chap 21 KẾ TOÁN QUỐC TẾ 2

The acquisition entry eliminates the investment account recorded by the parent and the acquisition equity of the subsidiary, as well as recognising any gain on bargain purchase.The consi

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Chapter 21: Consolidation: non-controlling interest

Chapter 21 – Consolidation: non Consolidation: non controlling interest controlling interest REVIEW QUESTIONS

1 What is meant by theWhat is meant by the term “nonterm “non controlling interest” (NCcontrolling interest” (NCI)?I)?

NCI is the term used for the ownership interest in a subsidiary other than the parent

It is defined in AASB 127 as:

The equity in a subsidiary not attributable, directly or indirectly, to a parent

2 Explain whether the NCI is better classified as debt or Explain whether the NCI is better classified as debt or equity.equity

The main argument for the NCI being classified as equity is that it better fits the definition ofequity The subsidiary has no present obligation in relation the NCI so the NCI does not meetthe definition of a liability

Some writers argue that NCI should be disclosed separately from equity an liabilities – the

“mezzanine” treatment This argument relates to the utility of financial statements in relation tothe user group, the parent shareholders It is argued that this form of presentation provides morerelevant information to the parent shareholders

3 Explain whether the NCI is entitled to a Explain whether the NCI is entitled to a share of subsidiary equity or some other amount.share of subsidiary equity or some other amount

If the NCI is classified as equity, it is entitled to a share of consolidated equity Note thatconsolidated equity is basically subsidiary equity adjusted for the effects of intragrouptransactions – that is, realised subsidiary equity

If it were classified as a liability of the subsidiary then the calculation of the NCI would be based on the obligation held by the subsidiary

4 How does the existence of an NCI How does the existence of an NCI affect the business combination valuation entries?affect the business combination valuation entries?

There is no effect

However if the full goodwill method is used, the recognition of the subsidiary’s goodwill ismade via a BCVR entry In contrast, where the partial goodwill method is used, goodwill isrecognised in the pre-acquisition entry

Why? The BCVR entries, apart from that for goodwill, are prepared because of the requirement

of AASB 3 to show the identifiable assets and liabilities of the acquiree at fair value Thedetermination of fair value is not affected by the parent’s ownership in the subsidiary

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Solutions manual to accompany Company Accounting 10e

5 How does the existence of an NCI How does the existence of an NCI affect the pre-acquisition entries?affect the pre-acquisition entries?

The acquisition entry eliminates the investment account recorded by the parent and the acquisition equity of the subsidiary, as well as recognising any gain on bargain purchase.The consideration transferred reflects the amount paid by the parent for its share of the equity ofthe subsidiary The first effect then on the pre-acquisition entry is that the equity eliminated isonly the parent’s share The second effect is that the gain on bargain purchase recognised isonly that relating to the parent’s share of the equity of the subsidiary

pre-6 Why is it necessary to change the format of the worksheet where a NCI exists in thegroup?

The AASB require the disclosure of the equity of the group, as well as the relative proportions

of the parent and the subsidiary For a wholly owned subsidiary situation, the final column inthe worksheet represents the group position which is also the parent’s position,as there is no NCI Where an NCI exists, having determined the group position, the equity must be dividedinto parent share and the NCI share Hence, the worksheet must have additional columns todivide the group equity into the relative shares of the parent and the NCI This is done bycalculating the NCI share and subtracting it from the group equity so that the final column isthen the parent entity’s share

7 Explain how the adjustment for intragroup transactions affects the calculation of the NCIshare of equity

The NCI does not affect the adjustment itself, as the full effects of the intragroup transaction areadjusted for on consolidation However, where the subsidiary records profit which is unrealised

to the group, this affects the calculation of the NCI The NCI is entitled only to a share ofconsolidated equity rather than subsidiary equity Hence, where the subsidiary has recordedunrealised profit, the NCI share of the recorded profit of the group must be adjusted for any ofthat profit which is unrealised In the Step 2 & Step 3 calculations of the NCI share of equity,this is a share of recorded equity As adjustments are made for intragroup transactions, wherethese transactions reflect adjustments for unrealised subsidiary profit, an adjustment is alsomade to the NCI share of profit The net result is then that the NCI gets a share of realisedsubsidiary equity

8 Explain whether an NCI adjustment needs to be made for all Explain whether an NCI adjustment needs to be made for all intragroup transactions.intragroup transactions

An NCI adjustment does NOT need to be made for all intragroup transactions

An NCI adjustment only needs to be made where the adjustment is for unrealised profitrecorded by the subsidiary Hence the transaction must be an upstream – subsidiary to parent – transaction in order for an NCI adjustment to be made Further the upstream transaction mustrelate to unrealised subsidiary profit

9 What is meant by ‘realisation of profit’What is meant by ‘realisation of profit’??

Profit is realised when the group transacts with an entity external to the group

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profit on sale, being the excess of the sale proceeds over the cost to the group of the item beingsold

With assets not sold but used by the group – see 10 below

With intragroup services, see the answer to 11 below

10 When is profit realised on an intragroup transaction involving a depreciable asset?

See the answer to 9 above

With assets used by the group such as depreciable assets, the group does not interact with anexternal entity It is then impossible to determine a point of realisation based on directinvolvement of the group with an external entity The point of realisation is then based onindirect involvement

The depreciable asset is used by the group to assist in its interaction with external entities eg bymaking inventories for sale to external entities The depreciation charge measures the extent ofthat involvement in any one year as the depreciation charge is based on para 60 of AASB 116which notes that the depreciation charge reflects the pattern of benefits consumed by the entity.Realisation of profit then occurs as the asset is used up or consumed by the entity Realisation isthen in proportion to the depreciation charge made on the asset

11 When is profit realised on an intragroup transaction involving the parent renting awarehouse from the subsidiary?

With such a transaction, the subsidiary records revenue, which increases subsidiary profit This profit is not recognised by the group However, no adjustment is made to the NCI share ofequity as a result of this transaction This is because of the difficulty of determining a point ofrealisation as no external entity is ever involved in this transaction

12 If a step approach is used in the calculation of the NCI share of equity, what are the stepsinvolved?

There are 3 steps:

1 Share of equity at acquisition date

2 Share of change in equity between the acquisition date and the beginning of the current period

3 Share of change in equity in the current period

13 What are two events that could occur between the acquisition date and the beginning ofthe current period that could affect the calculation of the NC

the current period that could affect the calculation of the NCI share of retained earnings?I share of retained earnings?

 Changes in the assets & liabilities recognised via the BCVR entries eg sale of theinventory on hand in the subsidiary at the acquisition date

 Movements in equity eg transfers to/from general reserve, prior period dividends

14 For what line items iFor what line items in the financial statements is it necessary to provide n the financial statements is it necessary to provide a break-down intoa break-down intoparent entity share and NCI share?

