ch21_sm_leo_10e.docx

Solutions Manualto accompany Company Accounting 10e prepared by Ken Leo John Hoggett John Sweeting Jeffrey Knapp Sue McGowan © John Wiley & Sons Australia, Ltd 2015  Chapter 21: Consolidation: non-controlling interest Chapter 21 – Consolidation: non-controlling interest REVIEW QUESTIONS 1. What is meant by the term “non-controlling interest” (NCI)? 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 equity. The main argument for the NCI being classified as equity is that it better fits the definition of equity. The subsidiary has no present obligation in relation the NCI so the NCI does not meet the 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 to the user group, the parent shareholders. It is argued that this form of presentation provides more relevant information to the parent shareholders. 3. Explain whether the NCI is entitled to a 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 that consolidated equity 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. 4. How does the existence of an NCI 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 is made via a BCVR entry. In contrast, where the partial goodwill method is used, goodwill is recognised 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. The determination of fair value is not affected by the parent’s ownership in the subsidiary. © John Wiley and Sons Australia, Ltd 2015 21.1 Solutions manual to accompany Company Accounting 10e 5. How does the existence of an NCI affect the pre-acquisition entries? The pre-acquisition entry eliminates the investment account recorded by the parent and the pre- 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 of the subsidiary. The first effect then on the pre-acquisition entry is that the equity eliminated is only the parent’s share. The second effect is that the gain on bargain purchase recognised is only that relating to the parent’s share of the equity of the subsidiary. 6. Why is it necessary to change the format of the worksheet where a NCI exists in the group? 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 in the 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 divided into parent share and the NCI share. Hence, the worksheet must have additional columns to divide the group equity into the relative shares of the parent and the NCI. This is done by calculating the NCI share and subtracting it from the group equity so that the final column is then the parent entity’s share. 7. Explain how the adjustment for intragroup transactions affects the calculation of the NCI share of equity. The NCI does not affect the adjustment itself, as the full effects of the intragroup transaction are adjusted 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 of consolidated equity 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 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, where these transactions reflect adjustments 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. 8. Explain whether an NCI adjustment needs to be made for all 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 profit recorded 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 must relate to unrealised subsidiary profit. 9. What is meant by ‘realisation of profit’? 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. With inventory (and other sale) transactions the point of realisation is easily identified as it is the point of sale when the external entity is involved. It is at this point that the group recognises © John Wiley and Sons Australia, Ltd 2015 21.2  Chapter 21: Consolidation: non-controlling interest profit on sale, being the excess of the sale proceeds over the cost to the group of the item being sold. 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 an external entity. It is then impossible to determine a point of realisation based on direct involvement of the group with an external entity. The point of realisation is then based on indirect involvement. The depreciable asset is used by the group to assist in its interaction with external entities eg by making inventories for sale to external entities. The depreciation charge measures the extent of that involvement in any one year as the depreciation charge is based on para 60 of AASB 116 which 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 is then in proportion to the depreciation charge made on the asset. 11. When is profit realised on an intragroup transaction involving the parent renting a warehouse 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 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. 12. If a step approach is used in the calculation of the NCI share of equity, what are the steps involved? 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 of the current period that could affect the calculation of the NCI share of retained earnings?  Changes in the assets & liabilities recognised via the BCVR entries eg sale of the inventory 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 in the financial statements is it necessary to provide a break-down into parent entity share and NCI share? © John Wiley and Sons Australia, Ltd 2015 21.3 Solutions manual to accompany Company Accounting 10e Statement of Profit or Loss and Other Comprehensive Income: AASB 101 para 83: Disclose both NCI and parent share of profit/loss for the period AND 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 reserves attributable to parent Statement of Changes in Equity: AASB 101 para 106 (a): total comprehensive income for the period, showing that attributable to the parent and that attributable to the NCI. © John Wiley and Sons Australia, Ltd 2015 21.4  Chapter 21: Consolidation: non-controlling interest CASE STUDY QUESTIONS Case Study 1 Equity classification Len Inn is the accountant for Wallaby Trucks Ltd. This entity has an 80% holding in the entity