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Dolby Co (Mar/Jun17)

On 1 January 20X6, Dolby Co acquired 75% of Laven Co's equity shares by means of a share exchange of two shares in Dolby Co for every three Laven Co shares acquired. On that date, further consideration was also issued to the shareholders of Laven Co in the form of $100 8% loan notes for every 100 shares acquired in Laven Co. None of the purchase consideration, nor the outstanding interest on the loan notes at 31 March 20X6, has yet been recorded by Dolby Co. At the date of acquisition, the share price of Dolby Co and Laven Co is$3·20 and $1·80 respectively. The summarised statements of financial position of the two companies as at 31 March 20X6 are: $ $Consideration transferred 960,000 Fair value of non-controlling interest 360,000 1,320,000 Fair value of net assets: Shares 100,000 Retained earnings 480,000 (580,000) 740,000 650,000$'000 Shares (18m × 2/3 × $4.85) 58,200 Deferred consideration (18m ×$1.98 × 1 / 1.1) 35,640 93,840 Subsidiary profits ($400,000 x 6/12) 200,000 Write off goodwill (per question, this is fully impaired) (12,500) Additional depreciation ($450,000/10 x 6/12) (22,500) 165,000 NCI at 20% 35,500 177,500 $'000 Property, plant and equipment 3,000 Identifiable intangible asset 500 Inventories 300 Trade receivables less payables 200 4,000 Lease liabilities ($000) b/f 310 Paid (balance) 80 New asset additions 70 c/f 300 380 380 Dolby Co Laven Co Adier $'000$'000 $'000 Assets Non‐current assets Property, plant and equipment (note (i)) 75,200 31,500 21,000 Investment in Amery Co at 1 April 20X5 (note (iv)) 4,500 - 79,700 31,500 21,000 Current assets Inventory (note (iii)) 19,400 18,800 5,000 Trade receivables (note (iii)) 14,700 12,500 3,000 Bank 1,200 600 35,300 31,900 Total assets 115,000 63,400 29,000 Equity and liabilities Equity Equity shares of$1 each 50,000 20,000 5,000 Retained earnings – at 1 April 20X5 20,000 19,000 15,000 – for year ended 31 March 20X6 16,000 8,000 6,000 86,000 47,000 26,000 Non‐current liabilities 8% loan notes 5,000 Nil Nil Current liabilities (note (iii)) 24,000 16,400 Total equity and liabilities 115,000 63,400 29,000

The following information is relevant:

1. At the date of acquisition, the fair values of Laven Co's assets were equal to their carrying amounts. However, Laven Co operates a mine which requires to be decommissioned in five years' time. No provision has been made for these decommissioning costs by Laven Co. The present value (discounted at 8%) of the decommissioning is estimated at $4million and will be paid five years from the date of acquisition (the end of the mine's life). 2. Dolby Co's policy is to value the non-controlling interest at fair value at the date of acquisition. Laven Co's share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest 3. The inventory of Laven Co includes goods bought from Dolby Co for$2·1million. Dolby Co applies a consistent mark-up on cost of 40% when arriving at its selling prices.
On 28 March 20X6, Dolby Co despatched goods to Laven Co with a selling price of $700,000. These were not received by Laven Co until after the year end and so have not been included in the above inventory at 31 March 20X6. At 31 March 20X6, Dolby Co's records showed a receivable due from Laven Co of$3million, this differed to the equivalent payable in Laven Co's records due to the goods in transit.
The intra-group reconciliation should be achieved by assuming that Laven Co had received the goods in transit before the year end.

4. The investment in Amery Co represents 30% of its voting share capital and Dolby Co uses equity accounting to account for this investment. Amery Co's profit for the year ended 31 March 20X6 was $6million and Amery Co paid total dividends during the year ended 31 March 20X6 of$2million. Dolby Co has recorded its share of the dividend received from Amery Co in investment income (and cash).

5. All profits and losses accrued evenly throughout the year.

6. There were no impairment losses within the group for the year ended 31 March 20X6

Required:

Prepare the consolidated statement of financial position for Dolby Co as at 31 March 20X6.