Question 1 On January 2020, RITZ Ltd acquired 80% of the ordinary shares of AUGE Ltd. The group accountant has calculated that the goodwill arising on acquisition was GH₵8,000,000. However, the financial controller has uncovered a number of errors and requires advice about how to resolve them. No entries have been posted in respect of contingent cash consideration that work be paid in 2025 if AUGE meets targets. The contingent consideration had a fair value of GH₵800,000 at acquisition and was calculated using a discount rate of 10% No fair value adjustment has been recorded in respect of AUGE’s non-depreciable land. This land had a carry amount of GH400,000 at acquisition and a fair value of GH₵600,000. AUGE’s brand is internally generated and has not been recognized in the consolidated financial statement. At acquisition it had a fair value of GH₵1,000,000 and a remaining estimated useful life of 5 years. Acquisition cost of GH₵100,000 incurred towards the acquisition process has been included in the cost investment. RITZ’s policy is to value the non-controlling interest (NCI) at acquisition at fair value. The fair value of the NCI at acquisition was correctly calculated and included in the goodwill calculated. Required: Explain to the Financial Controller how the above four issues should have been accounted for in the consolidated financial statements for the year ended 31 December 2020. Recalculate the goodwill figure to reflect the correction of the errors. An associate company is one over which an investor has significant influence Required: what is significance influence? You have been provided with the following information on the Betsy Ltd. Betsy owns 20% of the issued share capital of Katty Betsy owns 40% of the issued share capital of Hatty, who owns 40% of the issued share capital of Latty Betsy owns 60% of the 8% preference share of faith. Betsy a market leader in the automotive industry own 10% of the issued share capital of Matty. Batsy is entitled to appoint one member to Matty’s board of directors. Betsy regularly provides Matty with technical information and there is increasingly management interchange programmes developing between the two companies. All companies have only one class of equity shares. Required: Based solely on the information provided state which, if any, of the companies presented are under significant influence of Betsy Ltd. Provide reasons for each of your answers.

Question 1 On January 2020, RITZ Ltd acquired 80% of the ordinary shares of AUGE Ltd. The group accountant has calculated that the goodwill arising on acquisition was GH₵8,000,000. However, the financial controller has uncovered a number of errors and requires advice about how to resolve them. No entries have been posted in respect of contingent cash consideration that work be paid in 2025 if AUGE meets targets. The contingent consideration had a fair value of GH₵800,000 at acquisition and was calculated using a discount rate of 10% No fair value adjustment has been recorded in respect of AUGE’s non-depreciable land. This land had a carry amount of GH400,000 at acquisition and a fair value of GH₵600,000. AUGE’s brand is internally generated and has not been recognized in the consolidated financial statement. At acquisition it had a fair value of GH₵1,000,000 and a remaining estimated useful life of 5 years. Acquisition cost of GH₵100,000 incurred towards the acquisition process has been included in the cost investment. RITZ’s policy is to value the non-controlling interest (NCI) at acquisition at fair value. The fair value of the NCI at acquisition was correctly calculated and included in the goodwill calculated. Required: Explain to the Financial Controller how the above four issues should have been accounted for in the consolidated financial statements for the year ended 31 December 2020. Recalculate the goodwill figure to reflect the correction of the errors. An associate company is one over which an investor has significant influence Required: what is significance influence? You have been provided with the following information on the Betsy Ltd. Betsy owns 20% of the issued share capital of Katty Betsy owns 40% of the issued share capital of Hatty, who owns 40% of the issued share capital of Latty Betsy owns 60% of the 8% preference share of faith. Betsy a market leader in the automotive industry own 10% of the issued share capital of Matty. Batsy is entitled to appoint one member to Matty’s board of directors. Betsy regularly provides Matty with technical information and there is increasingly management interchange programmes developing between the two companies. All companies have only one class of equity shares. Required: Based solely on the information provided state which, if any, of the companies presented are under significant influence of Betsy Ltd. Provide reasons for each of your answers.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 30E

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Question 1

On January 2020, RITZ Ltd acquired 80% of the ordinary shares of AUGE Ltd. The group accountant has calculated that the goodwill arising on acquisition was GH₵8,000,000. However, the financial controller has uncovered a number of errors and requires advice about how to resolve them.
No entries have been posted in respect of contingent cash consideration that work be paid in 2025 if AUGE meets targets. The contingent consideration had a fair value of GH₵800,000 at acquisition and was calculated using a discount rate of 10%
No fair value adjustment has been recorded in respect of AUGE’s non-depreciable land. This land had a carry amount of GH400,000 at acquisition and a fair value of GH₵600,000.
AUGE’s brand is internally generated and has not been recognized in the consolidated financial statement. At acquisition it had a fair value of GH₵1,000,000 and a remaining estimated useful life of 5 years.
Acquisition cost of GH₵100,000 incurred towards the acquisition process has been included in the cost investment.

RITZ’s policy is to value the non-controlling interest (NCI) at acquisition at fair value. The fair value of the NCI at acquisition was correctly calculated and included in the goodwill calculated.

Required:

Explain to the Financial Controller how the above four issues should have been accounted for in the consolidated financial statements for the year ended 31 December 2020.
Recalculate the goodwill figure to reflect the correction of the errors.

An associate company is one over which an investor has significant influence

Required: what is significance influence?

You have been provided with the following information on the Betsy Ltd.
Betsy owns 20% of the issued share capital of Katty
Betsy owns 40% of the issued share capital of Hatty, who owns 40% of the issued share capital of Latty
Betsy owns 60% of the 8% preference share of faith.
Betsy a market leader in the automotive industry own 10% of the issued share capital of Matty. Batsy is entitled to appoint one member to Matty’s board of directors. Betsy regularly provides Matty with technical information and there is increasingly management interchange programmes developing between the two companies. All companies have only one class of equity shares.

Required: Based solely on the information provided state which, if any, of the companies presented are under significant influence of Betsy Ltd. Provide reasons for each of your answers.

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