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Calculation of Goodwill, Non-controlling interest, and Fair Value Measurement in Consolidated Financ


• The test will take place online through Moodle.


• You can access the test at any time from on Monday 6th December from 9am onwards and the submission folder will remain open until 5pm (UK time).

• You are recommended to spend no more than 90 minutes completing this test. There is no timer on the test.

• The test is open book but must be your own work – you should use the advance information and any notes you have made.

• Your answers must be typed and saved as a pdf or a word file with the file name including your name and student number as follows:

• By submitting an answer file, you agree that your submission will be run through plagiarism software.

• Show all relevant workings.

• Discursive questions provide an indication of how many words you should write. You will not be penalised for writing more / less than the suggested number of words.

• Write your name and student ID number at the start of your answer.

Question 1


Cash paid 
At this date, Windermere paid £84m in cash as follows:

(i) £24m was paid from cash reserves. In the draft company statement of financial position within Exhibit 1 of the advance information this was correctly accounted for as a debit to Investments and a credit to Bank.

(ii)  The directors of Windermere took out a £60m bank loan which was correctly accounted for as a debit to Bank and a credit to Loan. The £60m cash was then used to acquire the shares in Bowness. This transaction was correctly accounted for as a debit to Investment (at cost) and credit to Bank. In the draft company statement of financial position within Exhibit 1 of the advance information this is correctly shown within Investment (at cost) and Loan. The debit to Bank and credit to Bank net each 
other out.

These are the only transactions which have been recorded in the draft company statement of financial position within Exhibit one of the advance information.

Consideration for the acquisition of 24m shares in Bowness


(i) As part of the consideration for the investment in Bowness, Windermere offered a share exchange of 1 share in Windermere for every 3 shares acquired in Bowness. This transaction took place on the date of acquisition on 1 January 2021. The share price of 
Windermere has increased throughout the year as follows: 

Question 1

(ii) Windermere has agreed to pay additional consideration of £5m in cash on 1 January 2025. An appropriate discount rate is 6%.  
(iii) Windermere agreed to pay £1m in cash on 1 October 2021, provided Bowness made £5m in profits since the date of acquisition. No discount is required to this payment. Additional information 


(iv)  The following information was available in relation to Bowness at 1 October 2020: 
(v) Retained earnings in Bowness at 30 September 2021 were £70m. Profits accrue evenly throughout the year. 
(vi)  At the date of acquisition, the fair values of assets in Bowness were equal to their carrying amount with one exception, a building, as follows:

(vii) Windermere has elected to use the fair value method for determining the non-controlling interest for the acquisition of Bowness. On 1 January 2021, the value of each share in Bowness was £1.25, which included a 25% control premium.

(viii) Goodwill is impaired by 10% at 30 September 2021. Required: 

a) Calculate the value of goodwill to be recognised in Windermere’s consolidated financial statements for the year ended 30 September 2021. You should show your workings.(25 marks)

b) Explain and justify the accounting treatment and classification of:

(i) the non-controlling interest arising on acquisition

(ii)  goodwill.
You should aim to write no more than 200 words for this requirement. (10 marks)
c) IFRS 3: Business Combinations states “The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition date fair values”.
Explain and evaluate the use of fair values for consolidated financial statements. Use the characteristics of financial information in the conceptual framework to explain your points.


You should use the information within items (vi) and (vii) in the Additional Information above to illustrate your answer.

You should aim to write no more than 400 words for this requirement. (20 marks) 


Question 2 

Assume the date is 1 October 2022 (one year later than question 1). 

Potential investment in shares of Ambleside Ltd Windermere has been offered 45% of the ordinary share capital of Ambleside Ltd 
(Ambleside), a provider of telecommunications devices in Mauritania, a new market in which Windermere has very little presence but which shows indications of strong growth.


The Finance Director has provided the following summarised consolidated financial information for Windermere as at 30 September 2022.
Additional information 

The following additional information is relevant to the potential investment in Ambleside: 

(i) The acquisition would cost £30m. This would be paid for in cash.

Additional Information

(ii) Ambleside has £60m of loans.  
(iii)  The directors of Windermere are currently negotiating terms of the investment and are considering the following: 
The remaining 55% of the shares would be shared across nine other institutional investors, one of which (Derwent Ltd) owns 45% of the shares.
There are currently 11 members of the board of directors of Ambleside. Windermere would be entitled to appoint between four and six members of the board.

One of the Board members Windermere will appoint is a specialist in emerging digital technologies, knowledge which none of the other directors currently posses but which is likely to enable Ambleside to introduce extra functionality to their mobile devices and increase their likely sales price and profits. However, this individual is due to retire within the next three years.

Derwent will continue to appoint the Chief Executive Officer of Ambleside.

Historically, on average, five of the investors, including Derwent Ltd, have attended the Annual General Meeting (AGM) of Ambleside.

Two of these investors have indicated that they would be willing to vote with Windermere at the AGM.

As part of the agreement, all investing decisions would be taken by Windermere but Derwent would retain a veto over any financing decisions.

Windermere would be fully responsible for the research and development activities of Ambleside. Derwent would continue to take decisions relating to the distribution of the products.

Windermere are also in negations to gain a right to acquire some convertible debt securities. Once issued, would allow Windermere to gain between 5-15% of the new ordinary share capital from either 1 April 2023 or 1 April 2024 onwards.


The exercise price currently being discussed would result in the shares being out of the money but not deeply out of the money. Required:

a) Using figures from this scenario and Exhibit 1 from the Advance Information to illustrate your answer, discuss why the directors of Windermere would prefer to account for Ambleside as an associate rather than as a subsidiary.


As part of your answer you should consider both the accounting and practical implications of the different accounting treatment required for both a subsidiary and an associate. 

You should aim to write no more than 300 words for this requirement.(15 marks) 

b) Based on the information provided, evaluate whether the investment by Windermere in Ambleside should be accounted for as an associate, joint venture or subsidiary.

You should also:

• Explain any assumptions you make 

• State what additional information you might require. 
You should aim to write no more than 600 words for this requirement. (30 marks) 
Total 45 Marks.

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