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| Hamish Hamish, a public listed company, has the following equity investments: Saxon – On 1 January 2013 Hamish purchased 800,000 $1 shares in Saxon. The purchase consideration consisted of $200,000 in immediate cash, 400,000 $1 ordinary shares in Hamish and a further payment of $200,000 in cash on 30 September 2013. On 1 January 2013 each $1 share in Hamish had a market value of $4. The discount factor to be applied to the deferred consideration is 0.9. Alfred – On 1 October 2012 Hamish purchased 25% of the share capital of Alfred for $200,000. Hamish has significant influence over the operations of Alfred. The draft statements of profit or loss and other comprehensive income for the three companies for the year ended 30 September 2013 are given below.  (2) At the date of acquisition of Saxon the book values of Saxon’s net assets were equivalent to their fair values with the exception of the factory building which had a fair value of $400,000 more than its book value. It is group policy to depreciate buildings straight line on a monthly pro-rata basis over a 50 year useful life. Buildings depreciation is charged to cost of sales. (3) During the period since acquisition of Saxon there have been sales from Saxon to Hamish totalling $500,000. These sales were made at a mark-up on cost of 25% and one quarter of the goods are still in inventories at 30 September 2013. (4) Towards the end of the year Alfred sold goods to Hamish totalling $60,000. These goods were sold at a profit margin of 20%. Half of these goods remain in inventories at 30 September 2013. (5) The non-controlling interests on the acquisition of Saxon were measured at their fair value of $2.40 per share. An impairment test was conducted at 30 September 2013 and although there is no impairment in Alfred there is thought to be an impairment loss of $30,000 to the recognised goodwill in Saxon. Impairment losses are charged to operating expenses. (6) None of the companies have paid any dividends during the year. (7) All items of income and expense are deemed to accrue evenly during the year. Required (a) Explain the accounting treatment of the components of the consideration transferred on the acquisition of Saxon and calculate the goodwill on acquisition. (5 marks) |