Question 1

**Section C**

AquaTech is a multinational company specializing in water desalination. On 1 January 20X5, AquaTech acquired 80% of the equity share capital of HydroGen.

The consideration consisted of:
- A cash payment of $12 million made immediately.
- A deferred cash payment of $5 million payable on 31 December 20X6. AquaTech's cost of capital is 10%. (Discount factor at 10% for 2 years is 0.826).

At the date of acquisition, the fair values of HydroGen's identifiable net assets were equal to their carrying amounts, with the exception of a specialized filtration plant. This plant had a carrying amount of $4 million and a fair value of $6 million. The plant had a remaining useful life of 5 years at the acquisition date. Depreciation is charged on a straight-line basis.

AquaTech measures Non-Controlling Interest (NCI) at fair value. The fair value of the 20% NCI at acquisition was $3.5 million.

During the year ended 31 December 20X5, HydroGen sold goods to AquaTech for $2 million. HydroGen applies a markup of 25% on cost. At 31 December 20X5, one-quarter of these goods remained in AquaTech's inventory.

**Draft Statements of Financial Position as at 31 December 20X5:**

**Assets**
Non-current assets: 
AquaTech: $45,000,000 | HydroGen: $15,000,000
Investment in HydroGen: $12,000,000 | HydroGen: Nil

Current assets:
AquaTech: $18,000,000 | HydroGen: $8,000,000

**Equity and Liabilities**
Equity shares ($1 each):
AquaTech: $20,000,000 | HydroGen: $5,000,000
Retained earnings:
AquaTech: $35,000,000 | HydroGen: $12,000,000
*(Note: HydroGen's retained earnings at 1 Jan 20X5 were $8,000,000)*

Non-current liabilities:
AquaTech: $10,000,000 | HydroGen: $3,000,000

Current liabilities:
AquaTech: $10,000,000 | HydroGen: $3,000,000

**Required:**
Prepare the Consolidated Statement of Financial Position for the AquaTech Group as at 31 December 20X5. 
*(Show all workings for Consideration, Goodwill, Net Assets, NCI, and Retained Earnings).* 
*(20 marks)*

Accepted Answer

Follow the standard 5-step consolidation process:
1. Establish Group Structure (80% parent, 20% NCI).
2. Calculate Net Assets of Subsidiary at Acquisition and Reporting Date (include FV adjustments and extra depreciation).
3. Calculate Goodwill (Consideration + NCI at FV - Net Assets at Acq). Remember to discount deferred consideration.
4. Calculate NCI at Reporting Date (NCI at Acq + share of post-acq reserves).
5. Calculate Group Retained Earnings (Parent RE + share of sub's post-acq RE - PUP - unwinding of discount on deferred consideration).
Finally, aggregate the SFP lines, eliminating the investment and adding goodwill.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

1. Forgetting to unwind the discount on the deferred consideration and charge it to parent's RE. 2. Deducting the PUP from the Parent's RE instead of the Subsidiary's net assets (since the sub was the seller). 3. Forgetting the extra depreciation on the fair value adjustment.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 5

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