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Statement of Profit or Loss and Other Comprehensive Income:

AASB 101 para 83: Disclose both NCI and parent share of profit/loss for the periodAND share of total comprehensive income for the period

Statement of Financial Position:

AASB 101 para 54 (q) and (r): NCI share of equity, and share capital and reservesattributable to parent

Statement of Changes in Equity:

AASB 101 para 106 (a): total comprehensive income for the period, showing thatattributable to the parent and that attributable to the NCI

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CASE STUDY QUESTIONS

Case

Case Study Study 1 1 Equity Equity classification classification

Len Inn is the accountant for Wallaby Trucks Ltd This entity has an 80% holding in

Len Inn is the accountant for Wallaby Trucks Ltd This entity has an 80% holding in the entitythe entityTyres-R-Us Ltd Len is

Tyres-R-Us Ltd Len is concerned that the consolidated financial statements prepared underconcerned that the consolidated financial statements prepared underAASB 10 may be misleading He

AASB 10 may be misleading He believes that the main users of the consolidated financialbelieves that the main users of the consolidated financialstatements are the shareholders of Wallaby Trucks Ltd The key performance indicators arethen the profit numbers relating to the interests of those shareholders He therefore wants toprepare the consolidated financial statements showing the non-controlling interest

prepare the consolidated financial statements showing the non-controlling interest in Tyres-R-in

The Framework also gives no preference to either the parent or the NCI

2 NCI as equity or liability:

The main argument for the NCI being classified as equity is that it better fits the definition ofequity The subsidiary has no present obligation in relation to the NCI so the NCI does not meetthe definition of a liability

Some people argue that the NCI should be disclosed separately from equity and liabilities – the

“mezzanine” treatment This argument relates to the utility of financial statements in relation tothe user group, the parent shareholders It is argued that this form of presentation provides morerelevant information to the parent shareholders

3 Disclosure requirements:

Statement of Profit or Loss and Other Comprehensive Income:

AASB 101 para 83: Disclose both NCI and parent share of profit/loss for the periodAND share of total comprehensive income for the period

Statement of Financial Position:

AASB 101 para 54 (q) and (r): NCI share of equity, and share capital and reservesattributable to parent

Statement of Changes in Equity:

AASB 101 para 106 (a): total comprehensive income for the period, showing thatattributable to the parent and that attributable to the NCI

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If the NCI were classified as debt, any dividends would be disclosed as an expense, while the NCI would not receive a share of profit

In the statement of financial position the NCI would be shown under liabilities, while in thestatement of changes in equity there would be no NCI information

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Case

Case Study Study 2 2 Adjustment Adjustment for for the the NCI NCI share share of of equity equity

The consolidated financial statements of Whale

The consolidated financial statements of Whale Submarine Works Ltd are being Submarine Works Ltd are being prepared byprepared bythe group accountant, Raz Putin He is currently in dispute with the

the group accountant, Raz Putin He is currently in dispute with the auditors over the need toauditors over the need toadjust for the NCI share of equity in

adjust for the NCI share of equity in relation to intragroup transactions He understands therelation to intragroup transactions He understands theneed to adjust for the effects of

need to adjust for the effects of the intragroup transactions, but believes that it is unnecessary tothe intragroup transactions, but believes that it is unnecessary toadjust for the NCI share of equity He

adjust for the NCI share of equity He argues that the NCI group of shareholders has its interestargues that the NCI group of shareholders has its interest

in the subsidiary and as a result is

in the subsidiary and as a result is entitled to a share of wentitled to a share of what the subsidiary records as equity.hat the subsidiary records as equity.He

He also disputes with the auditors about the notion of ‘realisation’ of profit in relation to thealso disputes with the auditors about the notion of ‘realisation’ of profit in relation to theNCI If realisation requires the involvement of an external entity in

NCI If realisation requires the involvement of an external entity in a transaction, then ina transaction, then inrelation to transactions such as intragroup transfers of vehicles and services such as interestpayments, there is never any external party involved Those transactions are totally within thegroup and never involve external entities As a r

group and never involve external entities As a result, the more appropriate accounting is to giveesult, the more appropriate accounting is to givethe NCI a share

the NCI a share of subsidiary equity and not be concerned with the fictitious involvement ofof subsidiary equity and not be concerned with the fictitious involvement ofexternal entities

Required

Write a report to Raz

Write a report to Raz convincing him that his argument is fallacious.convincing him that his argument is fallacious

1.The need to adjust for the NCI share of equity in relation to intragroup transactions:

If the NCI is classified as equity, it is entitled to consolidated equity Note that consolidatedequity is basically subsidiary equity adjusted for the effects of intragroup transactions – that is,realised subsidiary equity

If it were classified as a liability of the subsidiary then the calculation of the NCI would be based on the obligation held by the subsidiary

2 Vehicles & services: Profit is realised when the group transacts with an entity external to the group.

The point of realisation depends then on identifying when the external entity is involved.Withinventory (and other sales) transactions the point of realisation is easily identified as it isthe point of sale when the external entity is involved It is at this point that the group recognises profit on sale, being the excess of the sale proceeds over the cost to the group of the item beingsold

With assets used by the group such as depreciable assets, the group does not interact with anexternal entity It is then impossible to determine a point of realisation based on directinvolvement of the group with an external entity The point of realisation is then based onindirect involvement

The depreciable asset is used by the group to assist in its interaction with external entities eg bymaking inventories for sale to external entities The depreciation charge measures the extent ofthat involvement in any one year as the depreciation charge is based on para 60 of AASB 116which notes that the depreciation charge reflects the pattern of benefits consumed by the entity.Realisation of profit then occurs as the asset is used up or consumed by the entity Realisation isthen achieved in proportion to the depreciation charge made on the asset

With transactions such as services, the subsidiary records revenue, which increases subsidiary profit This profit is not recognised by the group However, no adjustment is made to the NCIshare of equity as a result of this transaction This is because of the difficulty of determining a point of realisation as no external entity is ever involved in this transaction

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Case

Case Study Study 3 3 The The step step approach approach

In December 2016, Frog Ltd acquired 60% of the

In December 2016, Frog Ltd acquired 60% of the shares of Kovrov Ltd The accountant forshares of Kovrov Ltd The accountant forFrog Ltd, Nikki Romanov, is concerned about the approach she should take in preparing theconsolidated financial statements for the newly

consolidated financial statements for the newly established group In particular, she isestablished group In particular, she is

concerned about the calculation of the NCI share of equity, particularly in

concerned about the calculation of the NCI share of equity, particularly in the years afterthe years afteracquisition date She

acquisition date She has heard accountants in other companies talking has heard accountants in other companies talking about a ‘step’ approach,about a ‘step’ approach,and in particular how this makes accounting in periods after the acquisition date very easy and in particular how this makes accounting in periods after the acquisition date very easy as itas it

is then necessary to prepare only one step

Required

Prepare a report for Nikki, e

Prepare a report for Nikki, explaining the step approach to the calculation of NCI and thexplaining the step approach to the calculation of NCI and theeffects of this approach in the years after acquisition date

The 3 steps are:

