NATIONAL UNIVERSITY OFN SCIENCE AND TECHNOLOGY
FACULTY OF COMNMERCE
ACCOUNTING DEPARTMENT
CAC 2201
TEST. 1
QUESTION 1.
On 1 October 2017 Puyol acquired share from Xavi Ltd as follows:
3 million equity shares in Xavi by an exchange of one share in Puyol for every two shares in
Xavi plus $1.25 per acquired Xavi share in cash. The market price of each Puyol share at the
date of acquisition was $6 and the market price of each Xavi share at the date of acquisition was
$3.25.
On 1 April 2018, Xavi acquired shares of Alex Ltd as follows:
90% of the equity shares of Alex at a cost of $2.50 per share in cash.
In addition $500,000 of professional costs relating to the acquisition of Xavi is also included in the
cost of the investment.
The summarised draft statements of financial position of the three companies at 30
September 2018 are
Puyol Xavi Alex
$'000 $'000 $'000
Non-current assets
Property, plant and equipment 18,400 10,400 18,000
Investments in Xavi and Alex 13,250 9,000 nil
Investments in equity instruments 6,500 nil Nil
38,150 10,400 18,000
Current assets
Inventory 6,900 6,200 3,600
Trade receivables 3,200 1,500 2,400
Total assets 48,250 18,100 24,000
Equity and liabilities
Equity shares of $1 each 11,500 4,000 4,000
Share premium 7,500 nil nil
Retained earnings
– at 30 September 2017 16,000 6,000 11,000
– for year ended 30 September 2018 9,250 2,900 5,000
35,250 12,900 20,000
Non-current liabilities
7% Loan notes 5,000 1,000 1,000
Current liabilities 8,000 13,200 3,000
Total equity and liabilities 48,250 18,100 24,000
The following information is relevant:
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i. At the date of acquisition Xavi had five years remaining of an agreement to supply goods to one
of its major customers. Xavi believes it is highly likely that the agreement will be renewed
when it expires. The directors of Puyol estimate that the value of this customer based contract
has a fair value of $1 million and a life of 5 years.
ii. During the year ended 30 September 2018 Xavi sold goods to Puyol for $2.7 million. Xavi had
marked up these goods by 50% on cost. Puyol had a third of the goods still in its inventory at 30
September 2018. Intra-group payables/receivables at 30 September 2018 was 1.3 million.
iii. Impairment tests on 30 September 2018 concluded that goodwill only in Xavi was to be
impaired by $150,000.
iv. The investments in equity instruments are included in Puyol's statement of financial position
(above) at their fair value on 1 October 2017, but they have a fair value of $9 million at 30
September 2018.
v. No dividends were paid during the year by any of the companies.
vi. Non-controlling interest in Xavi is to be measured using the full goodwill method and
proportionate method is to be used to value non-controlling interest in Alex.
Required
Prepare the consolidated statement of financial position for Puyol as at 30 September 2018
(Showing clearly the equity analysis of the two subsidiaries). (35 marks)
QUESTION 2.
The company issues 4% loan notes with a nominal value of $20 000. The loan notes are issued at a
discount of 2.5% and $534 of issue costs are incurred. The loan notes will be repayable at a
premium of 10% after 5 years. The effective rate of interest is 7%.
Required:
a) What amount will be recorded as a financial liability when the loan notes are issued? (3 marks)
b) What amounts will be shown in the income statement and statement of financial positions for
years 1-5 using journals? (7 marks)
c) Distinguish the differences between equity and liability in accordance with IAS 32 (5 marks)
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