Tyres-R-Us Ltd. Len is concerned that the consolidated financial statements prepared under AASB 10 may be misleading. He believes that the main users of the consolidated financial statements are the shareholders of Wallaby Trucks Ltd. The key performance indicators are then the profit numbers relating to the interests of those shareholders. He therefore wants to prepare the consolidated financial statements showing the non-controlling interest in Tyres-R- Us Ltd in a category other than equity in the statement of financial performance, and for the statement of changes in equity to show the profit numbers relating to the parent shareholders only. Required Discuss the differences that would arise in the consolidated financial statements if the non- controlling interests were classified as debt rather than equity, and the reasons the standard setters have chosen the equity classification in AASB 10. 1. Prime users: There is nothing in either AASB 101 or AASB 127 that indicates who the prime users of the consolidated financial statements are. In the income statement there is no preference given to the parent over the NCI, although in the balance sheet, the NCI is limited to a one-line disclosure. 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 of equity. The subsidiary has no present obligation in relation to the NCI so the NCI does not meet the 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 to the user group, the parent shareholders. It is argued that this form of presentation provides more relevant 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 period AND 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 reserves attributable to parent Statement of Changes in Equity: AASB 101 para 106 (a): total comprehensive income for the period, showing that attributable to the parent and that attributable to the NCI. © John Wiley and Sons Australia, Ltd 2015 21.5 Solutions manual to accompany Company Accounting 10e 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 the statement of changes in equity there would be no NCI information. © John Wiley and Sons Australia, Ltd 2015 21.6  Chapter 21: Consolidation: non-controlling interest Case Study 2 Adjustment for the NCI share of equity The consolidated financial statements of Whale Submarine Works Ltd are being prepared by the group accountant, Raz Putin. He is currently in dispute with the auditors over the need to adjust for the NCI share of equity in relation to intragroup transactions. He understands the need to adjust for the effects of the intragroup transactions, but believes that it is unnecessary to adjust for the NCI share of equity. He argues that the NCI group of shareholders has its interest in the subsidiary and as a result is entitled to a share of what the subsidiary records as equity. He also disputes with the auditors about the notion of ‘realisation’ of profit in relation to the NCI. If realisation requires the involvement of an external entity in a transaction, then in relation to transactions such as intragroup transfers of vehicles and services such as interest payments, there is never any external party involved. Those transactions are totally within the group and never involve external entities. As a result, the more appropriate accounting is to give the NCI a share of subsidiary equity and not be concerned with the fictitious involvement of external entities. Required Write a report to Raz 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 consolidated equity 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. With inventory (and other sales) transactions the point of realisation is easily identified as it is the 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 being sold. With assets used by the group such as depreciable assets, the group does not interact with an external entity. It is then impossible to determine a point of realisation based on direct involvement of the group with an external entity. The point of realisation is then based on indirect involvement. The depreciable asset is used by the group to assist in its interaction with external entities eg by making inventories for sale to external entities. The depreciation charge measures the extent of that involvement in any one year as the depreciation charge is based on para 60 of AASB 116 which 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 is then 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 NCI share 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. © John Wiley and Sons Australia, Ltd 2015 21.7 Solutions manual to accompany Company Accounting 10e Case Study 3 The step approach In December 2016, Frog Ltd acquired 60% of the shares of Kovrov Ltd. The accountant for Frog Ltd, Nikki Romanov, is concerned about the approach she should take in preparing the consolidated financial statements for the newly established group. In particular, she is concerned about the calculation of the NCI share of equity, particularly in the years after acquisition date. She has heard accountants in other companies talking about a ‘step’ approach, and in particular how this makes accounting in periods after the acquisition date very easy as it is then necessary to prepare only one step. Required Prepare a report for Nikki, explaining the step approach to the calculation of NCI and the effects 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 for the 2017-18 period. © John Wiley and Sons Australia, Ltd 2015 21.8  Chapter 21: Consolidation: non-controlling interest Case Study 4 Effects of intragroup transactions Because the Moth Cement Works Ltd has a number of subsidiaries, Star Lin is required to prepare a set of consolidated financial statements for the group. She is concerned about the calculation of the NCI share of equity particularly where there are intragroup transactions. The auditors require that when