On 1 June 2013, Sun Ltd acquired 75% interest (and control) over Savy Ltd by acquiring 570 000 of the issued ordinary shares of Savy Ltd. The consideration paid was settled in cash amounting to R810 000. On this date the retained earnings of Savy Ltd amounted to R125 000 and 760 000 ordinary shares worth R950 000.
The Sun Ltd Group measures non-controlling interests in an acquiree at its proportional share of the aquiree’s identifiable net assets at acquisition date (partial goodwill method).
On 31 December 2015, goodwill was tested for impairment and it was determined by the directors of Sun Ltd that the goodwill was impaired with R2 750 at the end of the current financial year.
The amount that will be disclosed as goodwill in the consolidated statement of financial position of the Sun Ltd Group as at 31 December 2015, is____
To calculate the amount of goodwill to be disclosed in the consolidated statement of financial position as at 31 December 2015, we need to consider the initial acquisition of Savy Ltd and the impairment of goodwill.
1. Initial acquisition of Savy Ltd:
Sun Ltd acquired 75% interest in Savy Ltd by acquiring 570,000 issued ordinary shares of Savy Ltd. The consideration paid was R810,000.
The retained earnings of Savy Ltd on the acquisition date were R125,000, and there were 760,000 ordinary shares worth R950,000.
To calculate the net assets at the acquisition date:
Retained earnings + Fair value of ordinary shares = R125,000 + R950,000 = R1,075,000
75% of the net assets acquired by Sun Ltd = 75% * R1,075,000 = R806,250
The excess of the consideration paid over the net assets acquired is the goodwill:
Goodwill = Consideration paid - Net assets acquired = R810,000 - R806,250 = R3,750
Therefore, the amount of goodwill recognized on the acquisition date is R3,750.
2. Impairment of goodwill:
The directors of Sun Ltd determined that goodwill was impaired with R2,750 at the end of the current financial year (31 December 2015).
Therefore, the net amount of goodwill to be disclosed in the consolidated statement of financial position as at 31 December 2015, is:
Initial goodwill - Impairment = R3,750 - R2,750 = R1,000
The amount that will be disclosed as goodwill in the consolidated statement of financial position of the Sun Ltd Group as at 31 December 2015, is R1,000.