1 Share of equity at acquisition date

2 Share of the change in equity between the acquisition date and the beginning of the current period

3 Share of change in equity in the current period

In preparing the consolidated financial statements at, say, 30 June 2018, the consolidation worksheet prepared at 30 June 2017 will contain Steps 1 and 2 for the 2018 worksheet:

- Step 1 journal entry never changes

- Step 2 for 2008 is the combination of Steps 2 and 3 for 2017

Hence in 2018, the only new calculations relate to Step 3, namely the share of changes in equity forthe 2017-18 period

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Case

Case Study Study 4 4 Effects Effects of of intragroup intragroup transactions transactions

Because the Moth Cement Works Ltd has a number of subsidiaries, Star Lin is required toprepare a set of consolidated financial statements for the group She is concerned about thecalculation of the NCI share of e

calculation of the NCI share of equity particularly where there are intragroup transactions Thequity particularly where there are intragroup transactions Theauditors require that when adjustments are made

auditors require that when adjustments are made for intragroup transactions the effects offor intragroup transactions the effects ofthese transactions on the NCI should also be adjusted for Star has two concerns First, wthese transactions on the NCI should also be adjusted for Star has two concerns First, why is ithy is itnecessary to adjust the NCI share of equity for t

necessary to adjust the NCI share of equity for the effects of intragroup transactions? Second, ishe effects of intragroup transactions? Second, is

it necessary to make NCI adjustments in relation toallintragroup tintragroup transactions?ransactions?

Required

Prepare a report for Star, explaining these two

Prepare a report for Star, explaining these two areas of concern.areas of concern

Is it necessary to make NCI adjustments in relation to all intragroup transactions?

The NCI does not affect the adjustment itself, as the full effects of the intragroup transaction areadjusted for on consolidation However, where the subsidiary records profit which is unrealised to theequity rather than subsidiary equity Hence, where the subsidiary has recorded unrealised profit, the NCI share of the recorded profit of the group must be adjusted for any of that profit which isunrealised In the Step 2 & Step 3 calculations of the NCI share of equity, this is a share of recordedequity As adjustments are made for intragroup transactions, where these transactions reflectadjustments for unrealised subsidiary profit, an adjustment is also made to the NCI share of profit.The net result is then that the NCI gets a share of realised subsidiary equity

However, an NCI adjustment does NOT need to be made for all intragroup transactions

An NCI adjustment only needs to be made where the adjustment is for unrealised profit recorded bythe subsidiary Hence the transaction must be an upstream – subsidiary to parent – transaction in orderfor an NCI adjustment to be made Further the upstream transaction must relate to unrealisedsubsidiary profit

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PRACTICE QUESTIONS

Question

Question 21.1 21.1 Full Full and and partial partial goodwill goodwill methods methods

On 1 July 2016, Rainbow Ltd acquired 80% of

On 1 July 2016, Rainbow Ltd acquired 80% of the issued shares of Lorikeet Ltd for $165 the issued shares of Lorikeet Ltd for $165 000.000

At this date, the equity of Lorikeet

At this date, the equity of Lorikeet Ltd was:Ltd was:

Share capitalGeneral reserveRetained earnings

$ 100 000

40 000

50 000

At acquisition date all the identifiable assets and liabilities of Lorikeet Ltd were

At acquisition date all the identifiable assets and liabilities of Lorikeet Ltd were recorded atrecorded atamounts equal to fair value At 30

amounts equal to fair value At 30 June 2018, the equity of Lorikeet Ltd consisted of:June 2018, the equity of Lorikeet Ltd consisted of:

$ 100 000

50 000

80 000During the 2017

During the 2017 – – 18 year Lorikeet Ltd recorded a profit of 18 year Lorikeet Ltd recorded a profit of $15 000.$15 000

Required

Prepare the consolidated worksheet entries at 30 June 2018 for

Prepare the consolidated worksheet entries at 30 June 2018 for Rainbow Ltd assuming:Rainbow Ltd assuming:

A At 1 At 1 July 2July 2016, 016, the the fair vfair value oalue of the f the non-controlling non-controlling interest interest was $40 was $40 000 000 and and Rainbow Rainbow LtdLtdadopts the full goodwill method

B Rainbow Rainbow Ltd Ltd adopts adopts the the partial partial goodwill goodwill method.method

A Full Goodwill Method

At 1 July 2016:

Fair value of identifiable assets and liabilities of Lorikeet Ltd = $100 000 + $40 000 + $50 000

= $190 000 (a) Consideration transferred = $165 000 (b) NCI in Lorikeet Ltd = $40 000 Aggregate of (a) and (b) = $205 000 Goodwill = $205 000 - $190 000

= $15 000 Goodwill of Lorikeet Ltd

Fair value of Lorikeet Ltd = $40 000/0.2

= $200 000 Fair value of INA of Lorikeet Ltd = $190 000 Goodwill of Lorikeet Ltd = $10 000 Goodwill of Rainbow Ltd

Goodwill acquired = $15 000 Goodwill of Lorikeet Ltd = $10 000 Control premium parent – = $5 000

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Goodwill Dr 10 000 Business combination valuation reserve Cr 10 000 (Goodwill of subsidiary)

2 Pre-acquisition entries

Retained earnings (1/7/17) Dr 40 000 Share capital Dr 80 000 General reserve Dr 32 000 Business combination valuation reserve Dr 8 000 Goodwill Dr 5 000 Shares in Lorikeet Ltd Cr 165 000

3 NCI share of equity 1/7/16

Retained earnings (1/7/17) Dr 10 000 Share capital Dr 20 000 General reserve Dr 8 000 Business combination valuation reserve Dr 2 000 NCI Cr 40 000 (20% of equity at 1/7/16)

4 NCI share of equity from 1/7/16

4 NCI share of equity from 1/7/16 – – 30/6/17 30/6/17

Retained earnings (1/7/17)* Dr 6 000 General reserve** Dr 2 000 NCI Cr 8 000

* 20% of change in RE of $30 000

** 20% of change in GR of $10 000

5 NCI share of equity 1/7/17- 30/6/18

NCI share of profit Dr 3 000 NCI Cr 3 000 (20% x $15 000)

B Partial Goodwill Method

At 1 July 2016:

Fair value of identifiable assets and liabilities of Lorikeet Ltd = $100 000 + $40 000 + $50 000

= $190 000 (a) Consideration transferred = $165 000 (b) NCI in Lorikeet Ltd = 20% x $190 000

= $38 000 Aggregate of (a) and (b) = $203 000 Goodwill of Rainbow Ltd = $203 000 - $190 000

= $13 000

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1 Business combination valuation entries

There is no BCVR entry as only parent goodwill is recognised

Retained earnings (1/7/17) Dr 40 000 Share capital Dr 80 000 General reserve Dr 32 000 Goodwill Dr 13 000 Shares in Lorikeet Ltd Cr 165 000

Retained earnings (1/7/17) Dr 10 000 Share capital Dr 20 000 General reserve Dr 8 000 NCI Cr 38 000 (20% of equity at 1/7/16)

