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PARISS acquired 70% of the equity shares of SwP on 31 March 2016, and on the same date acquired 25% of the equity shares of Angel. The retained earnings of SwP at acquisition were £3,600,000, and that of Angel, £944,000.Further investigation into the contracts drawn up on purchase has revealed that the consideration for the investments were contractually agreed as follows:Investment in SwP plcCash (paid) £3.5mContingent consideration £0.8m  Deferred consideration £1.0m The contingent consideration is to be paid if there is an overall growth in profitability of 5% over the next 2 years. On the acquisition date, it was deemed likely that this condition would be met. Indeed, the profit for the year ended 31 December 2016 show an increase in profitability of 7%. Payment of the deferred consideration is to be made on 31 December 2018.The deferred consideration of £1m is to be paid on 31 December 2018. There are no conditions attached to this paymentPARISS uses a discount rate of 5% on provisions for future payments.PARISS policy is to unwind any discounts on provisions for a whole year on the year a provision is made. The difference in resultant finance cost to that which would result from unwinding the discount for a part of the year is not considered material.   2. PARISS Plc has decided on a policy of measuring non-controlling interest at its full fair value. On the date of PARISS’ acquisition of SwP (31 March 2016), the open market price of an equity share in SwP was £5.10.3. A due diligence exercise carried out on the acquisition of SwP. The report has revealed the following.(i) SwP has land that has a fair value of £100,000. This land is included in the financial records of SwP on the acquisition date at its cost value of £40,000. There had been no change to the fair value of the land by 31 December 2016.(ii) SwP has undertaken research into the development of a new production process in order to improve efficiency and reduce costs. This was a project that commenced 2 years ago and due to limitations in resources, the project was put on hold. There has been no capitalisation of development costs relating to this project by SwP. The due diligence report includes a valuation for the research at £150,000. This valuation has been undertaken by a reputable firm who specialises in the valuation of intangible assets. The fair value of the research remains at 150,000 on 31 December 2016.(iii) The notes to the financial statements for SwP include disclosure of a contingent liability for a legal claim made by one of SwP’s customers brought on 15 February 2016. They claim that equipment purchased from SwP used poor quality materials and this resulted in the quick deterioration of the precision measurement function. The customer claims the output from the machine was unusable and so have suffered significant losses in terms of wastage and lost revenues. No amount has been provided in the financial statements of SwP for this claim as legal advice considered it not probable that the customers claim would be successful. The note includes an estimate of the possible outflow to be £1 million and the probability of outflow to be 40%. As such, the due diligence report includes a fair value for the potential claim to be £400,000. The fair value of the contingent liability remains at £400,000 on 31 December 2016. The claim is expected to be resolved within 12 months.4. The net assets of Angel were at their fair value on 31 March 2016.5. Profits for all 3 companies accrue evenly throughout the year.6. On 12 November 2016, SwP sold goods to PARISS for £200,000 on credit terms. There goods cost SwP £160,000. On 31 December 2016, 80% of these items have been sold on to companies outside the group. On 28th December 2016, PARISS paid £120,000 of the amount the company owed for the goods and reduced its trade payables balance accordingly. SwP has not yet received the funds and so its balance on trade receivables for PARISS remains at £200,000.7. Goodwill is tested for impairment each year end. An impairment review revealed the recoverable amount, of SwP to be £6.8million and that of Angel to be £18million. Both assessments for recoverable amount was calculated based on fair value of shares less cost to sell.Angel continues to flourish. The jewellery industry continues to grow and demand for Angels products and expertise is in high demand. This is reflected in a marked increase in the market share price. The recoverable amount clearly indicates an increase in the value of goodwill rather than an impairment.The share price of SwP however has not fared so well. There has been some damage to the reputation of the company as a result of bad publicity from the customer legal claim referenced above (note 3 (iii)), hence the value of SwP’s shares have fallen..

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