ADDITIONAL QUESTION TOPIC 3

QUESTION 1
NOMA Bhd acquired 80% of SELBY Bhd equity at RM530 million on 8 May 2015
when the retained profits of SELBY Bhd was RM160 million. The remaining 20% of non-
controlling interest was measured at fair value for RM120 million. Two years later, NOMA
Bhd acquired 20% of MYLE Bhd equity at RM90 million when the retained profits of MYLE
Bhd was RM80 million. NOMA Bhd treated this investment as available for sales securities
(so no need to add with reb/f and current year profit). At the end of year 2017, the value of
the investment increased by RM20 million and NOMA Bhd credited the change in value to
other comprehensive income and retained it in fair value reserves.

On 1 March 2018, SELBY Bhd acquired 100 million shares of MYLE Bhd
(100/200=50%) for a cash consideration of RM290 million. The market price for ordinary
shares of MYLE Bhd on this date was RM2.85 per share.

SELBY Bhd started to sell merchandise to MYLE Bhd with a profit margin of 25% in
year 2018 (upstream sales not downstream because the ultimate parent is NOMA, if NOMA
sells only considered as downstream). The related sales was RM18 million and out of that
amount, RM8 million still remain in the MYLE Bhd’s ending inventories. MYLE Bhd owes
SELBY Bhd RM8 million on 31 December 2018 for the merchandise delivered during the
year.

It is the policy of the group to measure the non-controlling interest at the acquisition-
date fair value. Assume there are no changes in the share capital account of all the companies
in the group and revenues are accrued evenly throughout the year. Ignore tax effects on inter
company’s transactions.

1
The trial balances for the three companies on 31 December 2018 are as follows:
NOMA Bhd SELBY Bhd MYLE Bhd
RM’000 RM’000 RM’000
DR CR DR CR DR CR
Current assets 340,000 200,000 100,000
Non-current assets (net) 520,000 310,000 300,000
Investment in subsidiary 640,000 290,000 –
Current liabilities 120,000 30,000 20,000
Non-current liabilities 200,000 50,000 30,000
Ordinary shares (RM1
700,000 400,000 200,000
each)
Retained profit, 1/1/2018 400,000 280,000 120,000
Fair value reserves 20,000 – –
Revenues 600,000 400,000 240,000
Cost of goods sold 300,000 200,000 120,000
Operating expenses 200,000 140,000 72,000
Tax expenses 40,000 20,000 18,000
Total 2,040,00 2,040,00 1,160,000 1,160,000 610,000 610,000

REQUIRED:

(a) Compute the gain or loss on re-measurement of previously held interest in MYLE
Bhd by NOMA Bhd.
(b) Calculate the goodwill arising on the acquisition of equity interest in SELBY Bhd and
MYLE Bhd.
(c) Record all the consolidation journal entries for the year ended 31 December 2018
using one stage method.
(d) Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive
Income for NOMA Bhd and its subsidiaries for the year ended 31 December 2018.
(e) Prepare the Consolidated Statement of Financial Position for NOMA Bhd and its
subsidiaries as at 31 December 2018.

2
ANSWER 1

Effective Interest Table – See 3.2 Part K Slide 6

SELBY MYLE
Parent
Direct 80% 20%
Indirect 80%x50% 40%
60%
NCI
Direct 20% 30% [100-50-20]
Indirect 20% x50% 10%
40%
100% 100%

For Chapter 3.2 Complex Group Structure is Step Acquisition e.g. from available for sale
investment to indirect subsidiary follow 3.2 Part K slide.

Fair value of previously interest (20% x 200,000,000 x RM2.85) 114,000,000

(–) Carrying amount of previously held 20% interest
*Carrying amount as at 31/12/17 (90+20)
(110,000,000)
4,000,000
(+) **Fair value reserve recycle to income 20,000,000
Remeasurement gain 24,000,000

*This is an available for sale investment so the carrying amount is not adjusted with REb/f n
current year profit. Likewise in Lecture slide 3.2 Part K Slide 8 is an associate company the
carrying amount is added with RE b/f and current year profit because it is the equity method
where the carrying amount is adjusted with share of profit.

Please take note:

MRFS 139 available for sale investment and fair value through profit or loss investment. For
both types of investment if there is change in position from simple investment to subsidiary
or indirect subsidiary through "step acquisition" not to adjust the carrying amount with share
of profit (RE b/f n Current year profit)

3
MFRS 9 -Amortised at cost, FVTPL and FVTOCI For all types of investment if there is
change in position from simple investment to subsidiary or indirect subsidiary through "step
acquisition" not to adjust the carrying amount with share of profit (RE b/f n Current year
profit)

So for simple investment change to subsidiary or indirect subsidiary status no need to add
with REb/f n share of profit only take into account of changes in fair value e.g. above
RM90,000,000 plus with fair value changes of RM20,000,000

**The fair value reserve is added to remeasurement gain as this approach is under
MFRS139 for available for sale investment where the fair value reserve is added to re-
measurement gain. So is different with Lecture Slide 3.1 Part B Slide 7 -Merah Bhd
(Changes in Ownership Interest) under the MFRS 9 where the fair value reserve transfer
to retained profit

(b) Goodwill on combination

SELBY BHD
Company NCI at FV
Parent Price (80%)
Implied FV (20%)
Company fair value 750,000,000 530,000,000 120,000,000
FV of NIA(400+160) 560,000,000 448,000,000 112,000,000
Goodwill 90,000,000 82,000,000 8,000,000