Entries4-5 are the same as for the full goodwill method

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Question

Question 21.2 21.2 Full Full goodwill goodwill and and partial partial goodwill goodwill methods methods

Swamp Ltd acquired 90% of the shares (cum div.) of Tortoise Ltd on 1 July 2015 for $237 000.) of Tortoise Ltd on 1 July 2015 for $237 000

At this date, the equity of Tortoise

At this date, the equity of Tortoise Ltd consisted of:Ltd consisted of:

Share capitalAsset revaluation surplusRetained earnings

$ 125 000

30 000

80 000

At acquisition date all the identifiable assets and liabilities of Tortoise Ltd were

At acquisition date all the identifiable assets and liabilities of Tortoise Ltd were recorded atrecorded atamounts equal to fair value Tortoise Ltd had recorded a

amounts equal to fair value Tortoise Ltd had recorded a dividend payable of $10 000, whichdividend payable of $10 000, whichwas paid in August 2015, and goodwill of

was paid in August 2015, and goodwill of $5000.$5000

At 30 June 2017, the e

At 30 June 2017, the equity of Tortoise Ltd consisted of:quity of Tortoise Ltd consisted of:

Share capitalAsset revaluation surplusRetained earnings

$ 100 000

40 000

During the 2016 – – 17 year Tortoise Ltd recorded a profit of 17 year Tortoise Ltd recorded a profit of $20 000.$20 000

Required

Prepare the consolidated worksheet entries at 30 June 2017 for

Prepare the consolidated worksheet entries at 30 June 2017 for Swamp Ltd assuming:Swamp Ltd assuming:

A

A At 1 July At 1 July 2015, the 2015, the fair value ofair value of the nf the non-controlling inteon-controlling interest was $rest was $25 000 a25 000 and Swamp nd Swamp LtdLtdadopts the full goodwill method

B

B Swamp Swamp Ltd Ltd adopts adopts the the partial partial goodwill goodwill method.method

A Full Goodwill Method

= $228 000 (b) NCI in Tortoise Ltd = $25 000 Aggregate of (a) and (b) = $253 000 Goodwill = $253 000 - $230 000

= $23 000 Goodwill of Tortoise Ltd

Fair value of Tortoise Ltd = $25 000/0.1

= $250 000 Fair value of INA of Tortoise Ltd = $230 000 Goodwill of Tortoise Ltd = $20 000 Goodwill recorded = $5 000 Non-recorded goodwill = $15 000 Goodwill of Swamp Ltd

Goodwill acquired = $23 000 Goodwill of Tortoise Ltd = $20 000 Control premium parent – = $3 000

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Consolidation worksheet entries at 30 June 2017:

Goodwill Dr 15 000 Business combination valuation reserve Cr 15 000 (Unrecorded goodwill of subsidiary)

Retained earnings (1/7/16) Dr 72 000 Share capital Dr 112 500 Asset revaluation surplus Dr 27 000 Business combination valuation reserve Dr 13 500 Goodwill Dr 3 000 Shares in Tortoise Ltd Cr 228 000

Retained earnings (1/7/16) Dr 8 000 Share capital Dr 12 500 Asset revaluation surplus Dr 3 000 Business combination valuation reserve Dr 1 500 NCI Cr 25 000 (10% of equity at 1/7/15)

Retained earnings (1/7/16) Dr 3 000 Asset revaluation surplus Dr 1 000 NCI Cr 4 000

5 NCI share of equity 1/7/16- 30/6/17

B Partial Goodwill Method

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Aggregate of (a) and (b) = $251 000 Goodwill of Swamp Ltd = $251 000 - $230 000

= $21 000 Goodwill recorded – parent share = 90% x $5 000

= $4 500 Unrecorded goodwill – parent share = $16 500

There are no BCVR entries for goodwill Under the partial goodwill method only the

parent’s share of goodwill is recognised.This is done in the pre-acquisition entry.

Retained earnings (1/7/17) Dr 72 000 Share capital Dr 112 500 Asset revaluation surplus Dr 27 000 Goodwill Dr 16 500 Shares in Tortoise Ltd Cr 228 000

Retained earnings (1/7/16) Dr 8 000 Share capital Dr 12 500 Asset revaluation surplus Dr 3 000 NCI Cr 23 500 (10% of equity at 1/7/15)

Entries (4) and (5) are the same as in Part A.

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Question

Question 21.3 21.3 Partial Partial goodwill goodwill method, method, gain gain on on bargain bargain purchase purchase

Black Ltd acquired 90% of the shares of Swan Ltd for

Black Ltd acquired 90% of the shares of Swan Ltd for $107 600 on 1 July 2016 At $107 600 on 1 July 2016 At this date thethis date theequity of Swan Ltd consisted of:

Share capitalRetained earnings

$ 80 000

40 000

At acquisition date all the identifiable assets and liabilities of Swan Ltd were

At acquisition date all the identifiable assets and liabilities of Swan Ltd were recorded atrecorded atamounts equal to fair value

At 30 June 2017, the equity of

At 30 June 2017, the equity of Swan Ltd consisted of:Swan Ltd consisted of:

$ 80 000

10 000

During the 2016 – – 17 year Swan Ltd recorded a profit of 17 year Swan Ltd recorded a profit of $15 000 The transfer to general reserve$15 000 The transfer to general reservewas from retained earnings existing at 1 July 2016

Required

Prepare the consolidated worksheet entries at 30 June 2017 for Black

Prepare the consolidated worksheet entries at 30 June 2017 for Black Ltd assuming Black LtdLtd assuming Black Ltdadopts the partial goodwill method

Partial Goodwill Method

At 1 July 2016:

Fair value of identifiable assets and liabilities of Swan Ltd = $80 000 + $40 000

= $120 000 (a) Consideration transferred = $107 600 (b) NCI in Swan Ltd = 10% x $120 000

= $12 000 Aggregate of (a) and (b) = $119 600 Gain on bargain purchase = $120 000 - $119 600

= $400

There is no BCVR entry as a gain on bargain purchase occurred.

