ACCA · Question 32 · Financial Reporting

Section C

AeroLogistics Group operates drone delivery networks. On 1 April 20X5, AeroLogistics acquired 80% of the equity shares of SkyCargo Co. The reporting date is 31 December 20X5.

Consideration:
AeroLogistics paid $12,000,000 in cash immediately and agreed to pay a further $5,500,000 on 1 April 20X7. AeroLogistics' cost of capital is 10%. (PV of $1 in 2 years at 10% is 0.826). No entries have been made for the deferred consideration.

Net Assets of SkyCargo at 1 April 20X5:
Share capital: $2,000,000
Retained earnings: $8,000,000
At acquisition, a warehouse owned by SkyCargo had a fair value $1,500,000 in excess of its carrying amount. The warehouse had a remaining useful life of 15 years.

Intra-group trading:
Post-acquisition, AeroLogistics sold drones to SkyCargo for $2,400,000 at a mark-up of 20%. Half of these drones remained in SkyCargo's inventory at 31 December 20X5.

Non-Controlling Interest (NCI):
AeroLogistics values NCI at fair value. The fair value of the 20% NCI at 1 April 20X5 was $3,800,000.

Required:
(a) Calculate the total fair value of the consideration transferred. (3 marks)
(b) Calculate the Goodwill arising on acquisition. (7 marks)
(c) Calculate the Provision for Unrealized Profit (PURP) and state where it is adjusted in the consolidated financial statements. (4 marks)
(d) Calculate the carrying amount of the deferred consideration liability as at 31 December 20X5. (6 marks)