Hredit is a trader. To be able to control the full spectrum of that market Hredit acquired 80% of the voting shares of S

[answerhappygod]

Hredit is a trader. To be able to control the full spectrum of
that market Hredit acquired 80% of the voting shares of Soll. This
transaction happened on 1st April 2014. It is clear that Hredit
obtained the control and this transaction was a business
combination. Both companies are preparing their financial
statements under IFRS.
On 31st December 2014 the individual balance sheets of the two
entities are the following:
Hredit (k$)
31/Dec/2014
Soll (k$)
31/Dec/2014
Investment in Soll
700
-
Land and building
300
1 000
Plant and equipment
1 000
400
Inventory
400
300
Receivables
600
200
Cash and equivalent
1 000
100
TOTAL ASSETS:
4 000
2 000
Issued capital
100
50
Share premium
-
100
Retained earnings
1 900
450
Equity:
2 000
600
Long term loans
900
400
Account payables and other short term liabilities
1 100
1 000
Liabilities
2 000
1 400
OWNERS EQUITY + LIABILITY:
4 000
2 000
The following information is relevant
(acquisition):
1. The issued capital and share premium of both companies are
the same since incorporation.
2. The movement in the retained earnings of the companies were
the following during 2014:
Hredit
Soll
1st January 2014 (opening)
1000
150
Net profit (2014)
1500
300
Dividend declared
(600)
31st December 2014 (closing)
1900
450
The profit of Soll is NOT generated equally during the year. The
following table illustrates how the profit was generated during
2014 (in percentage):
Period
% of Revenue
Q1 jan-march
20%
Q2 april-june
10%
Q3 july -sep
30%
Q4 oct-dec
40%
Total
100%
The following items – that belong to Soll – were
identified at acquisition of the subsidiary:
One of the reasons of the acquisition was to acquire the
customer relations of Soll, so Hredit can enter into new markets.
These customer relations are recorded in a customer list. A firm
that has expertise in this area professionally evaluated the
customer list. The fair value of the customer list is said to be 80
k$. The list was extended by Hredit (Hredit wrote up his own
information on the list). The list – with this addition – had a
value of 120 k$. The useful life of the list – regardless of the
fact if it is the extended or the original list – is 4 years.
Soll had an ongoing litigation for years. The legal advisers of
Soll said that there is a very little chance that the company will
loose the case so this issue was classified being a contingent
liability and was not recognized – correctly – as a liability in
the separate financial statement of Soll. The fair value of this
obligation was evaluated to be 15 k$ at the date of the
acquisition. By the end of the year the case was closed and
unexpectedly the court decided against Soll. Therefore Soll was
obliged to pay 60 k$ to the other party. (Noting was recorded yet
in the financial statements of Soll due to this matter.)
The fair value of net assets of Soll was the same with their
book value except the land and buildings. Soll only has a land
(under the heading land and building). The fair value of this land
at the date of the acquisition was 1 200 k$.
Intercompany transactions:
5. The members of the group had the following intercompany
transactions:
a. Hredit sold one of his plants to Soll on 1st July 2014. The
cost of this asset was 100 k$ and the book value of the asset was
50 k$ at the date of the sale. The selling price was 90 k$. The
remaining useful life of the sold asset was four years at the date
of the sale. Soll paid only one-third of the invoice until the end
of the reporting period.
b. Soll sold inventory to Hredit for 200 k$. The cost of the
goods sold was 120 $k. Until the end of the year 25% of these goods
were sold to customers outside the entity. On 30th December 2014
Hredit paid 50 k$ to Soll. The payment was only received and
credited to the bank account of Soll on 3rd January 2015.
6. Hredit calculated that the goodwill on the acquisition is
impaired by 44 k$.
Prepare the consolidated balance sheet of
Hredit Group for 31st December 2014