Retained earnings (1/7/16) Dr 36 000 Share capital Dr 72 000 Gain on bargain purchase Cr 400 Shares in Swan Ltd Cr 107 600

* 90% x $40 000

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Retained earnings (1/7/16) Dr 4 000 Share capital Dr 8 000 NCI Cr 12 000 (10% of equity at 1/7/16)

General reserve Dr 1000 Transfer to general reserve Cr 1 000 (10% x $10 000)

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Question

Question 21.4 21.4 Full Full goodwill goodwill method, method, multiple multiple years years

On 1 July 2016, Huntsman Ltd acquired 90% the issued shares of Spider Ltd for $140

On 1 July 2016, Huntsman Ltd acquired 90% the issued shares of Spider Ltd for $140 300 At300 Atthis date the equity of Spider Ltd consisted of $100 000

this date the equity of Spider Ltd consisted of $100 000 share capital and $50 000 retainedshare capital and $50 000 retainedearnings All the identifiable assets and liabilities of Spider Ltd were

earnings All the identifiable assets and liabilities of Spider Ltd were recorded at amounts equalrecorded at amounts equal

to fair value except for

to fair value except for plant for which the carrying amount of $80 000 plant for which the carrying amount of $80 000 (net of accumulated(net of accumulateddepreciation of $40 000) was $3000 less than the fair

depreciation of $40 000) was $3000 less than the fair value The plant was estimated to have avalue The plant was estimated to have afurther 3-year life The fair value

further 3-year life The fair value of the non-controlling interest was $15 500 Huntsman Ltdof the non-controlling interest was $15 500 Huntsman Ltduses the full goodwill method

The following annual results were recorded by Spider Ltd following the business combination:Year

Year ended ended Profit/(loss) Other items Other items ofof

comprehensiveincome

The other items of comprehensive income relate to the gains on

The other items of comprehensive income relate to the gains on land of Spider Ltd that areland of Spider Ltd that arerecorded at fair value under the

recorded at fair value under the revaluation method of measurement The group transfers therevaluation method of measurement The group transfers therevaluation reserves to retained earnings when an asset is sold or

revaluation reserves to retained earnings when an asset is sold or fully consumed.fully consumed

The tax rate is 30%

Required

Prepare the consolidation worksheet entries for

Prepare the consolidation worksheet entries for the preparation of consolidated financialthe preparation of consolidated financialstatements of Huntsman Ltd for each of the years ending 30 June 2017

statements of Huntsman Ltd for each of the years ending 30 June 2017 – – 20.20

Net fair value of identifiable assets

and liabilities of Spider Ltd = ($100 000 + $50 000) (equity)

+ $3 000 (1 – 30%) (plant)

= $152 100 (a) Consideration transferred = $140 300

(b) Non-controlling interest = $15 500

Aggregate of (a) and (b) = $155 800 Goodwill = $155 800 – $152 100

= $3 700 Goodwill of Spider Ltd

Fair value of Spider Ltd = $15 500/0.1

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Goodwill acquired = $3 700 Goodwill of Spider Ltd = $2 900 Control premium = $800

1

1 Consolidation Consolidation WorksheeWorksheet Entriet Entries - s - 1 Ju1 July 201ly 20166

Accumulated depreciation - plant Dr 40 000 Plant Cr 37 000 Deferred tax liability Cr 900 Business combination valuation reserve Cr 2 100 Goodwill Dr 2 900

Business combination valuation reserve Cr 2 900

Retained earnings (1/7/16) Dr 45 000 Share capital Dr 90 000 Business combination valuation reserve Dr 4 500 Goodwill Dr 800 Shares in Spider Ltd Cr 140 300

3 NCI share of equity at 1 July 2016

Retained earnings (1/7/16) Dr 5 000 Share capital Dr 10 000 Business combination valuation reserve Dr 500 NCI Cr 15 500 (10% of balances at 1 July 2016)

2 Consolidation Consolidation Worksheet Worksheet Entries Entries - - 30 30 June June 20172017

Accumulated depreciation - plant Dr 40 000 Plant Cr 37 000 Deferred tax liability Cr 900 Business combination valuation reserve Cr 2 100 Depreciation expense Dr 1 000

Accumulated depreciation - plant Cr 1 000 (1/3 x $3 000 p.a.)

Deferred tax liability Dr 300 Income tax expense Cr 300 Goodwill Dr 2 900

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2 Pre-acquisition entry

Retained earnings (1/7/16) Dr 45 000 Share capital Dr 90 000 Business combination valuation reserve Dr 4 500 Goodwill Dr 800 Shares in Spider Ltd Cr 140 300

Retained earnings (1/7/16) Dr 5 000 Share capital Dr 10 000 Business combination valuation reserve Dr 500 NCI Cr 15 500

4 NCI share of equity: 1 July 2016 -

4 NCI share of equity: 1 July 2016 - 30 June 201730 June 2017

NCI share of profit Dr 730 NCI Cr 730 (10% [$8000 – ($1 000 - $300))

Asset revaluation surplus Dr 200 NCI Cr 200 (10% x $2 000)

3 Consolidation Consolidation WorksheeWorksheet t Entries - 30 30 June June 20182018

Accumulated depreciation - plant Dr 40 000 Plant Cr 37 000 Deferred tax liability Cr 900 Business combination valuation reserve Cr 2 100 Depreciation expense Dr 1 000

Retained earnings (1/7/17) Dr 1 000 Accumulated depreciation - plant Cr 2 000 (1/3 x $3 000 p.a for 2 years)

Deferred tax liability Dr 600 Income tax expense Cr 300 Retained earnings (1/7/17) Cr 300 Goodwill Dr 2 900

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Share capital Dr 90 000 Business combination valuation reserve Dr 4 500 Goodwill Dr 800 Shares in Spider Ltd Cr 140 300

Retained earnings (1/7/17) Dr 730 Asset revaluation surplus Dr 200 NCI Cr 930 (RE: 10% ($8 000 – [$1 000 - $300])

ARS: 10% x $2 000

This entry is the combination of the previous year’s entries for NCI for 1/7/16 – 30/6/17

NCI share of profit Dr 830 NCI Cr 830 (10% ($9 000 – [$1 000 - $300])

Asset revaluation surplus Dr 300 NCI Cr 300 (10% x $3000)

4 Consolidation Consolidation Journal Journal entries entries - - 30 30 June June 20192019

Depreciation expense - plant Dr 1 000 Income tax expense Cr 300 Retained earnings (1/7/18) Dr 1 400

Transfer from business combination valuation reserve Cr 2 100 Goodwill Business combination valuation reserve Dr Cr 2 900 2 900

Retained earnings (1/7/18) Dr 45 000 Share capital Dr 90 000 Business combination valuation reserve Dr 4 500 Goodwill Dr 800

Trang 23

Shares in Spider Ltd Cr 140 300 Transfer from business combination reserve Dr 1 890

Retained earnings (1/7/17) Dr 1 560 Asset revaluation surplus Cr 500 NCI Cr 2 060 RE: 10% ($8 000 + $9 000 – $1 400 plant)

ARS: 10% ($2 000 + $3 000)

This entry is the combination of the previous year’s entries (no 4 & 5) for NCI for 1/7/16 – 30/6/18

NCI share of profit Dr 930 NCI Cr 930 (10% [10 000 – ($1000 - $300)])

Transfer from business combination valuation reserve Dr 210 Business combination valuation reserve Cr 210 (10% x $2 100 plant)

Goodwill Dr 2 900 Business combination valuation reserve Cr 2 900

Retained earnings (1/7/19) Dr 46 890 Share capital Dr 90 000

Trang 24

Retained earnings (1/7/19) Dr 2 700 Asset revaluation surplus Cr 900 NCI Cr 3 600 RE: 10% ($8 000 + $9 000 + $10 000)

ARS: 10% ($2 000 + $3 000 + $4000)

