(iii) Pau Bhd, a public company, purchases a 60% interest of another company, Pol Sdn Bhd, on 1 January 2021. The scheduled payments comprised the following: • RM160 million payable immediately in cash. • RM120 million payable on 31 December 2022. • An amount equivalent to three times the profit after tax of Pol Sdn Bhd for the year ended 31 December 2021, payable on 31 March 2022. • RM5 million of fees paid for due diligence work to a firm of accountants. On 1 January 2021, the fair value attributed to the consideration based on the profit was RM54 million. By 31December 2021, the fair value was considered RM65 million. The change arose as a result of a change in expected profits. An appropriate discount rate for use where necessary is 5% Required: Explain the treatment of the payments for the acquisition of Pol Sdn Bhd in the financial statements of the Pau Bhd Group for the year ended 31 December 2021.
(iii)
Pau Bhd, a public company, purchases a 60% interest of another company, Pol Sdn Bhd, on 1 January 2021. The scheduled payments comprised the following:
• RM160 million payable immediately in cash.
• RM120 million payable on 31 December 2022.
• An amount equivalent to three times the profit after tax of Pol Sdn Bhd for the year ended 31 December 2021, payable on 31 March 2022.
• RM5 million of fees paid for due diligence work to a firm of accountants.
On 1 January 2021, the fair value attributed to the consideration based on the profit was RM54 million.
By 31December 2021, the fair value was considered RM65 million. The change arose as a result of a change in expected profits.
An appropriate discount rate for use where necessary is 5%
Required:
Explain the treatment of the payments for the acquisition of Pol Sdn Bhd in the financial statements of the Pau Bhd Group for the year ended 31 December 2021.
Step by step
Solved in 2 steps with 3 images