adjustments are made for intragroup transactions the effects of these transactions on the NCI should also be adjusted for. Star has two concerns. First, why is it necessary to adjust the NCI share of equity for the effects of intragroup transactions? Second, is it necessary to make NCI adjustments in relation to all intragroup transactions? Required Prepare a report for Star, explaining these two areas of concern. Why is it necessary? Under Australian accounting standards, the NCI is classified as equity, mainly because the NCI does not fit the definition of a liability. If the NCI is classified as equity, it is entitled to a share of consolidated equity. Consolidated equity is determined after adjusting for the effects of intragroup transactions. Consolidated equity for the NCI is then subsidiary equity adjusted for the effects of those intragroup transactions affecting subsidiary equity– that is, realised subsidiary equity. 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 are adjusted 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 of consolidated equity 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 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, where these transactions reflect adjustments 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 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 must relate to unrealised subsidiary profit. © John Wiley and Sons Australia, Ltd 2015 21.9 Solutions manual to accompany Company Accounting 10e PRACTICE QUESTIONS Question 21.1 Full and partial goodwill methods On 1 July 2016, Rainbow Ltd acquired 80% of the issued shares of Lorikeet Ltd for $165 000. At this date, the equity of Lorikeet Ltd was: Share capital $ 100 000 General reserve 40 000 Retained earnings 50 000 At acquisition date all the identifiable assets and liabilities of Lorikeet Ltd were recorded at amounts equal to fair value. At 30 June 2018, the equity of Lorikeet Ltd consisted of: Share capital $ 100 000 General reserve 50 000 Retained earnings 80 000 During the 2017–18 year Lorikeet Ltd recorded a profit of $15 000. Required Prepare the consolidated worksheet entries at 30 June 2018 for Rainbow Ltd assuming: A. At 1 July 2016, the fair value of the non-controlling interest was $40 000 and Rainbow Ltd adopts the full goodwill method. B. Rainbow Ltd adopts the partial goodwill 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 Consolidation worksheet entries at 30 June 2018: 1. Business combination valuation entries © John Wiley and Sons Australia, Ltd 2015 21.10  Chapter 21: Consolidation: non-controlling interest 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 – 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 © John Wiley and Sons Australia, Ltd 2015 21.11 Solutions manual to accompany Company Accounting 10e 1. Business combination valuation entries There is no BCVR entry as only parent goodwill is recognised 2. Pre-acquisition entries 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 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 NCI Cr 38 000 (20% of equity at 1/7/16) Entries 4-5 are the same as for the full goodwill method © John Wiley and Sons Australia, Ltd 2015 21.12  Chapter 21: Consolidation: non-controlling interest Question 21.2 Full goodwill and partial goodwill methods Swamp Ltd acquired 90% of the shares (cum div.) of Tortoise Ltd on 1 July 2015 for $237 000. At this date, the equity of Tortoise Ltd consisted of: Share capital $ 125 000 Asset revaluation surplus 30 000 Retained earnings 80 000 At acquisition date all the identifiable assets and liabilities of Tortoise Ltd were recorded at amounts equal to fair value. Tortoise Ltd had recorded a dividend payable of $10 000, which was paid in August 2015, and goodwill of $5000. At 30 June 2017, the equity of Tortoise Ltd consisted of: Share capital $ 100 000 Asset revaluation surplus 40 000 Retained earnings 110 000 During the 2016–17 year Tortoise Ltd recorded a profit of $20 000. Required Prepare the consolidated worksheet entries at 30 June 2017 for Swamp Ltd assuming: A. At 1 July 2015, the fair value of the non-controlling interest was $25 000 and Swamp Ltd adopts the full goodwill method. B. Swamp Ltd adopts the partial goodwill method. A. Full Goodwill Method At 1 July 2015: Fair value of identifiable assets and liabilities of Tortoise Ltd = $125 000 + $30 000 + $80 000 (equity) - $5 000 (goodwill) = $230 000 (a) Consideration transferred = $237 000 – 90% x $10 000 (div. payable) = $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 © John Wiley and Sons Australia, Ltd 2015 21.13 Solutions manual to accompany Company Accounting 10e Consolidation worksheet entries at 30 June 2017: 1. Business combination valuation entries Goodwill Dr 15 000 Business combination valuation reserve Cr 15 000 (Unrecorded goodwill of subsidiary) 2. Pre-acquisition entries 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 3. NCI share of equity 1/7/15 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) 4. NCI share of equity from 1/7/15 – 30/6/16 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 NCI share of profit Dr 2 000 NCI Cr 2 000 (10% x $20 000) B. Partial Goodwill Method At 1 July 2015: Fair value of identifiable assets and liabilities of Tortoise Ltd = $125 000 + $30 000 + $80 000 - $5 000 (goodwill) = $230 000 (a) Consideration transferred = $237 000 – 90% x $10 000 (div. payable) = $228 000 (b) NCI in Tortoise Ltd = 10% x $230 000 = $23 000 © John Wiley and Sons Australia, Ltd 2015 21.14  Chapter 21: Consolidation: non-controlling interest 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 1. Business combination valuation entries 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. 