016 (interest rate : 6% per annum).

Mikano Bhd incurred RM1,000 as a cost of issuing shares of which had not been paid.

On the date of acquisition, the share price of Tikea Bhd with RM1.00 par value was at

RM5.00 per share. Its share capital was RM10 million and retained earnings were RM2

million.

In September 2014, Mikano Bhd sought the opinion of Macarthur Chartered Accountants

Bhd on the status of Tikea Bhd. The accountants suggested that Tikea Bhd should not be part

of the Mikano Group Consolidated Financial Statements.

REQUIRED:

A. Calculate the cost of investment of Tikea Bhd by Mikano Bhd.

B. Record the acquisition of Tikea Bhd by Mikano Bhd.

C. Provide your opinion on whether you agree or disagree with the suggestion of Macarthur

Chartered Accountants Bhd on the status of Tikea Bhd. You may use the ‘control model’

in MFRS 10 Consolidated Financial Statements to support your opinion.

1

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...