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Question: on 1 october 2012 paradigm acquired 75 of stratas equity...

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On 1 October 2012, Paradigm acquired 75% of Strata’s equity shares by means of share exchange of two new shares in Paradigm for every five acquired shares in Strata. In addition, Paradigm issued to the shareholders of Strata a $100 10% loan note for every 1,000 shares it acquired in Strata. Paradigm has not recorded any of the purchase consideration, although it does have other 10% loan notes already in issue. The market value of Paradigm’s shares at 1 October 2012 was $2 each.

The summarised statements of financial position of the two companies as at 31 March 2013 are:

Paradigm

Strata

ASSETS

$000

$000

Non-current assets

Property, plant and equipment

        47,400

        25,500

Financial asset: equity investments (notes (i) and (iv))

          7,500

          3,200

        54,900

        28,700

Current assets

Inventory (note (ii))

        20,400

          8,400

Trade receivables (note (iii))

        14,800

          9,000

Bank

          2,100

nil

Total assets

        92,200

        46,100

EQUITY AND LIABILITIES

Equity

Equity shares of $1 each

        40,000

        20,000

Retained earnings/(losses) – at 1 April 2012

        19,200

        (4,000)

- for year ended 31 March 2013

          7,400

          8,000

        66,600

        24,000

Non-current liabilities

10% loan notes

          8,000

nil

Current liabilities

Trade payables (note (iii))

        17,600

        13,000

Bank overdraft

nil

          9,100

Total equity and liabilities

        92,200

        46,100

The following information is relevant:

  1. At the date of acquisition, Strata produced a draft statement of profit or loss which showed it had made a net loss after tax of $2 million at that date. Paradigm accepted this figure as the basis for calculating the pre-and post-acquisition split of Strata’s profit for the year ended 31 March 2013.

Also at the date of acquisition, Paradigm conducted a fair value exercise on Strata’s net assets which were equal to their carrying amount (including Strata’s financial asset equity investments) with the exception of an item of plant which had a fair value of $3 million below its carrying amount. The plant had a remaining economic life of three years at 1 October 2012.

Paradigm’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, a share price for Strata of $1.20 each is representative of the fair value of the shares held by the non-controlling interest.

  1. Each month since acquisition, Paradigm’s sales to Strata were consistently $4.6 million. Paradigm had marked these up by 15% on cost. Strata had one month’s supply ($4.6 million) of these goods in inventory at 31 March 2013. Paradigm’s normal mark-up (to third party customers) is 40%.
  2. Strata’s current account balance with Paradigm at 31 March 2013 was $2.8 million, which did not agree with Paradigm’s equivalent receivable due to a payment of $900,000 made by Strata on 28 March 2013, which was not received by Paradigm until 3 April 2013.
  3. The financial asset equity investments of Paradigm and Strata are carried at their fair values as at 1 April 2012. As at 31 March 2013, these had fair values of $7.1 million and $3.9 million respectively.
  4. There were no impairment losses within the group during the year ended 31 March 2013.

Required:

Prepare the consolidate statement of financial position for Paradigm as at 31 March 2013.

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