2. Pre-acquisition entries 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 3. NCI share of equity 1/7/15 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. © John Wiley and Sons Australia, Ltd 2015 21.15 Solutions manual to accompany Company Accounting 10e Question 21.3 Partial goodwill method, gain on bargain purchase Black Ltd acquired 90% of the shares of Swan Ltd for $107 600 on 1 July 2016. At this date the equity of Swan Ltd consisted of: Share capital $ 80 000 Retained earnings 40 000 At acquisition date all the identifiable assets and liabilities of Swan Ltd were recorded at amounts equal to fair value. At 30 June 2017, the equity of Swan Ltd consisted of: Share capital $ 80 000 General reserve 10 000 Retained earnings 60 000 During the 2016–17 year Swan Ltd recorded a profit of $15 000. The transfer to general reserve was from retained earnings existing at 1 July 2016. Required Prepare the consolidated worksheet entries at 30 June 2017 for Black Ltd assuming Black Ltd adopts 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 1. Business combination valuation entries There is no BCVR entry as a gain on bargain purchase occurred. 2. Pre-acquisition entries 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 General reserve Dr 9 000 Transfer to general reserve Cr 9 000 (90% x $10 000) © John Wiley and Sons Australia, Ltd 2015 21.16  Chapter 21: Consolidation: non-controlling interest 3. NCI share of equity 1/7/16 Retained earnings (1/7/16) Dr 4 000 Share capital Dr 8 000 NCI Cr 12 000 (10% of equity at 1/7/16) 4. NCI share of equity from 1/7/16 – 30/6/17 NCI share of profit Dr 1 500 NCI Cr 1 500 (10% x $15 000) General reserve Dr 1000 Transfer to general reserve Cr 1 000 (10% x $10 000) © John Wiley and Sons Australia, Ltd 2015 21.17 Solutions manual to accompany Company Accounting 10e Question 21.4 Full goodwill method, multiple years On 1 July 2016, Huntsman Ltd acquired 90% the issued shares of Spider Ltd for $140 300. At this date the equity of Spider Ltd consisted of $100 000 share capital and $50 000 retained earnings. All the identifiable assets and liabilities of Spider Ltd were recorded at amounts equal to fair value except for plant for which the carrying amount of $80 000 (net of accumulated depreciation of $40 000) was $3000 less than the fair value. The plant was estimated to have a further 3-year life. The fair value of the non-controlling interest was $15 500. Huntsman Ltd uses the full goodwill method. The following annual results were recorded by Spider Ltd following the business combination: Year ended Profit/(loss) Other items of comprehensive income 30 June 2017 $8 000 $2 000 30 June 2018 9 000 3 000 30 June 2019 10 000 4 000 30 June 2020 11 000 5 000 The other items of comprehensive income relate to the gains on land of Spider Ltd that are recorded at fair value under the revaluation method of measurement. The group transfers the revaluation reserves to retained earnings when an asset is sold or fully consumed. The tax rate is 30%. Required Prepare the consolidation worksheet entries for the preparation of consolidated financial statements of Huntsman Ltd for each of the years ending 30 June 2017–20. 90% Huntsman Ltd Spider Ltd Huntsman Ltd 90% NCI 10% Acquisition analysis 1 July 2016 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 = $155 000 Fair value of INA of Spider Ltd = $152 100 Goodwill of Spider Ltd = $2 900 Goodwill of Huntsman Ltd © John Wiley and Sons Australia, Ltd 2015 21.18  Chapter 21: Consolidation: non-controlling interest Goodwill acquired = $3 700 Goodwill of Spider Ltd = $2 900 Control premium = $800 1. Consolidation Worksheet Entries - 1 July 2016 1. Business combination valuation entries 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 2. Pre-acquisition entries 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 Worksheet Entries - 30 June 2017 1. Business combination valuation entries 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 © John Wiley and Sons Australia, Ltd 2015 21.19 Solutions manual to accompany Company Accounting 10e Business combination valuation reserve Cr 2 900 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 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 4. NCI share of equity: 1 July 2016 - 30 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 Worksheet Entries - 30 June 2018 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 Business combination valuation reserve Cr 2 900 2. Pre-acquisition entry Retained earnings (1/7/17) Dr 45 000 © John Wiley and Sons Australia, Ltd 2015 21.20  Chapter 21: Consolidation: non-controlling interest 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 (1/7/17) 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 - 30 June 2017 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 5. NCI share of equity: 1 July 2017 - 30 June 2018 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 Journal entries - 30 June 2019 1. Business combination valuation entries 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 Dr 2 900 Business combination valuation reserve Cr 2 900 2. Pre-acquisition entry Retained earnings (1/7/18) Dr 45 000 Share capital Dr 90 000 Business combination valuation reserve Dr 4 500 Goodwill Dr 800 © John Wiley and Sons Australia, Ltd 2015 21.21 Solutions manual to accompany Company Accounting 10e Shares in Spider Ltd Cr 140 300 Transfer from business combination reserve Dr 1 890 Business combination valuation reserve Cr 1 890 3. NCI share of equity at 1 July 2016 Retained earnings (1/7/17) 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 - 30 June 2018 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 5. NCI share of equity: 1 July 2018 - 30 June 2019 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) Asset revaluation surplus Dr 400 NCI Cr 400 (10% x $4 000) 5. Consolidation Journal entries - 30 June 2020 1. Business combination valuation entries Goodwill Dr 2 900 Business combination valuation reserve Cr 2 900 2. Pre-acquisition entry Retained