A bargain purchase is a business combination in which the calculation of goodwill leads to a
negative figure.
When this happens, which of the following are reviewed:
(i) The identifiable assets acquired, and liabilities assumed
(ii) The non-controlling interest in the acquiree
(iii) The consideration transferred.

How should the unrealised profit be posted?

Which of the following is not an intragroup transaction?

What is the accounting treatment of acquisition-related costs when goodwill is being measured at
acquisition?

Haris Limited acquired 80% of the equity shares of Faris Limited on 1 July 2014, paying Rs. 300 for
each share acquired. This represented a premium of 20% over the market price of Faris Limited
shares at that date.
Faris Limited’s equity at 31 March 2015 comprised:
Rs. million Rs. million
Equity shares of Rs. 100 each 100
Retained earnings at 1 April 2014 80
Profit for the year ended 31 March 2015 40 120
220,000
The only fair value adjustment required to Faris Limited’s net assets on consolidation was a Rs. 20
million increase in the value of its land.
Haris Limited’s policy is to value non-controlling interests at fair value at the date of acquisition.
For this purpose, the market price of Faris Limited’s shares at that date can be deemed to be
representative of the fair value of the shares held by the non-controlling interest.
What would be the carrying amount of the non-controlling interest of Faris Limited in the
consolidated statement of financial position of Haris Limited as of 31 March 2015?

IFRS Standards require extensive use of fair values when recording the acquisition of a subsidiary.
Which TWO of the following comments, regarding the use of fair values on the acquisition of a
the subsidiary, is correct?

Wareesha Limited has an 80% subsidiary Irfan Limited. In the last month of the year, Wareesha
Limited sold inventory to Irfan Limited for Rs. 21.6 million making a mark-up of 20% on cost. The
goods are still held by Irfan Limited at the year-end.
If Wareesha Limited has an inventory balance of Rs. 162 million and Irfan Limited has Rs. 108
million, what will be the inventory figure in the consolidated statement of financial position?

Aliyan Limited is a subsidiary of Shaiq Limited. At the year-end, Aliyan Limited has a current account
debit balance of Rs. 75 million, but Shaiq Limited has a current account credit balance of only Rs.
60 million.
Which of the following two reasons might explain the difference?
1. Shaiq Limited had posted a cheque for Rs. 15 million to Aliyan Limited on the last day of
the year.
2. Aliyan Limited had despatched Rs. 15 million of inventory to Shaiq Limited on the last day
of the year.

A holding company sold goods to its wholly-owned subsidiary for Rs. 18 million representing cost
plus 20%. At the year-end, two-thirds of the goods were still in stock.
The unrealised profit in inventory is?

ABC Limited buys goods from its 75% owned subsidiary XYZ Limited. XYZ Limited earns a markup
of 25% on such transactions. At the group’s year-end, 30 June 2011 ABC Limited had not yet taken
delivery of goods, at a sales value of Rs. 10 million, which were despatched by XYZ Limited on 29
June 2011.
What would be the impact on inventory in the consolidated statement of the financial position of the
ABC Limited group at 30 June 2011?

Thal Limited owns 80% of the ordinary share capital of its subsidiary Cholistan Limited. At the
group’s year-end, 28 February 2011, Thal Limited’s payables include Rs. 3.6 million in respect of
inventories sold by Cholistan Limited. Cholistan Limited’s receivables include Rs. 6.7 million in
respect of inventories sold to Thal Limited. Two days before the year-end Thal Limited sent a
payment of Rs. 3.1 million to Cholistan Limited that was not recorded by the latter until two days
after the year-end.
What is the entry that should be made to remove the intragroup transaction from the group accounts
apart from cancelling intragroup balances?

P Limited transferred an item of plant to S Limited on 1 January 2013 for Rs. 30 million. The plant
had originally cost P Limited Rs. 30 million at 1 January 2011 and had a useful economic life of 10
years, which is unchanged.
What is the unrealised profit on the plant on 31 December 2013?

Python Limited acquired 75% of the share capital of Snake Limited on 1 January 2011. On this date,
the net assets of Snake Limited were Rs. 80 million. The non-controlling interest was calculated
using fair value, which was calculated as Rs. 40 million at the date of acquisition. On 1 January 2013
the net assets of Snake Limited were Rs. 120 million and goodwill had been impaired by Rs. 10
million.
What was the value of the non-controlling interest on 1 January 2013?

King Limited acquired 60% of Queen Limited’s Rs. 100 million share capital on 1 January 2013,
when Queen Limited also had retained earnings of Rs. 120 million. King Limited paid Rs. 50 million
cash, and also agreed to pay a further Rs. 90 million on 1 January 2015. King Limited also gave the
owners of Queen Limited 1 King Limited share for every 2 shares of Queen Limited purchased.
The fair value of King Limited’s shares was Rs. 40 on 1 January 2013, and Rs. 60 on 31 December
2013. At 31 December 2013 King Limited had retained earnings of Rs. 210 million and Queen
Limited had retained earnings of Rs. 110 million. King Limited has a cost of capital of 10%.
King Limited measures the non-controlling interest at fair value. The fair value of the non-controlling
interest at 1 January 2013 was Rs. 25 million.

