Financial Reporting (FR) Mar / June 2021 Examiner’s report

Question 2 What does this test?

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FR MJ21 examiner\'s report

What is the correct answer
What was the cash consideration paid by Platinum Co for the investment in Palladium Co $ ____________

Question 2
What does this test?
This question tests learning outcome D2(a) which is related to preparing
consolidated financial statements. Although accounts preparation will be tested in
some form as part of the constructed response questions in Section C of the exam,
both section A questions and the questions in section B can cover any area of the
syllabus, including accounts preparation.
In this particular question, candidates must use their knowledge of how to calculate
goodwill in order to identify the missing cash figure.
What is the correct answer?
The correct answer is $180,000. Some workings have been provided below which
could have been adopted in the exam. They take the form of preparing a goodwill
calculation using the figures provided in the question and then establishing the cash
consideration as a balancing figure:
Platinum Co acquired 80% of the ordinary share capital of Palladium Co on 1
April 20X0 by means of cash and contingent consideration. At this date,
Platinum Co assessed the fair value of contingent consideration at $250,000.
Platinum Co calculates non-controlling interest, using the fair value at the
date of acquisition, which was estimated to be $100,000 and the goodwill
arising on acquisition was $300,000.
The following figures for Palladium Co are relevant:
$'000
Ordinary shares of $1 each at
acquisition
500
Retained earnings at 1 January 20X0
(300)
Profit for the year ended 31
December 20X0
120
The profits for Palladium Co have accrued evenly throughout the year.
What was the cash consideration paid by Platinum Co for the
investment in Palladium Co?

$ ____________

Examiner’s report – FR March/June 2021
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