earnings (1/7/19) Dr 46 890 Share capital Dr 90 000 Business combination valuation reserve Dr 2 610 Goodwill Dr 800 Shares in Spider Ltd Cr 140 300 © John Wiley and Sons Australia, Ltd 2015 21.22  Chapter 21: Consolidation: non-controlling interest 3. NCI share of equity at 1 July 2016 Retained earnings (1/7/19) 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 - 30 June 2019 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 5. NCI share of equity: 1 July 2019 - 30 June 2020 NCI share of profit Dr 1 100 NCI Cr 1 100 (10% x $11 000) Asset revaluation surplus Dr 500 NCI Cr 500 (10% x $5 000) © John Wiley and Sons Australia, Ltd 2015 21.23 Solutions manual to accompany Company Accounting 10e Question 21.5 Partial and full goodwill methods On 1 July 2016 Sugar Ltd acquired 90% of the shares of Glider Ltd for $435 240. At this date the equity of Glider Ltd consisted of share capital of $300 000 and retained earnings of $120 000. All the identifiable asset and liabilities of Glider Ltd were recorded at amounts equal to fair value except for: Carrying Fair value amount Land $ 80 000 $ 95 000 Plant (cost $380 000) 300 000 330 000 Inventory 15 000 18 000 The plant was considered to have a further 10-year life. All the inventory was sold by 30 June 2017. The tax rate is 30%. Sugar Ltd uses the partial goodwill method. During the 2016–17 period Glider Ltd recorded a profit of $30 000. Required A. Prepare the consolidation worksheet entries for the preparation of the consolidated financial statements of Sugar Ltd at 30 June 2017. B. Prepare the consolidation worksheet entries if Sugar Ltd used the full goodwill method, assuming the fair value of the non-controlling interest at 1 July 2016 was $47 700. 90% Sugar Ltd Glider Ltd Sugar Ltd 90% NCI 10% At 1 July 2016: Net fair value of identifiable assets 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 = $45 360 Aggregate of (a) and (b) = $480 600 Goodwill of the parent = $480 600 - $453 600 = $27 000 A. Worksheet entries at 1 July 2016 1. Business combination valuation entries Land Dr 15 000 Deferred tax liability Cr 4 500 Business combination valuation reserve Cr 10 500 Accumulated depreciation - plant Dr 80 000 Plant Cr 50 000 Deferred tax liability Cr 9 000 Business combination valuation reserve Cr 21 000 © John Wiley and Sons Australia, Ltd 2015 21.24  Chapter 21: Consolidation: non-controlling interest Depreciation expense Dr 3 000 Accumulated depreciation Cr 3 000 (1/10 x $30 000) Deferred tax liability Dr 900 Income tax expense Cr 900 Cost of sales Dr 3 000 Income tax expense Cr 900 Transfer from business combination valuation reserve Cr 2 100 2. Pre-acquisition entries Retained earnings (1/7/16) Dr 108 000 Share capital Dr 270 000 Business combination valuation reserve Dr 30 240 Goodwill Dr 27 000 Shares in Glider Ltd Cr 435 240 Transfer from business combination valuation reserve Dr 1 890 Business combination valuation reserve Cr 1 890 3. NCI share of equity at 1 July 2016 Share capital Dr 30 000 Business combination valuation reserve Dr 3 360 Retained earnings (1/7/16) Dr 12 000 NCI Cr 45 360 4. NCI share of equity: 1/7/16 - 30/6/17 NCI share of profit Dr 2 580 NCI Cr 2 580 (10% ($30 000 – ($3 000 - $900) – ($3 000 – $900))) Transfer from business combination valuation reserve Dr 210 Business 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: Net fair value of identifiable assets 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) © John Wiley and Sons Australia, Ltd 2015 21.25 Solutions manual to accompany Company Accounting 10e = $453 600 (a) Consideration transferred = $435 240 (b) Non-controlling interest = $47 700 Aggregate of (a) and (b) = $482 940 Goodwill = $482 940 - $453 600 = $29 340 Goodwill of Subsidiary Fair value of Glider Ltd = $47 700/10% = $477 000 Net fair value of identifiable assets and liabilities = $453 600 Goodwill of subsidiary = $23 400 Goodwill of parent Goodwill acquired = $29 340 Goodwill of subsidiary = $23 400 Goodwill of parent (control premium) = $5 940 There will need to be an additional BCVR entry: Goodwill Dr 23 400 Business combination valuation entry Cr 23 400 The pre-acquisition entry at 1 July 2016 would change to: Share capital Dr 270 000 Retained earnings (1/7/16) Dr 108 000 Business combination valuation reserve * Dr 51 300 Goodwill Dr 5 940 Shares 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 30 000 Business combination valuation reserve * Dr 5 700 Retained earnings (1/7/16) Dr 12 000 NCI Cr 47 700 * $3 360 (see A. entry)+ 10% x $23 400] All other entries under part A are the same for Part B. © John Wiley and Sons Australia, Ltd 2015 21.26  Chapter 21: Consolidation: non-controlling interest Question 21.6 Partial goodwill method, consolidation worksheet Barren Ltd acquired 75% of the shares of Goose Ltd for $191 000 on 1 July 2016. At this date the equity of Goose Ltd consisted of: Share capital $ 80 000 General reserve 48 000 Retained earnings 32 000 At this date all the identifiable assets and liabilities of Goose Ltd were recorded at amounts equal to their fair values except for: Carrying Fair value amount Plant (cost $156 000) $130 000 $140 000 Inventory 100 000 130 000 Brands 40 000 120 000 The plant was considered to have a further useful life of 10 years. The brands have an indefinite life. The inventory was all sold by 30 June 2017. The tax rate is 30%. Barren Ltd uses the partial goodwill method. An impairment test was conducted in June 2017 resulting in the write off of all the goodwill of Goose Ltd and $20 000 from the brands. Financial information provided by the two companies at 30 June 2019 was as follows: Barren Ltd Goose Ltd Sales $400 000 $64 000 Cost of sales (170 000) (28 000) Gross profit 230 000 36 000 Expenses (60 000) (5 600) Profit before income tax 170 000 30 400 Income tax expense (40 000) (4 000) Profit for the year 130 000 