Determining the fair values upon acquisition.
Below are the statements of financial position and income statements for Xing plc and its subsidiary and associated companies, Yen and Zhen respectively, for the 12-month period to 31 March 20X1.
Statements of Financial Position as at 31/03/20X1- All £
Property, plant, equipment
Investment in subsidiary
Investment in associate
Net current assets
Total net assets
Equity and reserves
Xing plc acquired a 75% holding in Yen, Ltd., on 1 February 20X0 when the general reserves of Yen were £9,000 and retained profits were £30,000. At the date of acquisition, the fair value of Yen, Ltd., property, plant and equipment was considered to be £8,000 higher than its book value. After carrying out an asset impairment review test, the management of Xing plc decided to write off 8% of the capitalised goodwill on acquisition as an impairment loss at the end of the year to 31 March 20X1.
During the year to 31 March 20X1 Xing has sold Yen goods with a value of £50,000 including a 30% margin on sales. At the end of the year, 80% of these goods remained in stock.
Xing plc also purchased a 25% shareholding in Zhen Ltd on 1 April 20X0, when the book values were considered to be the same as the fair value at acquisition. The general reserve of Zhen, Ltd., on acquisition was £6,000, and retained profits were £14,000.
a) Prepare the group consolidated statement of financial position for Xing plc and its group of companies for the year to 31 March 20X1.
b) Critically discuss the factors that Xing plc will have considered in determining the fair values upon acquisition.