This entry is the combination of the previous year’s entries (no 4 & 5) for NCI for 1/7/16 – 30/6/19

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Question

Question 21.5 21.5 Partial Partial and and full full goodwill goodwill methods methods

On 1 July 2016 Sugar Ltd acquired 90% of

On 1 July 2016 Sugar Ltd acquired 90% of the shares of Glider Ltd for $435 240 At the shares of Glider Ltd for $435 240 At this datethis datethe equity of Glider Ltd consisted of share capital of

the equity of Glider Ltd consisted of share capital of $300 000 and retained earnings of $120$300 000 and retained earnings of $120

000 All the identifiable asset and liabilities of

000 All the identifiable asset and liabilities of Glider Ltd were recorded at amounts equal to fairGlider Ltd were recorded at amounts equal to fairvalue except for:

Carryingamount

Fair valueLand $ $ 80 80 000 000 $ 95 $ 95 000000

Plant Plant (cost Inventory (cost $380 $380 000) 000) 300 300 000 15 15 000 000 000 330 000330 18 18 000000000The plant was considered to have a further 10-year life

The plant was considered to have a further 10-year life All the inventory was sold by 30 All the inventory was sold by 30 JuneJune

2017 The tax rate is

2017 The tax rate is 30% Sugar Ltd uses the partial goodwill method.30% Sugar Ltd uses the partial goodwill method

and liabilities of Glider Ltd = $300 000 + $120 000 (equity)

+ $15 000 (1 – 30%) (land)+ $3 000 (1 – 30%) (inventory)+ $30 000 (1 – 30%) (plant)

= $453 600(a)Consideration transferred = $435 240

(b) Non-controlling interest = 10% x $453 600

= $45 360Aggregate of (a) and (b) = $480 600Goodwill of the parent = $480 600 - $453 600

= $27 000

A Worksheet entries at 1 July 2016

Deferred tax liability Cr 4 500Business combination valuation reserve Cr 10 500

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Depreciation expense Dr 3 000Accumulated depreciation Cr 3 000(1/10 x $30 000)

Deferred tax liability Dr 900Income tax expense Cr 900Cost of sales Dr 3 000

Income tax expense Cr 900Transfer from business combination

valuation reserve Cr 2 100

Retained earnings (1/7/16) Dr 108 000Share capital Dr 270 000Business combination valuation reserve Dr 30 240Goodwill Dr 27 000Shares in Glider Ltd Cr 435 240Transfer from business combination

valuation reserve Dr 1 890Business combination valuation reserve Cr 1 890

3 NCI share of equity at 1

3 NCI share of equity at 1 July 2016July 2016

Share capital Dr 30 000Business combination valuation reserve Dr 3 360Retained earnings (1/7/16) Dr 12 000

4 NCI share of equity: 1/7/16

4 NCI share of equity: 1/7/16 - 30/6/17- 30/6/17

NCI share of profit Dr 2 580

(10% ($30 000 – ($3 000 - $900) – ($3 000 – $900)))Transfer from business combination

valuation reserve Dr 210Business combination valuation reserve Cr 210(10% x $2 100)

B FULL GOODWILL METHOD

NCI has a fair value of $47 700

At 1 July 2016:

and liabilities of Glider Ltd = $300 000 + $120 000 (equity)

+ $15 000 (1 – 30%) (land)+ $3 000 (1 – 30%) (inventory)+ $30 000 (1 – 30%) (plant)

Trang 27

(b) Non-controlling interest = $47 700

Aggregate of (a) and (b) = $482 940

Goodwill = $482 940 - $453 600

= $29 340Goodwill of Subsidiary

Fair value of Glider Ltd = $47 700/10%

= $477 000 Net fair value of identifiable assets

Goodwill of parent (control premium) = $5 940

There will need to be an additional BCVR entry:

Goodwill Dr 23 400Business combination valuation entry Cr 23 400The pre-acquisition entry at 1 July 2016 would change to:

Share capital Dr 270 000Retained earnings (1/7/16) Dr 108 000Business combination valuation reserve * Dr 51 300Goodwill Dr 5 940Shares in Glider Ltd Cr 435 240

*$30 240 (see A entry) + (90% x $23 400)The Step 1 NCI entry changes to:

Share capital Dr 30 000Business combination valuation reserve * Dr 5 700Retained earnings (1/7/16) Dr 12 000

* $3 360 (see A entry)+ 10% x $23 400]

All other entries under part A are the same for Part B.

Trang 28

Question

Question 21.6 21.6 Partial Partial goodwill goodwill method, method, consolidation consolidation worksheet worksheet

Barren Ltd acquired 75% of the shares of Goose Ltd for

Barren Ltd acquired 75% of the shares of Goose Ltd for $191 000 on 1 $191 000 on 1 July 2016 At this dateJuly 2016 At this datethe equity of Goose Ltd consisted of:

$ 80 000

48 000

32 000

At this date all the i

At this date all the identifiable assets and liabilities of Goose Ltd were recorded at amountsdentifiable assets and liabilities of Goose Ltd were recorded at amountsequal to their fair values except for:

Carryingamount

Fair valuePlant

Plant (cost (cost $156 $156 000) 000) $130 $130 000 000 $140 000$140 000

Inventory 100 100 000 000 130 000130 000Brands 40 40 000 000 120 000120 000The plant was considered to have a further useful life

The plant was considered to have a further useful life of 10 years The brands have anof 10 years The brands have anindefinite life The inventory was all sold by

indefinite life The inventory was all sold by 30 June 2017 The tax rate is 30 June 2017 The tax rate is 30% Barren Ltd uses30% Barren Ltd usesthe partial goodwill method

An impairment test was conducted in June 2017 resulting in the write

An impairment test was conducted in June 2017 resulting in the write off of all the off of all the goodwill ofgoodwill ofGoose Ltd and $20 000 from the brands

Financial information provided by the two companies at 30 June 2019 was as follows:

Barren Barren Ltd Ltd Goose Goose LtdLtdSales $400 $400 000 000 $64 000$64 000

Cost Cost of of sales sales (170 (170 000) 000) (28 000)(28 000)Gross

Gross profit profit 230 230 000 000 36 00036 000Expenses (60 (60 000) 000) (5 600)(5 600)Profit

Profit before before income income tax tax 170 170 000 000 30 40030 400

Income Income tax tax expense expense (40 (40 000) 000) (4 000)(4 000)Profit

Profit for for the the year year 130 130 000 000 26 40026 400Retained

Retained earnings earnings (1/7/18) (1/7/18) 95 95 000 000 60 00060 000

Retained

Retained earnings earnings (30/6/19) (30/6/19) 225 225 000 000 86 40086 400

Share Share capital capital 300 300 000 000 80 00080 000General

General reserve reserve 50 50 000 000 64 00064 000

Total equity 575 575 000 000 230 400230 400Current

Current liabilities liabilities $ $ 40 40 000 000 $ $ 3 3 600600Deferred

Deferred tax tax liabilities liabilities 20 20 000 000 6 6 000000

Total liabilities 60 60 000 000 9 9 600600

Total equity and liabilities $635 $635 000 000 $240 $240 000000

Plant $340 $340 000 000 $152 $152 000000Accumulated depreciation

Accumulated depreciation – –

plant

(100 (100 000) 000) (19 200)(19 200)Brands 80 80 000 000 40 00040 000Shares

Shares in in Goose Goose Ltd Ltd 191 191 000 000 0Inventory 124 124 000 000 67 20067 200

