Determining The Fair Values Upon Acquisition.
Below are the statements of financial position and income statements for Xing plc and its subsidiary and associated companies, Yen and Zhen respectively, for the 12-month period to 31 March 20X1.
Statements of Financial Position as at 31/03/20X1- All £
Yen
Zhen
Non-current assets
Property, plant, equipment
435,000
285,000
195,000
Investment in subsidiary
220,000
Investment in associate
60,000
715,000
285,000
195,000
Current assets
Inventories
275,000
90,000
68,000
Trade receivables
160,000
48,000
35,000
Bank
36,000
5,000
8,000
471,000
143,000
111,000
Current liabilities
Trade payables
-147,000
-72,000
-42,000
Dividend payable
-200,000
-10,000
-9,000
-347,000
-82,000
-51,000
Net current assets
124,000
61,000
60,000
Non-current liabilities
Loan
-120,000
-60,000
-25,000
Total net assets
719,000
286,000
230,000
Equity and reserves
Share capital
500,000
200,000
185,000
General reserve
50,000
16,000
10,000
Retained earnings
169,000
70,000
35,000
Shareholder’s funds
719,000
286,000
230,000
Xing plc acquired a 75% holding in Yen, Ltd., on 1 February 20X0 when the general reserves of Yen were £9,000 and retained profits were £30,000. At the date of acquisition, the fair value of Yen, Ltd., property, plant and equipment was considered to be £8,000 higher than its book value. After carrying out an asset impairment review test, the management of Xing plc decided to write off 8% of the capitalised goodwill on acquisition as an impairment loss at the end of the year to 31 March 20X1.
During the year to 31 March 20X1 Xing has sold Yen goods with a value of £50,000 including a 30% margin on sales. At the end of the year, 80% of these goods remained in stock.
Xing plc also purchased a 25% shareholding in Zhen Ltd on 1 April 20X0, when the book values were considered to be the same as the fair value at acquisition. The general reserve of Zhen, Ltd., on acquisition was £6,000, and retained profits were £14,000.
Required:
a) Prepare the group consolidated statement of financial position for Xing plc and its group of companies for the year to 31 March 20X1.
b) Critically discuss the factors that Xing plc will have considered in determining the fair values upon acquisition.
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