26 400 Retained earnings (1/7/18) 95 000 60 000 Retained earnings (30/6/19) 225 000 86 400 Share capital 300 000 80 000 General reserve 50 000 64 000 Total equity 575 000 230 400 Current liabilities $ 40 000 $ 3 600 Deferred tax liabilities 20 000 6 000 Total liabilities 60 000 9 600 Total equity and liabilities $635 000 $240 000 Plant $340 000 $152 000 Accumulated depreciation – (100 000) (19 200) plant Brands 80 000 40 000 Shares in Goose Ltd 191 000 0 Inventory 124 000 67 200 Total assets $635 000 $240 000 Required Prepare the consolidated financial statements of Barren Ltd at 30 June 2019. © John Wiley and Sons Australia, Ltd 2015 21.27 Solutions manual to accompany Company Accounting 10e 75% Barren Ltd Goose Ltd Barren Ltd 75% NCI 25% Pre-acquisition analysis At 1 July 2016: 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) = $244 000 (a) Consideration transferred = $191 000 (b) Non-controlling interest = 25% x $244 000 = $61 000 Aggregate of (a) and (b) = $252 000 Goodwill: parent only = $252 000 - $244 000 = $8 000 A. Consolidation worksheet entries at 30 June 2019 1. Business combination valuation entries Accumulated depreciation - plant Dr 26 000 Plant Cr 16 000 Deferred tax liability Cr 3 000 Business combination valuation reserve Cr 7000 Depreciation expense Dr 1 000 Retained earnings (1/7/18) Dr 2 000 Accumulated depreciation Cr 3 000 (1/10 x $10 000 p.a. for 3 years) Deferred tax liability Dr 900 Income tax expense Cr 300 Retained earnings (1/7/18) Cr 600 Brands Dr 80 000 Deferred tax liability Cr 24 000 Business combination valuation reserve Cr 56 000 Retained earnings (1/7/18) Dr 20 000 Accumulated impairment losses – brands Cr 20 000 Deferred tax liability Dr 6 000 Retained earnings (1/7/18) Cr 6 000 © John Wiley and Sons Australia, Ltd 2015 21.28  Chapter 21: Consolidation: non-controlling interest 2. Pre-acquisition entries Retained earnings (1/7/18) * Dr 47 750 Share capital Dr 60 000 General reserve Dr 36 000 Business combination valuation reserve Dr 47 250 Shares 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 8 000 Share capital Dr 20 000 General reserve Dr 12 000 Business combination valuation reserve Dr 21 000 NCI Cr 61 000 (25% of balances at 1/7/16) 4. NCI in equity: 1/7/16 - 30/6/18 Retained earnings (1/7/18) Dr 3 150 General reserve Dr 4 000 Business combination valuation reserve Cr 5 250 NCI Cr 1 900 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. NCI in equity: 1/7/18 - 30/6/19 NCI share of profit Dr 6 425 NCI Cr 6 425 (25% ($26 400– ($1 000 - $300))) © John Wiley and Sons Australia, Ltd 2015 21.29  Solutions manual to accompany Company Accounting 10e Financial Barren Goose Adjustments Group NCI Parent Statements Ltd Ltd Dr Cr Dr Cr Sales revenue 400 000 64 000 464 000 Cost of sales 170 000 28 000 198 000 230 000 36 000 266 000 Other expenses 60 000 5 600 1 1 000 66 600 Profit before 170 000 30 400 199 400 tax Tax expense 40 000 4 000 300 1 43 700 Profit for the 130 000 26 400 155 700 5 6 425 149 275 period Retained 95 000 60 000 1 2 000 600 1 91 850 3 8 000 80 700 earnings 1 20 000 6 000 1 4 3 150 (1/7/18) 2 47 750 Retained 225 000 86 400 247 550 229 975 earnings (30/6/19) Capital 300 000 80 000 2 60 000 320 000 3 20 000 300 000 General reserve 50 000 64 000 2 36 000 78 000 3 12 000 62 000 4 4 000 BCVR 0 0 2 47 250 7 000 1 15 750 3 21 000 5 250 4 0 56 000 1 Total equity: 591 975 parent Total equity: 61 000 3 69 325 NCI 1 900 4 6 425 5 Total equity 575 000 230 400 661 300 74 575 74 575 661 300 Current 40 000 3 600 43 600 liabilities Deferred tax 20 000 6 000 1 900 3 000 1 46 100 liabilities 1 6 000 24 000 1 Total liabilities 60 000 9 600 89 700 Shares in 191 000 0 191 000 2 0- Goose Ltd Plant 340 000 152 000 16 000 1 476 000 Accum. (100 000) (19 200) 1 26 000 3 000 1 (96 200) depreciation Brands 80 000 40 000 1 80 000 200 000 Accumulated 20 000 1 (20 000) impairment losses Inventory 124 000 67 200 191 200 Goodwill - Total assets 635 000 240 000 326 900 326 900 751 000 © John Wiley and Sons Australia, Ltd 2015 21.30  Chapter 21: Consolidation: non-controlling interest QUESTION 21.6 (cont’d) BARREN LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2019 Revenues: Sales revenue $464 000 Expenses: Cost of sales 198 000 Other expenses 66 600 264 600 Profit before income tax 199 400 Income tax expense 43 700 Profit for the period 155 700 Attributable to: Parent shareholders 149 275 Non-controlling interest 6 425 $155 700 BARREN LTD Consolidated Statement of Changes in Equity for the year ended 30 June 2019 Comprehensive income for the period $155 700 Non-controlling interest $6 425 Parent shareholders $149 275 Group Parent Retained earnings: Balance at 1 July 2018 $91 850 $80 700 Profit for the period 155 700 149 275 Balance at 30 June 2019 $247 550 $229 975 Business combination valuation reserve: Balance at 1 July 2018 $15 750 0 Balance at 30 June 2019 $15 750 0 Share capital: Balance at 1 July 2018 $320 000 $300 000 Balance at 30 June 2019 $320 000 $300 000 General reserve: Balance at 1 July 2018 $78 000 $62 000 Balance at 30 June 2019 $78 000 $62 000 © John Wiley and Sons Australia, Ltd 2015 21.31 Solutions manual to accompany Company Accounting 10e QUESTION 21.6 (cont’d) BARREN LTD Consolidated Statement of Financial Position as at 30 June 2019 ASSETS Current Assets Inventory $191 200 Non-current Assets: Property, plant and equipment Plant $476 000 Accumulated depreciation (96 200) 379 800 Brands 200 000 Accumulated impairment losses (20 000) 180 000 Total Non-current Assets 559 800 Total Assets $751 000 EQUITY AND LIABILITIES Equity attributable to owners of the parent: Share capital $300 000 Other reserves: General reserve 62 000 Retained earnings 229 925 Parent Interest 591 925 Non-controlling Interest 69 375 Total Equity 661 300 Current Liabilities 43 600 Non-current Liabilities Deferred tax liabilities 46 100 Total Liabilities 89 700 Total Equity and Liabilities $751 000 © John Wiley and Sons Australia, Ltd 2015 21.32  Chapter 21: Consolidation: non-controlling interest Question 21.7 Full goodwill method, multiple years On 1 July 2016, Fur Ltd acquired 75% of the shares of Seal Ltd for $191 000 when the equity of Seal Ltd consisted of $120 000 share capital and $90 000 retained earnings. At this date, all the identifiable assets and liabilities of Seal Ltd were recorded at amounts equal to their fair values except for: Carrying Fair amount value Inventory $20 000 $26 000 Land 80 000 110 000 Machinery (cost $68 000) 48 000 57 000 Note the following in relation to these assets:  All the inventory was sold by 30 June 2017.  