Total assets $635 $635 000 000 $240 $240 000000Required

Prepare the consolidated financial statements of Barren Ltd at 30 June 2019

Trang 29

Net fair value of identifiable

assets and liabilities of Goose Ltd = ($80 000 + $48 000 + $32 000) (equity)

+ $10 000 (1 – 30%) (plant)+ $80 000 (1 – 30%) (brands)+ $30 000 (1 – 30%) (inventory)

(b) Non-controlling interest = 25% x $244 000

= $61 000Aggregate of (a) and (b) = $252 000Goodwill: parent only = $252 000 - $244 000

= $8 000

A Consolidation worksheet entries at 30 June 2019

Accumulated depreciation - plant Dr 26 000

Deferred tax liability Cr 3 000Business combination valuation reserve Cr 7000Depreciation expense Dr 1 000

Retained earnings (1/7/18) Dr 2 000Accumulated depreciation Cr 3 000(1/10 x $10 000 p.a for 3 years)

Deferred tax liability Dr 900Income tax expense Cr 300Retained earnings (1/7/18) Cr 600Brands Dr 80 000

Deferred tax liability Cr 24 000Business combination valuation reserve Cr 56 000Retained earnings (1/7/18) Dr 20 000

Accumulated impairment losses – brands Cr 20 000Deferred tax liability Dr 6 000Retained earnings (1/7/18) Cr 6 000

Trang 30

Retained earnings (1/7/18) * Dr 47 750Share capital Dr 60 000General reserve Dr 36 000Business combination valuation reserve Dr 47 250Shares in Goose Ltd Cr 191 000

* = $24 000 + $8 000 goodwill + 75% x $21 000 (BCVR – inventory)

3 NCI in equity at 1/7/16

Retained earnings (1/7/18) Dr 8 000Share capital Dr 20 000General reserve Dr 12 000Business combination valuation reserve Dr 21 000

(25% of balances at 1/7/16)

4 NCI in equity: 1/7/16 - 30/6/18

Retained earnings (1/7/18) Dr 3 150General reserve Dr 4 000Business combination valuation reserve Cr 5 250

RE: 25% ($60 000 - $32 000 – ($2 000 - $600) – ($20 000 - $6 000))GR: 25% ($64 000 - $48 000)

BCVR: 25% x $21 000 (BCVR inventory)

5

5 NCI in equNCI in equity: 1/7/18 - ity: 1/7/18 - 30/6/1930/6/19

NCI share of profit Dr 6 425

(25% ($26 400 – ($1 000 - $300)))

Trang 31

Financial

Statements

BarrenLtd

GooseLtd

Adjustments Group NCI Parent

Sales revenue 400 000 64 000 464 000

Cost of sales 170 000 28 000 198 000

230 000 36 000 266 000Other expenses 60 000 5 600 1 1 000 66 600

Profit before

tax

170 000 30 400 199 400Tax expense 40 000 4 000 300 1 43 700

Profit for the

period

130 000 26 400 155 700 5 6 425 149 275Retained

earnings

(1/7/18)

95 000 60 000 1

12

91 850 34

4

12 000

4 000

62 000BCVR 0 0 2 47 250 7 000

56 000

11

15 750 3 21 000 5 250 4 0Total equity:

parent

591 975Total equity:

69 325Total equity 575 000 230 400 661 300 74 575 74 575 661 300Current

liabilities

40 000 3 600 43 600Deferred tax

46 100Total liabilities 60 000 9 600 89 700

Shares in

Goose Ltd

191 000 0 191 000 2 Plant 340 000 152 000 16 000 1 476 000

0-Accum

depreciation

(100 000) (19 200) 1 26 000 3 000 1 (96 200)Brands 80 000 40 000 1 80 000 200 000

Trang 32

QUESTION 21.6 (cont’d)

BARREN LTDConsolidated Statement of Profit or Consolidated Statement of Profit or Loss and Other Comprehensive IncomeLoss and Other Comprehensive Income

for the year ended 30 June 2019

Revenues:

Sales revenue $464 000Expenses:

Cost of sales 198 000Other expenses 66 600

264 600Profit before income tax 199 400Income tax expense 43 700

Profit

Profit for for the the period period 155 155 700700

Attributable to:

Parent shareholders 149 275 Non-controlling interest 6 425

$155 700

BARREN LTDConsolidated Statement of Changes in Equityfor the year ended 30 June 2019

Comprehensive income for the period $155 700 Non-controlling interest $6 425Parent shareholders $149 275

Group ParentGroup Parent

Retained earnings:

Balance at 1 July 2018 $91 850 $80 700Profit for the period 155 700 149 275Balance at 30 June 2019 $247 550 $229 975Business combination valuation reserve:

Balance at 1 July 2018 $15 750 0Balance at 30 June 2019 $15 750 0Share capital:

Balance at 1 July 2018 $320 000 $300 000Balance at 30 June 2019 $320 000 $300 000General reserve:

Balance at 1 July 2018 $78 000 $62 000Balance at 30 June 2019 $78 000 $62 000

Trang 33

QUESTION 21.6 (cont’d)

BARREN LTDConsolidated Statement of Financial Position

as at 30 June 2019ASSETS

Accumulated impairment losses (20 000) 180 000

Total Non-current Assets 559 800

EQUITY AND

EQUITY AND LIABILITIESLIABILITIES

Equity attributable to owners of the parent:

Share capital $300 000Other reserves: General reserve 62 000Retained earnings 229 925

Trang 34

FairvalueInventory $20 $20 000 000 $26 $26 000000

Land 80 80 000 000 110 110 000000Machinery

Machinery (cost (cost $68 $68 000) 000) 48 48 000 000 57 57 000000

Note the following in relation to these

Note the following in relation to these assets:assets:

All the inventory was sold by 30 All the inventory was sold by 30 June 2017.June 2017

The land was revalued in the records of The land was revalued in the records of Seal Ltd immediately after the businessSeal Ltd immediately after the businesscombination It was subsequently sold by Seal Ltd on 1 June 2018 for $113 combination It was subsequently sold by Seal Ltd on 1 June 2018 for $113 000 At this000 At thisdate, the recorded gains on this land taken to other comprehensive income were $3000, tdate, the recorded gains on this land taken to other comprehensive income were $3000, theheland being revalued to fair value by Seal

land being revalued to fair value by Seal Ltd immediately prior to sale.Ltd immediately prior to sale

The machinery was considered to have a further useful life of The machinery was considered to have a further useful life of 3 years.3 years

