Abstract:
XYZ is a quoted public company registered under the companies act no. 07 of
2007 in Sri Lanka. The company operates its business activities through 92
branches covering all eight provinces. The principal business activities of the
company are lease financing, hire purchasing, real estate projects, granting term
loans, vehicle hiring & deposit mobilization.
Central Bank of Sri Lanka introduced a new financial sector consolidation
programme in 2014. Several finance companies needed to be merged under
this programme.
XYZ PLC had also acquired a medium size finance company called ABC co.
Ltd to comply with the provisions given by CBSL. The main business
activities of ABC is hire purchase financing, granting of term loans and real
estate development
Acquisition of all the shares of ABC was taken placed under two different days.
a) XYZ PLC acquired 90.1% of issued ordinary share capital of ABC co. Ltd
(ABC) on 12/11/2014 at a purchase consideration of Rs. 301.415 Million.
b) On 24th June 2015, the company completed the acquisition of 100% of the
issued ordinary shares of ABC at a total purchase consideration of
Rs.334.507 Million and ABC became a fully owned subsidiary of the
Company.
The issue was aroused regarding the goodwill computation as at the date of
acquisition. ABC had recognized its investment property on cost basis in its
individual financial statements. However, the group policy is to measure
investment properties on fair value basis. This had not been considered in
calculating the goodwill on business combination.
Also According to the purchase agreement, Rs.3,000,000.00 needs to be paid as
the contingent consideration if the profits for next 3 years exceed over 1,250
Million. This had not been incorporated in goodwill calculation. With reference
to the accounting standards the recommendations were given to the
management to adjust the goodwill computation by including these changes.
