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ACCA · Question 36 · Preparing Simple Consolidated Financial Statements
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Calculate the total consideration transferred by GlobalTech PLC for the acquisition of CloudServe Ltd (in $ millions).
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Calculate the total consideration transferred by GlobalTech PLC for the acquisition of CloudServe Ltd (in $ millions).
How to approach this question
Add the cash paid to the fair value of the shares issued. Cash = $5m. Shares = 1m shares * $2 = $2m. Total = $5m + $2m = $7m.
Full Answer
The total consideration transferred is the sum of the cash paid ($5 million) and the fair value of the shares issued (1 million shares × $2 market value = $2 million). Total consideration = $7 million.
Common mistakes
Forgetting to include the share issue or valuing shares at nominal value instead of market value.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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