What is the total goodwill on 1 January 2013?

King Limited acquired 60% of Queen Limited’s Rs. 100 million share capital on 1 January 2013,
when Queen Limited also had retained earnings of Rs. 120 million. King Limited paid Rs. 50 million
cash and agreed to pay a further Rs. 90 million on 1 January 2015. King Limited also gave the
owners of Queen Limited 1 King Limited share for every 2 shares of Queen Limited purchased.
The fair value of King Limited’s shares was Rs. 40 on 1 January 2013, and Rs. 60 on 31 December
2013. On 31 December 2013 King Limited had retained earnings of Rs. 210 million and Queen
Limited had retained earnings of Rs. 110 million. King Limited has a cost of capital of 10%.
King Limited measures the non-controlling interest at fair value. The fair value of the non-controlling
interest at 1 January 2013 was Rs. 25 million.
What is the group retained earnings on 31 December 2013?

On 1 June 2011 Arsalan Limited acquired 80% of the equity share capital of Habib Limited. At the
date of acquisition, the fair values of Habib Limited’s net assets were equal to their carrying amounts
with the exception of its property.
This had a fair value of Rs. 1.2 million below its carrying amount. The property had a remaining
the useful life of eight years.
What effect will any adjustment required in respect of the property have on group retained earnings
on 30 September 2011?

On 1 April 2017 Riyasat Limited acquired 116 million of Farasat Limited’s 145 million ordinary shares
for an immediate cash payment of Rs. 210 million and issued at par one 10% Rs. 100 loan note for
every 200 shares acquired.
At the date of acquisition, Farasat Limited owned a recently built property that was carried at its
depreciated construction cost of Rs. 62 million. The fair value of this property at the date of
acquisition was Rs. 82 million and it had an estimated remaining life of 20 years.
Farasat Limited also had an internally-developed brand which was valued at the acquisition date at
Rs. 25 million with a remaining life of 10 years.
The inventory of Farasat Limited on 31 March 2019 includes goods supplied by Riyasat Limited for
a sale price of Rs. 56 million. Riyasat Limited adds a mark-up of 40% on the cost to all sales.
What is the total amount of the consideration transferred by Riyasat Limited to acquire the
investment in Farasat Limited?

On 1 April 2017 Riyasat Limited acquired 116 million of Farasat Limited’s 145 million ordinary shares
for an immediate cash payment of Rs. 210 million and issued at par one 10% Rs. 100 loan note for
every 200 shares acquired.
At the date of acquisition, Farasat Limited owned a recently built property that was carried at its
depreciated construction cost of Rs. 62 million. The fair value of this property at the date of
acquisition was Rs. 82 million and it had an estimated remaining life of 20 years.
Farasat Limited also had an internally-developed brand which was valued at the acquisition date at
Rs. 25 million with a remaining life of 10 years.
The inventory of Farasat Limited on 31 March 2019 includes goods supplied by Riyasat Limited for
a sale price of Rs. 56 million. Riyasat Limited adds a mark-up of 40% on the cost to all sales.
What will be the amount of the adjustment to group retained earnings at 31 March 2019 in respect
of the movement on the fair value adjustments?

On 1 April 2017 Riyasat Limited acquired 116 million of Farasat Limited’s 145 million ordinary shares
for an immediate cash payment of Rs. 210 million and issued at par one 10% Rs. 100 loan note for
every 200 shares acquired.
At the date of acquisition, Farasat Limited owned a recently built property that was carried at its
depreciated construction cost of Rs. 62 million. The fair value of this property at the date of
acquisition was Rs. 82 million and it had an estimated remaining life of 20 years.
Farasat Limited also had an internally-developed brand which was valued at the acquisition date at
Rs. 25 million with a remaining life of 10 years.
The inventory of Farasat Limited on 31 March 2019 includes goods supplied by Riyasat Limited for
a sale price of Rs. 56 million. Riyasat Limited adds a mark-up of 40% on the cost to all sales.
What is the amount of unrealised profit arising from intragroup trading?

Samreen Limited has a 75% owned subsidiary Narmeen Limited. During the year Samreen Limited
sold inventory to Narmeen Limited for an invoiced price of Rs. 800,000. Narmeen Limited has since
sold 75% of that inventory to third parties.
The sale was at a mark-up of 25% on the cost to Samreen Limited. Narmeen Limited is the only
a subsidiary of Samreen Limited.
What is the adjustment to inventory that would be included in the consolidated statement of financial
position of Samreen Limited at the year-end resulting from this sale?