Question

Ewig Berhad acquired 800, 000 out of the 1, 000, 000 RM1 ordinary shares of Leben Berhad on 1 January 2020 for RM900, 000 cash. The general reserves and retained earnings of Leben Berhad at the date of acquisition were RM400, 000 and RM250, 000 respectively.

Required:

(a) What is the percentage of acquisition by Ewig Berhad?

(b) What is the corporate relationship in this situation?

(c) Based on MFRS 10, briefly explain whether Ewig Berhad exercises control over Leben Berhad.

(d) Assuming the proportional net asset method is used, what is the fair value of the NCI?

(e) What is the goodwill or bargain purchase?

Answer 1

(a) Percentage of Acquisition= 800000/1000000= 80%

(b) Corporate relationship status-Ewig Berhad becomes the holding/ Parent company of Leben Berhad after the acquisition.

(c) As per MFRS-10

An investor, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee.

An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Thus, an investor controls an investee if and only .if the investor has all the following: (a) power over the investee ; (b) exposure, or rights, to variable returns from its involvement with the investee ; and (c) the ability to use its power over the investee to affect the amount of the investor’s returns .

An investor shall consider all facts and circumstances when assessing whether it controls an investee. The investor shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.

(d) Value of NCI - (400000+250000)*20% =RM130000

(e) Value of Gain on Bargain Purchase -

900000- (400000+250000)*80% = RM380000