Glov Bhd is a publicly listed company in the healthcare sector. It manufactures and sells high-quality gloves which fulfill demand in both the healthcare and non-healthcare segments. To meet consumers’ demand and diversify its business risks, Glov Bhd acquired the shares of several companies.
a) Sakura Bhd is an importer and distributor of high-quality frozen food products for the Malaysian market. In the year 2021, the company won a 25-year contract to provide catering and related services at the Kuala Lumpur International Airport. Sakura Bhd, Itachi Bhd, and Hinata Bhd entered into an agreement to jointly control Midori Bhd. Sakura Bhd has a 38% interest in Midori Bhd. Itachi Bhd and Hinata Bhd respectively own 32% and 30% interests in Midori Bhd. Based on the agreement, any changes to the relevant activities of Midori Bhd require at least 75% agreement from the venturers.
Puan Aisyah and Encik Michael are accountants of Sakura Bhd. They contemplate applying MFRS10 Consolidated Financial Statements, MFRS11 Joint Arrangements, and MFRS128 Investments in Associates and Joint Ventures in preparing the group financial statements. Disagreement arises when Puan Aisyah proposes to apply the acquisition method in accordance with MFRS 10 for the investment in Midori Bhd as Sakura Bhd owns the majority interest in Midori Bhd meanwhile Encik Michael advises applying the equity method under MFRS 128.
b) Apart from acquiring enough ordinary shares in the investee company, discuss two (2) other ways to control an investee company
On 1 January 2018, Blue Bhd acquired 80% interest in Klise Bhd for a cash consideration of RM20 million. On the date of acquisition, the fair value of the land and building of Klise Bhd has an excess value of RM1.2 million and RM2 million respectively. The building has a remaining useful life of 15 years on that date.
The goodwill on the acquisition of Klise Bhd was RM6 million. Within the period of 4 years, from 1 January 2018 to 31 December 2021, the goodwill was impaired by RM2.4 million. The group’s policy measures the non-controlling interest at its fair value.
On 1 July 2022, Blue Bhd disposed of 50% of its interests in Klise Bhd for RM10 million. The net assets of Klise Bhd on that date were RM16 million. The fair value of the remaining shares of Blue Bhd in Klise Bhd was RM6 million.
Tulip Berhad sold goods to Mawar Berhad for RM1.5 million. The margin was 20% on the selling price which was the normal markup rate charged by the industry players. Tulip Berhad does not acquire any ordinary shares in Mawar Berhad. However, Mawar Berhad is owned by the daughters of the CEO of Tulip Berhad.
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