TUTORIAL 2 CONSOLIDATION SUBSEQUENT TO THE DATE OF ACQUISITION
SUBMISSION DATE: QUESTION 1
On 1 January 2009, Biru Bhd acquired a 75% interest in the equity capital of Merah Bhd for a cash consideration of RM10 million. On this date, the net assets of Merah Bhd were stated in the accounts at fair value and the balance in the retained earnings was RM2 million. The remaining 25% of non-controlling interest was measured at fair value for RM4 million. The company uses fair value method to measure the non-controlling interest.
The draft financial statements of the two companies for the year ended 31 December 2014 were as follows:
Statement of Comprehensive Income | Biru BhdRM’000 | Merah BhdRM’000 | Turnover | 25,000 | 18,000 | Cost of sales | (15,000) | (9,200) | Gross profit | 10,000 | 8,800 | Interest income | 1,160 | – | Rental income | 1,120 | – | Management fees | 310 | – | Expenses | (5,400) | (4,200) | Profit before taxation | 7,190 | 4,600 | Taxation | (2,157) | (1,380) | Profit after taxation | 5,033 | 3,220 | Proposed dividend | (2,500) | - | Profit for the period | 2,533 | 3,220 | Retained earnings brought forward | 6,227 | 5,260 | Retained earnings carried forward | 8,760 | 8,480 |

Statement of Financial Position | Biru BhdRM’000 | Merah BhdRM’000 | Share capital @ RM1 each | 20,000 | 10,000 | Retained earnings | 8,760 | 8,480 | | 28,760 | 18,480 | | | | Fixed assets at net book value | 18,580 | 16,970 | Investment in Merah Bhd, at cost | 10,000 | – | Inventories | 4,300 | 2,500 | Account receivables | 3,575 | 1,400 | Bank | 140 | 1,630 | Account payables | (3,135) | (2,420) | Deferred taxation | (2,200) | (1,600) | Proposed dividend | (2,500) | – | | 28,760 | 18,480 | Additional information: 1. During the year ended 31 December 2014, Merah Bhd sold inventories to