Case Study Of ABC Ltd And XYZ Ltd

Background Information

			Dr.	Cr.
Date	Particulars	Amount	Amount

a.i	Share Capital		180
	General Reserve		270
	Retained Earnings		135
	Goodwill		153
	Business Combination Valuation Reserve		126
		Invetsments		864

a.ii	Cash		117
		Dividend Revenue		117

a.iii	Cash		135
		Interim Dividend Revenue		135

Acqusition Analysis:

Particulars	Amount	Amount

Consideration Transferred		864

Less:
Share Capital	200
General Reserve	300
Reatined Earnings	150
Land	140
Net Fair Value of Identifable Assets & Liabilities		-790
Add:Non-Controlling Interest @10%		79

Goodwill		153

Date	Particulars			Amount	Amount
				Dr.	Cr.
b.i	Property,Plant & Equipment		200
		Business Combination Valuation Reserve		140
		Deferred Tax Liability		60

b.ii	Share Capital		20
	General Reserve		30
	Retained Earnings		15
	Business Combination Valuation Reserve		14
		Non-Controlling Interest		79

b.iii	Loss on Impairment- Goodwill		10
		Accum. Impairment Loss-Goodwill		10

b.iv	Sales		350
		Cost of Goods Sold		275
		Inventory		75

b.v	Deferred Tax Assets		22.5
		Income Tax Expense		22.5

b.vi	Non-Controlling Interest		5.25
		NCI Share of Profit		5.25

b.vii	Retained Earnings (1/1/x8)		49
	Income Tax Expenses		21
		Cost of Goods Sold		70

b.viii	NCI Share of Profit		4.9
		Retained Earnings (1/1/x8)		4.9

b.ix	Sales		500
		Cost of Goods Sold		500

b.x	Dividend Revenue		135
	NCI		15
		Interim Dividend Paid		150

			Adjustment		NCI
Particulars	ABC Ltd.	XYZ Ltd.	Debit	Credit	Group	Debit	Credit	Parent

Sales	5000	2000	850		6150			6150
Cost of Sales	2570	1025		845	2750			2750
Gross Profit	2430	975			3400			3400
Dividend Revenue	252	0	135		117			117
	2682	975			3517			3517
Expenses	2057	300	10		2367			2367
Operating Profit before tax	625	675			1150			1150
Income Tax Expenses	280	260	21	22.5	538.5			538.5
Operating Profit after Tax	345	415			611.5	4.9	5.25	611.85
Retained Earnings (1/1/X8)	294	200	184		310	15	4.9	299.9
Interim Dividend paid	-100	-150		-135	-115		-15	-100
Final Dividend Declared	-160	-200			-360			-360
Retained Earnings (31/12/x8)	379	265			446.5			451.75
Share Capital	1200	200	180		1220	20		1200
General Reserve		300	270		30	30		0
BCVR			126	140	14	14		0
NCI					0	20.25	79	58.75
Total Equity	1579	765			1710.5			1710.5
Liabilities:
Trade & Other Payables	60	180			240			240
Provision for Final Dividend	160	200			360			360
Deferred Tax Liabilities				60	60			60
Total Liabilities	220	380			660			660
Total Liabilities & Equity	1799	1145			2370.5			2370.5

Assets:
Other Current Assets	385	395		75	705			705
Deferred Tax Assets			22.5		22.5			22.5
Property, Plant & equipment	550	750	200		1500			1500
Investment	864			864	0			0
Goodwill			153		153			153
Accum. Impairment Loss-Goodwill				-10	-10			-10
Total Assets	1799	1145			2370.5			2370.5

In the books of ABC Ltd.

Consolidated Income Statement

for the period ended 31/12/X8

Particulars	Group	Parent

Sales	6150	6150
Cost of Sales	2750	2750
Gross Profit	3400	3400
Dividend Revenue	117	117
TOTAL REVENUE	3517	3517
Expenses	2367	2367
Operating Profit before tax	1150	1150
Income Tax Expenses	538.5	538.5
Operating Profit after Tax	611.5	611.5
Less: Non-Controlling Interest		-0.35
Net Profit attributable to Share holders	611.5	611.85

In the books of ABC Ltd.

Consolidated Income Statement

for the period ended 31/12/X8

Particulars	Group	Parent

ASSETS:
Current Assets:
Other Current Assets	705	705
Deferred Tax Assets	22.5	22.5
Total Current Assets	727.5	727.5

Non-Current Assets:
Property, Plant & Equipment	1500	1500
Goodwill	153	153
Accum.Impairment Loss	-10	-10
Total Non-Current Assets	1643	1643
TOTAL ASSETS	2370.5	2370.5

LIABILITIES:
Current Liabilities:
Trade & Other Payables	240	240
Provision for Final Dividend	360	360
Deferred Tax Liabilities	60	60
Total Current Liabilities	660	660
Non-Current Liabilities	0	0
TOTAL LIABILITIES	660	660

NET ASSETS	1710.5	1710.5

EQUITY:
Share Capital	1220	1200
General Reserve	30	0
Retained Earnings	446.5	451.75
BCVR	14
NCI	0	58.75
TOTAL EQUITY	1710.5	1710.5

Partial Goodwill Method is one of the techniques which is used by businesses for the purpose of valuation of goodwill of a business. The computation of Goodwill is a difference between the purchase consideration which is paid and the acquirer’s share of fair value of net identifiable assets of the business (Zimmermann and Werner 2013). In such method, the share of goodwill which the acquirer has is recognized as a part of goodwill which is to be computed. This method is allowable as per IFRS framework but the same is not allowable under US GAAP framework. Partial Goodwill method differs from Full Goodwill Method when the investment by acquirer is less than 100%. The advantages of this method are listed below:

The method measures all assets and liabilities of business and recognizes the goodwill which is associated with controlling interest.
The method can be used effectively in the IFRS framework and used for computation of goodwill which follows IFRS framework.

This method requires computation of goodwill by analyzing the difference between the total fair value of targeted company’s net identifiable assets and that of the company’s net identifiable assets. This method also considers the non-controlling interest of goodwill which is not the case in partial goodwill. In addition to this, the method is followed effectively under both IFRS Framework and US GAAP framework (Grossi 2014). The advantages which are associated with the Full Goodwill method are shown below:

This method considers computation of Goodwill while considering the controlling and non-controlling interest of the business.
The method is universally applicable as the method is approved under both IFRS framework and US GAAP framework for the purpose of valuation of Goodwill.

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