LUBS 2210: FA2 – Parent and associate lecture question (Semester 2, Week 3)

Bill plc and Ben plc

Mid way through the current year on 1 March 2011 Bill plc acquired 30% of Ben Plc’s ordinary shares. The consideration was settled by share exchange of 4 new shares in Bill for every 3 shares acquired in Ben. The share price of Bill at the date of acquisition was £5. Bill has not yet recorded the acquisition of Ben in its books.

The Statements of Financial Position of the two companies as at 30 November 2011 are as follows:

| |Bill Plc |Ben Plc |
| |£’000 |£’000 |
|Non current assets | | |
|Property |800 |900 |
|Plant and equipment |450 |150 |
|Investments |1,825 |- |
| | | |
|Current assets | | |
|Inventory |550 |200 |
|Receivables |300 |400 |
|Cash |120 |140 |
| | | |
| |4,045 |1,790 |
| | | |
|Share capital £1 |1,800 |250 |
|Share premium |250 |- |
|Retained earnings |1,145 |1,200 |
| |3,195 |1,450 |
| | | |
|Current liabilities | | |
|Trade payables |520 |250 |
|Income tax |330 |90 |
| | | |
| |4,045 |1,790 |
| | | |
| | | |

The following information is relevant:

• In September 2011, Ben sold goods to Bill for £150,000. These goods had cost Ben £100,000. Bill had £90,000 (at cost to Bill) in inventory at the year-end.

• An impairment review found the investment in the associate was to