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Patel Co

On 1 October 20X0, Patel secured a majority equity shareholding in Secret on the following terms:

• an immediate payment of $4 per share on 1 October 20X0. • and a further amount deferred until 1 October 20X1 of$5.4 million

The immediate payment has been recorded in Patel’s financial statements, but the deferred payment has not been recorded. Patel’s cost of capital is 8% per annum.

On 1 February 20X1, Patel also acquired 25% of the equity shares of Augusta paying $10 million in cash. Augusta made a profit of$1.2 million for the year ended 30 September 20X1.

The summarised statements of financial position of the three entities at 30 September 20X1 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 ($000) b/f 310 Paid (balance) 80 New asset additions 70 c/f 300 380 380 Patel Secret Adier$'000 $'000$'000 Assets Non‐current assets Property, plant and equipment 40,000 31,000 21,000 Intangible assets 7,500 Investments – Saracen (8 million shares at $4 each) 32,000 Nil – Augusta 10,000 Nil 89,500 31,000 21,000 Current assets 22,000 13,700 Total assets 111,500 44,700 29,000 Equity Equity shares of$1 each 50,000 10,000 5,000 Retained earnings   – at 1 October 20X0 25,700 12,000 15,000 – for year ended 30 September 20X1 9,200 6,000 6,000 84,900 28,000 26,000 Non‐current liabilities Deferred tax 15,000 8,000 Nil Current liabilities 11,600 8,700 Total equity and liabilities 111,500 44,700 29,000

The following information is relevant:

1. Patel’s policy is to value the non‐controlling interest at fair value at the date of acquisition. For this purpose the directors of Patel considered a share price for Secret of $3.50 per share to be appropriate. 2. At the date of acquisition, the fair values of Secret’s property, plant and equipment was equal to its carrying amount with the exception of Secret’s plant which had a fair value of$4 million above its carrying amount. At that date the plant had a remaining life of four years. Secret uses straight‐line depreciation for plant assuming a nil residual value.
Also at the date of acquisition, Patel valued Secret’s customer relationships as an intangible asset at fair value of $3 million. Secret has not accounted for this asset. Trading relationships with Secret’s customers last on average for six years 3. At 30 September 20X1, Secret’s inventory included goods bought from Patel (at cost to Secret) of$2.6 million. Patel had marked up these goods by 30% on cost.

4. Impairment tests were carried out on 30 September 20X1 which concluded that consolidated goodwill was not impaired, but, due to disappointing earnings, the value of the investment in Augusta was impaired by \$2.5 million.

5. Assume all profits accrue evenly through the year.

Required:

Prepare the consolidated statement of financial position for Patel as at 30 September 20X1.