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QUESTION 3 (25 MARKS) On 1 January 2019, Melor acquired 90% of the equity share capital of Chempaka in a share exchange in which Melor issued two new shares for every three shares it acquired in Chempaka. Additionally, on 31 December 2019, Melor will pay the shareholders of Chempaka RM1.76 per share acquired. Melors cost of capital is 10% per annum. At the date of acquisition, shares in Melor and Chempaka had a share market value of RM6.50 and RM2.50 each respectively.

Statement of Profit of Loss for the year ended 30 September 2019 Melor Chempaka RM000 RM000 Revenue 64,600 38,000 Cost of sales (51,200) (26,000) Gross profit 13,400 12,000 Distribution cost (1,600) (1,800) Administrative expenses (3,800) (2,400) Finance costs (420) - Profit before tax 7,580 7,800 Income tax expenses (2,800) (1,600) Profit for the year 4,780 6,200

Equity as at 1 October 2018: Equity shares 30,000 10,000 Retained earnings 54,000 35,000

The following information is relevant: 1. At the date of acquisition, the fair values of Chempakas assets were equal to their carrying amounts except for these two items: (i) An item plant had a fair value of RM1.8 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to costs of sales. (ii) Chempaka had a contingent liability which Melor estimated to have value of RM450,000. This has not changed as at 30 September 2019. 2. Melors policy is to value the non-controlling interest at fair values at the date of acquisition. For this purpose, Chempakas share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest. 3. Sales from Melor throughout the year ended 30 September 2019 had consistently been RM800,000 per month. Melor made a mark-up on cost of 25% on these sales. Chempaka had RM1.5 million of these goods in inventory as at 30 September 2019. 4. Chempaka has been profitable since its acquisition by Melors product. The market for Chempaka has been badly hit in recent months and the goodwill has been impaired by RM2 million as at 30 September 2019. Required: a) Calculate the consolidated goodwill at the date of acquisition of Chempaka. Show your workings.

(5 marks) (CLO3:PLO3:C4)

b) Prepare the consolidated statement of profit or loss for Melor for the year ended 30 September 2019. Relevant workings are to be disclosed.

(20 marks) (CLO3:PLO3:C4)

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