Hamza Group: bargain purchase, disposal and fair value

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Goodwill is the consideration plus the NCI at fair value less the fair value of the identifiable net assets.
• Consideration + NCI = $1,800,000 + $700,000 = $2,500,000.
• This is less than the fair value of the net assets of $2,700,000, so there is a gain on a bargain purchase of $200,000.
• Before recognising the gain, the acquirer should reassess whether it has identified all the assets and liabilities and measured them correctly.
• The gain is recognised in profit or loss at the acquisition date, and no goodwill is recognised.
• Idris Co's results are consolidated from 1 July 20X7, so only six months of its profit are included.
• The NCI of 30 percent is shown in equity, and takes its share of the post-acquisition profit.

Marks counted: 0 of 7

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• The gain is the proceeds less the net assets and unimpaired goodwill derecognised, plus the carrying amount of the NCI derecognised.
• Net assets and goodwill = $2,000,000 + $300,000 = $2,300,000.
• Gain = 3,000,000 - 2,300,000 + 450,000 = $1,150,000.
• Hamza Co consolidates Tariq Co up to 31 October 20X7, the date control was lost, and not after that date.
• Tariq Co represents a separate major line of business, so its results and the gain on disposal are presented as a discontinued operation, shown as a single amount on the face of the statement of profit or loss.
• The comparatives are restated to present Tariq Co as discontinued.
• No interest is kept in Tariq Co, so there is no remeasurement of a retained investment. If an interest was kept, it would be remeasured at fair value at the date control was lost.

Marks counted: 0 of 7

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• The quoted shares are Level 1, because they are valued using a quoted price in an active market for identical assets.
• The office building is Level 2, because it is valued using observable inputs (recent sales of similar buildings) that need to be adjusted.
• The holding in the unquoted company is Level 3, because the cash flow model uses unobservable inputs (the directors' own growth assumptions).
• The overall measurement takes the level of the lowest input that is significant.
• Level 3 measurements need more disclosure (for example the valuation technique, the inputs and a reconciliation of opening and closing balances), because they are more subjective.
• Fair value is an exit price and does not include transaction costs.

Marks counted: 0 of 6