The fair value of the non-controlling interest in Seal

The fair value of the non-controlling interest in Seal Ltd at 1 July 2016 was $63 Ltd at 1 July 2016 was $63 000 Fur Ltd000 Fur Ltduses the full goodwill method

The following annual results were recorded by Seal Ltd following the business combination:Year

Year ended ended Profit/(loss) Other Other items items ofof

comprehensiveincome

reserves to retained earnings when an asset is sold or fully consumed.consumed

The tax rate is 30%

and liabilities of Seal Ltd = ($120 000 + $90 000) (equity)

+ $30 000 (1 – 30%) (land) + $9 000 (1 – 30%) (plant)

Trang 35

+ $6 000 (1 – 30%) (inventory)

= $241 500 (c) Consideration transferred = $191 000

(d) Non-controlling interest = $63 000

Aggregate of (a) and (b) = $254 000 Goodwill = $254 000 – $241 500

= $12 500 Goodwill of Seal Ltd

Fair value of Seal Ltd = $63 000/0.25

= $252 000 Fair value of INA of Seal Ltd = $241 500 Goodwill of Seal Ltd = $10 500 Goodwill of Fur Ltd

Goodwill acquired = $12 500 Goodwill of Seal Ltd = $10 500 Control premium parent – = $2 000

1

1 Consolidation Consolidation WorksheeWorksheet Entriet Entries - s - 1 Ju1 July 2016ly 2016

Accumulated depreciation - plant Dr 20 000 Plant Cr 9 000 Deferred tax liability Cr 2 700 Business combination valuation reserve Cr 6 300 Inventory Dr 6 000

Deferred tax liability Cr 1 800 Business combination valuation reserve Cr 4 200 Goodwill Dr 10 500

QUESTION 21.7

QUESTION 21.7 (cont’d)(cont’d)

Retained earnings (1/7/16) Dr 67 500 Share capital Dr 90 000 Asset revaluation surplus Dr 15 750 Business combination valuation reserve Dr 15 750 Goodwill Dr 2 000 Shares in Seal Ltd Cr 191 000

Trang 36

Business combination valuation reserve Dr 5 250 NCI Cr 63 000 (25% of balances at 1 July 2016)

2 Consolidation Consolidation Worksheet Worksheet Entries Entries - - 30 30 June June 20172017

Accumulated depreciation - plant Dr 20 000 Plant Cr 9 000 Deferred tax liability Cr 2 700 Business combination valuation reserve Cr 6 300 Depreciation expense Dr 3 000

Accumulated depreciation - plant Cr 3 000 (1/3 x $9 000 p.a.)

Deferred tax liability Dr 900 Income tax expense Cr 900 Cost of sales Dr 6 000

Income tax expense Cr 1 800 Transfer from business combination

valuation reserve Cr 4 200 Goodwill Dr 10 500

Trang 37

QUESTION 21.7

Retained earnings (1/7/16) Dr 67 500 Share capital Dr 90 000 Asset revaluation surplus Dr 15 750 Business combination valuation reserve Dr 15 750 Goodwill Dr 2 000 Shares in Seal Ltd Cr 191 000 Transfer from business combination

valuation reserve Dr 3 150 Business combination valuation reserve Cr 3 150 (75% x 70% x $6 000)

Retained earnings (1/7/16) Dr 22 500 Share capital Dr 30 000 Asset revaluation surplus Dr 5 250 Business combination valuation reserve Dr 5 250 NCI Cr 63 000

NCI share of profit Dr 2 175 NCI Cr 2 175 (25% [$15000 – ($3 000 - $900) – ($6 000 - $1 800)])

Transfer from business combination valuation reserve Dr 1 050 Business combination valuation reserve Cr 1 050 (25% x 70% x $6 000)

Trang 38

QUESTION 21.7

3 Consolidation Consolidation WorksheeWorksheet t Entries - 30 30 June June 20182018

Accumulated depreciation - plant Dr 20 000 Plant Cr 9 000 Deferred tax liability Cr 2 700 Business combination valuation reserve Cr 6 300 Depreciation expense Dr 3 000

Retained earnings (1/7/17) Dr 3 000 Accumulated depreciation - plant Cr 6 000 Deferred tax liability Dr 1 800

Income tax expense Cr 900 Retained earnings (1/7/17) Cr 900 Goodwill Dr 10 500

Retained earnings (1/7/17) Dr 70 650 Share capital Dr 90 000 Asset revaluation surplus Dr 15 750 Business combination valuation reserve Dr 12 650 Goodwill Dr 2 000 Shares in Seal Ltd Cr 191 000

*RE: [$67 500 + $3 150 BCVR - inventory]

Transfer from asset revaluation surplus Dr 15 750 Asset revaluation surplus Cr 15 750 (75% x 70% x $30 000)

Trang 39

QUESTION 21.7

Retained earnings (1/7/17) Dr 3 225 Asset revaluation surplus Dr 750 Business combination valuation reserve Cr 1 050 NCI Cr 2 925 (RE: 25% ($15 000 – [$3 000 - $900])

ARS: 25% x $3 000 BCVR: 25% x 70% x $6 000 inventory

NCI share of profit Dr 8 100 NCI Cr 8 100 (25% ($34 500 – [$3 000 - $900])

Transfer from asset revaluation surplus Dr 6 000 Asset revaluation surplus Cr 6 000 (25% x 70% x $30 000 plus 25% x $3000)

Asset revaluation surplus Dr 1 875 NCI Cr 1 875 (25% x $7 500)

Depreciation expense - plant Dr 3 000 Income tax expense Cr 900 Retained earnings (1/7/18) Dr 4 200

Transfer from business combination valuation reserve Cr 6 300 Goodwill Dr 10 500

Trang 40

QUESTION 21.7

Retained earnings (1/7/18) * Dr 86 400 Share capital Dr 90 000 Business combination valuation reserve Dr 12 600 Goodwill Dr 2 000 Shares in Seal Ltd Cr 191 000

* (75% x $90 000) + 75% x 70% ($6 000 inventory + $30 000 land) Transfer from business combination

valuation reserve Dr 4 725 Business combination valuation reserve Cr 4 725 (75% x $6 300 machinery)

Retained earnings (1/7/18) Dr 17 325 Asset revaluation surplus Cr 3 375 Business combination valuation reserve Cr 1 050 NCI Cr 12 900 RE: 25% ($15 000 + $34 500 – $4 200 machinery + $24 000 transfer from ARS) BCVR: 25% (70% x $6 000)

ARS: 25% ($3 000 + $7 500 – [$3000 + (70% x $30 000)transfer])

NCI Dr 2 775 NCI share of profit/loss Cr 2 775 (25% [(9 000) – ($3000 - $900)])

Transfer from business combination valuation reserve Dr 1 575 Business combination valuation reserve Cr 1 575 (25% x $6 300 machinery)

Asset revaluation surplus Dr 2 625 NCI Cr 2 625 (25% x $10 500)

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