Acquisition During the Year or Mid-Year Acquisition

 

Sometimes, the acquisition of a subsidiary company may take place during the year. For instance, a business may be acquired on 1^st August, 25^th May, 15^th September, etc. when the acquired business accounting year-end is 31^st December. When this happens, we say there is mid-year acquisition.

The major consolidation challenge that arises from the mid-year acquisition is the determination of the Pre-acquisition Profit or Retained Earnings.

Questions that bother on mid-year acquisition usually give the profit made during the year of acquisition and of course the retained earnings of the acquired business from inception. When this happens, what we are expected to do is to determine the profit from beginning of the accounting year to the date of acquisition. Assuming acquisition takes place on May 1^st, the profit for the year will be divided into two viz:

1.    Profit for 4 months (from 1^st Jan to 30^th Apr) and

2.    Profit for 8 months (from 1^st May to 31^st December)

With this, the actual pre-acquisition profit will be determined as follows

Example

Airline Plc acquired 90% of the equity shares of Aircraft Plc on 31^st July, 20v3. i.         Aircraft Plc. made a profit of ₦480,000,000 during the year ended 31st December, 20v3. Their respective statements of financial position as at 31^st December, 20v3 are as follows

Required

Prepare the consolidated statement of financial position for Airline Plc Group as at 31^st December, 20v3.

Suggested solution

The step-by-step guide (approach) to the question is presented as follows

Step 1- Determine the group ownership structure

Step 2 - Determine pre-acquisition retained earnings

Step 3 - Prepare consolidation schedule to determine the net assets at acquisition and post-acquisition retained earnings, if any.

Step4 – compute the Retained Earnings to be consolidated as follows

Step 5 – compute the non-controlling interest to be posted to the statement of financial position as follows

Step 6 – compute the goodwill, if any, on acquisition as follows

Step 7 – prepare the draft consolidated financial position as follows

Step 8 – The final consolidated statement of financial position is now presented as follows