AC 330

MT Class 2 Week 4
Financial Accounting, Analysis and Valuation
Dr Stefano Cascino

Todays Class

Nice and Easy

Dr Stefano Cascino

AC330

Overall picture

NICE

100%

EASY

Dr Stefano Cascino

AC330

Assignment questions

Consolidated financial statements (100% stake)

Consolidated balance sheet
Consolidated profit and loss
Consolidated statement of changes in equity

Consolidated financial statements (80% stake)

Total consideration paid unchanged
Goodwill impairment 58,000

What if dividends were already paid, postacquisition, using pre-acquisition profits?

What if Nice owed 7,000 to Easy in respect for
goods purchased?

Dr Stefano Cascino

AC330

Sowhere to start?
Nice issued 4 of its own shares for every 3 shares in
Easy
The market value of Nices shares was 5 each on
April 1st, 2013
The exchange ratio is 4/3
Easy has 150,000 shares
which are exchanged for 200,000 (=150,000x4/3)
shares in Nice
Consideration is therefore 150,000x4/3x5 = 1,000,000

Dr Stefano Cascino

AC330

Sowhere to start?
At the date of acquisition, Easys land was in excess
of its book value by 150,000
Need to consider revaluation

Sale of goods by Easy to Nice

Cost of goods sold 60,000

Mark-up 20%
Revenues 72,000 [=60,000x(1+20%)]
1/3 of goods remaining is stock 24,000 (=72,000x1/3)
Cost of goods remaining is stock 20,000 (=60,000x1/3)
Unrealized profit 4,000 (=24,000-20,000)

Dr Stefano Cascino

AC330

Sowhere to start?
Other inter-company transactions:
Dividends proposed by Easy
Need to restate Easys accounts: reverse Easys proposed
inter-company dividend of 30,000

Dividends not yet declared by Nice

Need to restate Nices accounts: dividends should be added
back to its own retained profit

Goodwill
There is an estimated impairment charge of 22,000

Dr Stefano Cascino

AC330

Income statements
Nice PLC

Easy LTD

1,000

1,000

1,000 + 6/12x1,000 - 72

1,428

Cost of Sales

630

660

630 + 6/12x660 - 72 + 4

892

Gross Profit

370

340

Operating Expenses

120

100

Operating Profit

250

240

Turnover

Goodwill impairment

CPL

536
120 + 6/12x100

170
366

- 22

22

Interest

16

6/12x16

Taxation

50

24

50 + 6/12x24

62

200

200

80

30

120

170

Profit After Tax

Dividends
Profit

Dr Stefano Cascino

AC330

274
80 + 30 - 80 - 30

0
274

Analysis of equity
Total

Group
Pre-acq

Post-acq

Share capital

150

150

Revaluation - land

150

150

490

490

Pre-acq ((170+30)/2)

100

100

Post-acq ((170+30)/2)

100

100

Profit and loss account

b/f (660-170)
Profit for the year

890
Consideration

1,000

Goodwill
Dr Stefano Cascino

110
AC330

Balance sheets
Non-current assets
Intangible assets (goodwill)
Tangible fixed assets
Investment in Easy LTD
Current Assets
Stock
Debtors
Cash
Creditors (due within 1 year)
Trade creditors
Taxation
Proposed dividends
Net current assets
Creditors (after more than 1 year)
10% Debentures
Net assets
Capital and reserves
Ordinary shares 1 each
Share premium
Profit and loss account
Dr Stefano Cascino

Nice
PLC
1,440
440
1,000
430
240
170
20
260
170
50
40
170
0
0
1,610
1,610
400
800
410

Easy LTD
670
670
514
280
210
24
214
160
24
30
300
160
160
810
810
150
0
660
AC330

110 - 22
440 + 670 +150
1,000 - 1,000
944
240 + 280 - 4
170 +210
20 + 24
170 + 160
50 + 24
40 + 30 - 40 - 30

160
2420
400 + 150 - 150
800
410 + 660 - 660 + 40 + 100 - 22 - 4

CBS
1,348
88
1,260
0
940
516
380
44
404
330
74
0
536
160
160
1,724
1,724
400
800
524
10

Now

Consolidated financial statements (80% stake)

Total consideration paid unchanged
Goodwill impairment 58,000

How does the CPL change?

Dr Stefano Cascino

AC330

11

Changes in CPL
Nice
PLC

Easy LTD

1,000

1,000

1,000 + 6/12x1,000 - 72

1,428

Cost of Sales

630

660

630 + 6/12x660 - 72 + 4

892

Gross Profit

370

340

Operating Expenses

120

100

Operating Profit

250

240

Turnover

Goodwill impairment

CPL

536

120 + 6/12x100

170
366

- 58

58

Interest

16

6/12x16

Taxation

50

24

50 + 6/12x24

62

200

200

80

30

120

170

Profit After Tax

Dividends
Profit

238
80 + 30 - 80 - 30

0
238

Attributable to:
Nice's shareholders

219
20%x(6/12x200 4)

Minority Interest
Dr Stefano Cascino

AC330

20
12

Cost of goods sold by Easy to Nice

60
mark up

Revenues

20%
72

1/3 of goods remaining in stock

Goods remaining in stock

24

Cost of goods remaining in stock

20

Unrealized profit

Dr Stefano Cascino

Attrib. to Nice's shareholders

3.2

Attrib. to minority

0.8

AC330

13

Now

Consolidated financial statements (80% stake)

Total consideration paid unchanged
Goodwill impairment 58,000

How does the analysis of equity change?

Dr Stefano Cascino

AC330

14

Changes in the analysis of equity

Total

MI
(20%)

Group (80%)
Pre-acq

Post-acq

Share capital

150

120

30

Revaluation - land

150

120

30

490

392

98

Pre-acq ((170+30)/2)

100

80

20

Post-acq ((170+30)/2)

100

80

20

Profit and loss account

b/f (660-170)
Profit for the year

712
Consideration

1,000

Goodwill

Dr Stefano Cascino

198

288

AC330

15

Now

Consolidated financial statements (80% stake)

Total consideration paid unchanged
Goodwill impairment 58,000

How does the CBS change?

Dr Stefano Cascino

AC330

16

Changes in the CBS

Non-current assets

Nice PLC

Easy LTD

CBS

1,440

670

1,490

Intangible assets (goodwill)

Tangible fixed assets
Investment in Easy LTD
Current Assets

288 - 58
440

670

1,000

440 + 670 +150

1,000 - 1,000

230
1,260
0

430

514

944

940

Stock

240

280

240 + 280 - 4

516

Debtors

170

210

170 +210

380

20

24

20 + 24

44

Creditors (due within 1 year)

260

214

Trade creditors

170

160

170 + 160

330

Taxation

50

24

50 + 24

74

Proposed dividends

40

30

40 + 30 - 40 - 30

170

300

536

160

160

160

160

160

Net assets

1,610

810

2420

1,866

Capital and reserves

Attributable to Nice's shareholders

1,610

810

Ordinary shares 1 each

400

150

Share premium

800

Profit and loss account

410

660

Cash

Net current assets

Creditors (after more than 1 year)
10% Debentures

404

1,866
400 + 150 - 150

400

800

800

410 + 660 - 660 + 40 + 80 - 58 - 3.2

469
1,669

MI
Dr Stefano Cascino

198 - 0.8
AC330

197
17

Next week
Spenlow & Dorkins Plc
To hand in
Be well prepared!

Enjoy the rest of your week!

Dr Stefano Cascino

AC330

18