MYLE BHD– See 3.2 Part K Slide 9

Company Parent Price Previously NCI at FV
Implied FV (50%) Interest (20%) (30%)
Company fair value 575,000,000 290,000,000 114,000,000 171,000,000
FV of NIA:
Share Capital 200,000,000 100,000,000 40,000,000 60,000,000
Retained profit b/f
[120 + (30 x 2/12)] 125,000,000 62,500,000 25,000,000 37,500,000
Goodwill 250,000,000 127,500,000 49,000,000 73,500,000

Goodwill Parent: (127,500,000 x 80%) + 49,000,000= 151,000,000

Goodwill NCI = 250,000,000-151,000,000 =99,000

(c) Consolidation journal entries

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1
DR Share capital (400 x 80%) 320,000,000
DR Retained profit (160 x 80%) 128,000,000
DR Goodwill on combination 82,000,000
CR Investment in subsidiary 530,000,000
(to eliminate investment in SELBY Bhd)

2
DR Non-controlling interest (SCI) [(40,000 – 2,000) x 20%] 7,600,000
CR Non-controlling interest (SFP) 7,600,000
(to record NCI for current year for SELBY Bhd)

3
DR Share capital (400 x 20%) 80,000,000
DR Retained profit (280 RE b/f x 20%) 56,000,000
DR Goodwill on combination 8,000,000
CR Non-controlling interest (SFP) 144,000,000
(to establish NCI in SELBY Bhd)

4 –the change in position avaible for sale investment to indirect subsidiary is on 1/3/2018 so
Jan n Feb (2/12) profit transfer to REb/f. Thus RE b/f become RM125,000,000
(120,000,000+5,000,000*)
DR Revenue (240 x 2/12) 40,000,000
CR Cost of goods sold (120 x 2/12) 20,000,000
CR Operating expenses (72 x 2/12) 12,000,000
CR Tax expenses (18 x 2/12) 3,000,000
CR Retained profits b/f (30 x 2/12) 5,000,000*
(to adjust the pre acquisition reserve in MYLE Bhd)

5 See 3.2 Part K Slide 11

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DR Share capital (60% x 200,000,000) 120,000,000
DR Retained profit (60% x 125,000,000[120+5]) 75,000,000
DR NCI (SFP) (20% x 290,000,000) 58,000,000
DR Goodwill on combination [(80% x 127.5) + 49] 151,000,000
CR Investment in subsidiary 404,000,000
(to eliminate direct and indirect investment in MYLE Bhd)

6 See 3.2 Part K Slide 12

DR Non-controlling interest (SCI) (40% x 30 Profit x 10/12 [March to Dec]) 10,000,000
CR Non-controlling interest (SFP) 10,000,000
(to record NCI for current year for MYLE Bhd)

7 See 3.2 Part K Slide 12

DR Share capital (40% x 200,000,000) 80,000,000
DR Retained profit (40% x 125,000,000) 50,000,000
DR Goodwill on combination (250 – 151) 99,000,000*
CR Non-controlling interest (SFP) 229,000,000
(to establish NCI in MYLE Bhd)

8
DR Fair value reserves 20,000,000
DR Investment in subsidiary 4,000,000
CR Re-measurement gain 24,000,000
(to recycle fair value gain in MYLE Bhd)

9
Dr Revenue 18,000,000
Cr Cost of goods sold 18,000,000
(to eliminate inter-company sales of merchandise)

10
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Dr Cost of goods sold* 2,000,000 (8,000,000 x 25%)
Cr Current assets / Ending Inv. (SFP) 2,000,000
(to eliminate URP in ending inventories –upstream URP –NCI effect)

11
DR Current liabilities 8,000,000
CR Current assets 8,000,000
(to eliminate intergroup balances)

(d)
NOMA Bhd Group
Consolidated Statement of Profit or Loss and Other Comprehensive Income
For the year ended 31 December 2018

Revenue (600 + 400 + 240 – 18 – 40) 1,182,000,00

0
Less: Cost of goods sold (300 + 200 + 120 – 18 + 2 – 20) (584,000,000)
Gross profit/(Loss) 598,000,000
Less: Operating expenses (200 + 140 + 72 – 12) (400,000,000)
Profit before taxation 198,000,000
Gain on re-measurement of previously held interest 24,000,000
Less: Taxation (40 + 20 + 18 – 3) (75,000,000)
Profit for the period 147,000,000
Attributable to:
Equity holder of the parent 129,400,000
Non-controlling interest (7.6 + 10) 17,600,000
147,000,000

(e)
NOMA Bhd Group
Consolidated Statement of Financial Position
As at31 December 2018

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Investment in subsidiary (640 + 290 – 530 – 404 + 4) –
1,130,000,00
Non-current assets (520 + 310 + 300)
0
Current assets (340 + 200 + 100 – 2 – 8) 630,000,000
Goodwill (82 + 8 + 151+ 99) 340,000,000
2,100,000,00
0
Financed by:
Share capital (700 + 400 + 200 – 320 – 80 – 120 – 80) 700,000,000
Retained profit
(400 + 280 + 120 – 128 – 56 – 75 – 50 + 5 + 129.4) 625,400,000
Fair value reserves (20 – 20) –

NCI (7.6 + 144 – 58 + 10 + 229) 332,600,000

Non-current liabilities (200 + 50 + 30) 280,000,000
Current liabilities (120 + 30 + 20 – 8) 162,000,000
2,100,000,00
0