The land was revalued in the records of Seal Ltd immediately after the business combination. It was subsequently sold by Seal Ltd on 1 June 2018 for $113 000. At this date, the recorded gains on this land taken to other comprehensive income were $3000, the land being revalued to fair value by Seal Ltd immediately prior to sale.  The machinery was considered to have a further useful life of 3 years. The fair value of the non-controlling interest in Seal Ltd at 1 July 2016 was $63 000. Fur Ltd uses the full goodwill method. The following annual results were recorded by Seal Ltd following the business combination: Year ended Profit/(loss) Other items of comprehensive income 30 June 2017 $15 000 $ 3 000 30 June 2018 34 500 7 500 30 June 2019 (9000) 10 500 30 June 2020 33 000 4 000 The other items of comprehensive income relate to gains/(losses) on the revaluation of land which is measured at fair value in the records of Seal Ltd. The group transfers the valuation reserves to retained earnings when an asset is sold or fully consumed. The tax rate is 30%. Required Prepare the consolidation worksheet entries for the preparation of consolidated financial statements of Fur Ltd for each of the years ending 30 June 2016–20. 75% Fur Ltd Seal Ltd Fur Ltd 75% NCI 25% Acquisition analysis 1 July 2016 Net fair value of identifiable assets and liabilities of Seal Ltd = ($120 000 + $90 000) (equity) + $30 000 (1 – 30%) (land) + $9 000 (1 – 30%) (plant) © John Wiley and Sons Australia, Ltd 2015 21.33 Solutions manual to accompany Company Accounting 10e + $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. Consolidation Worksheet Entries - 1 July 2016 1. Business combination valuation entries 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 Business combination valuation reserve Cr 10 500 QUESTION 21.7 (cont’d) 2. Pre-acquisition entries 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 3. NCI share of equity at 1 July 2016 Retained earnings (1/7/16) Dr 22 500 Share capital Dr 30 000 Asset revaluation surplus Dr 5 250 © John Wiley and Sons Australia, Ltd 2015 21.34  Chapter 21: Consolidation: non-controlling interest Business combination valuation reserve Dr 5 250 NCI Cr 63 000 (25% of balances at 1 July 2016) 2. Consolidation Worksheet Entries - 30 June 2017 1. Business combination valuation entries 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 Business combination valuation reserve Cr 10 500 © John Wiley and Sons Australia, Ltd 2015 21.35 Solutions manual to accompany Company Accounting 10e QUESTION 21.7 (cont’d) 2. Pre-acquisition entry 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) 3. NCI share of equity at 1 July 2016 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 4. NCI share of equity: 1 July 2016 - 30 June 2017 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) Asset revaluation surplus Dr 750 NCI Cr 750 (25% x $3 000) © John Wiley and Sons Australia, Ltd 2015 21.36  Chapter 21: Consolidation: non-controlling interest QUESTION 21.7 (cont’d) 3. Consolidation Worksheet Entries - 30 June 2018 1. Business combination valuation entries 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 Business combination valuation reserve Cr 10 500 2. Pre-acquisition entries 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) 3. NCI share of equity at 1 July 2016 Retained earnings (1/7/17) 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 © John Wiley and Sons Australia, Ltd 2015 21.37 Solutions manual to accompany Company Accounting 10e QUESTION 21.7 (cont’d) 4. NCI share of equity: 1 July 2016 - 30 June 2017 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 5. NCI share of equity: 1 July 2017 - 30 June 2018 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) 4. Consolidation Journal entries - 30 June 2019 1. Business combination valuation entries 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 Business combination valuation reserve Cr 10 500 © John Wiley and Sons Australia, Ltd 2015 21.38  Chapter 21: Consolidation: non-controlling interest QUESTION 21.7 (cont’d) 2. Pre-acquisition entries 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) 3. NCI share of equity at 1 July 2016 Retained earnings (1/7/18) 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 4. NCI share of equity: 1 July 2016 - 30 June 2018 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]) 5. NCI share of equity: 1 July 2018 - 30 June 2019 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) © John Wiley and Sons Australia, Ltd 2015 21.39 Solutions manual to accompany Company Accounting 10e QUESTION 21.7 (cont’d) 5. Consolidation Journal Entries - 30 June 2020 1. Business combination valuation entries Goodwill Dr 10 500 Business combination valuation reserve Cr 10 500 2. Pre-acquisition entry Retained earnings (1/7/19) * Dr 91 125 Share capital Dr 90 000 Business combination valuation reserve ** Dr 7 875 Goodwill Dr 2 000 Shares in Seal Ltd Cr 191 000 * [75% x $90 000 + 75% x 70%($30 000 land + $6 000 inv + $9 000 mach)] ** 75% x $10 500 3. NCI share of equity at 1 July 2016 Retained earnings (1/7/19) 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 4. NCI share of equity: 1 July 2019 - 30 June 2020 Retained earnings (1/7/19) Dr 16 125 Business combination valuation reserve Cr 2 625 Asset revaluation surplus Cr 750 NCI Cr 12 750 (RE: [25% ($15 000 + $34 500 - $9 000 + ($21 000 + $3 000) t’fer from ARS)] ARS: 25% ($3 000 + $7 500 + $10 500 – [$21 000 +$3 000] t’fer) BCVR: 25% x 70% x ($6 000 + $9 000) 5. NCI share of equity: 1 July 2019 - 30 June 2020 NCI share of profit Dr 8 250 NCI Cr 8 250 (25% x $33 000]) Asset revaluation surplus Dr 1 000 NCI Cr 1 000 (25% x $4 000) © John Wiley and Sons Australia, Ltd 2015 21.40  Chapter 21: Consolidation: non-controlling interest Question 21.8 Partial and full goodwill methods, dividends Thorny Ltd acquired 80% of the shares (cum div.) of Devil Ltd on 1 July 2016 for $303 000. At this date the shareholders’ equity of Devil Ltd consisted of: Share capital $ 150 000 General reserve 60 000 Retained earnings 75 000 At this date all the identifiable assets and liabilities of Devil Ltd were recorded at amounts equal to their fair values except for the following: Carrying Fair value amount Patents $100 000 $130 000 Machinery (cost $140 000) 110 000 117 500 Buildings (cost $32 000) 25 000 25 000 Inventory 60 000 70 000 Information about the assets and liabilities of Devil Ltd at 1 July 2016 included:  The patents were considered to have an indefinite useful life.  It was estimated that the machinery had a remaining useful life of 5 years. The machinery was sold on 1 January 2019.  At 1 July 2016, Devil Ltd had not recorded an internally developed brand. The fair value placed on the brand was $65 000. It was considered to have an indefinite useful life.  Devil Ltd had recorded goodwill of $7500 from a business combination undertaken in 2014.  One of the liabilities existing at 1 July 2016 was dividends payable of $7500. The following events were recorded by Devil Ltd in the years subsequent to the acquisition date: 2016 Aug. 15 Paid the $7500 dividend on hand at 1 July 2016. 2017 June 28 Declared a dividend of $12 000. 30 Reported a profit of $30 000. Aug. 16 Paid the $12 000 dividend declared in June. 2018 June 28 Transferred half the general reserve existing at 1 July 2016 to retained earnings. 29 Declared a dividend of $9000. 30 Reported a profit of $37 500. Aug. 15 Paid the $9000 dividend declared in June. Dec. 29 Paid an interim dividend of $7500. 2019 June 26 Transferred $9000 from retained earnings to general reserve. 28 Declared a dividend of $12 000. 30 Reported a profit of $45 000. Required A. Prepare the consolidated worksheet entries for the preparation of the consolidated financial statements of Thorny Ltd at 30 June 2019. Assume Thorny Ltd uses the partial goodwill method. © John Wiley and Sons Australia, Ltd 2015 21.41 Solutions manual to accompany Company Accounting 10e B. As for A except that Thorny Ltd uses the full goodwill method. At 1 July 2016, Thorny Ltd valued the non-controlling interest in Devil Ltd at $73 870. 80% Thorny Ltd Devil Ltd Thorny Ltd 80% NCI 20% A: PARTIAL GOODWILL METHOD At 1 July 2016: Net fair value of identifiable assets and liabilities of Devil Ltd = ($150 000 +$60 000 + $75 000) (equity) + $30 000 (1 – 30%) (patents) + $7 500 (1 – 30%) (machinery) + $10 000 (1 – 30%) (inventory) + $65 000 (1 – 30%) (brand) - $7 500 (goodwill) = $356 250 (a) Consideration transferred = $303 000 – (80% x $7 500) (divs rec) = $297 000 (b) Non-controlling interest = 20% x $356 250 = $71 250 Aggregate of (a) and (b) = $368 250 Goodwill acquired – parent only = $368 250- $356 250 = $12 000 Unrecorded goodwill acquired = $12 000 - (80% x $7 500) = $6 000 Working: Devil Ltd Retained earnings (1/7/16) $75 000 Profit 2016-17 30 000 Dividend declared (12 000) Retained earnings (30/6/17) 93 000 Transfer from general reserve 30 000 Dividend declared (9 000) Profit 2017-18 37 500 Retained earnings (30/6/18) 151 500 Interim dividend paid (7 500) Transfer to general reserve (9 000) Dividend declared (12 000) Profit 2018-19 45 000 Retained earnings (30/6/19) $168 000 © John Wiley and Sons Australia, Ltd 2015 21.42  Chapter 21: Consolidation: non-controlling interest QUESTION 21.8 (cont’d) A. CONSOLIDATION WORKSHEET ENTRIES AT 30 JUNE 2019 1. Business combination valuation entries Patents Dr 30 000 Deferred tax liability Cr 9 000 Business combination valuation reserve Cr 21 000 Depreciation expense Dr 750 Gain on machinery sold * Dr 3 750 Income tax expense Cr 1 350 Retained earnings (1/7/12) Dr 2 100 Transfer from business combination valuation reserve Cr 5 250 * $1500 x 2.5 yrs Accumulated depreciation –buildings Dr 7 000 Buildings Cr 7 000 Brand Dr 65 000 Deferred tax liability Cr 19 500 Business combination valuation reserve Cr 45 500 2. Pre-acquisition entries Retained earnings (1/7/18) * Dr 89 600 Share capital Dr 120 000 General reserve Dr 24 000 Business combination valuation reserve Dr 57 400 Goodwill Dr 6 000 Shares in Devil Ltd Cr 297 000 * (80% x $75 000) + (80% x $30 000) (GR transfer) + 80%(70% x $10000) (BCVR inv) Transfer from business combination valuation reserve Dr 4 200 Business combination valuation reserve Cr 4 200 (80% x 70% x $7 500) 3. NCI share of equity at 1/7/16 Retained earnings (1/7/18) Dr 15 000 Share capital Dr 30 000 General reserve Dr 12 000 Business combination valuation reserve Dr 15 750 NCI Cr 72 750 (20% of balances) © John Wiley and Sons Australia, Ltd 2015 21.43 Solutions manual to accompany Company Accounting 10e QUESTION 21.8 (cont’d) 4. NCI share of equity: 1/7/16 - 30/6/18 Retained earnings (1/7/18) * Dr 14 880 Business combination valuation reserve ** Cr 1 400 General reserve Cr 6 000 NCI Cr 7 480 *20%[$151 500 - $75 000] - $2 100 machinery) ** 20% x 70% x $10 000 inventory 5. NCI share of equity: 1/7/18 - 30/6/19 NCI share of profit Dr 8 370 NCI Cr 8 370 (20%($45 000 - ($750 + $3750 - $1 350)) General reserve Dr 1 800 Transfer to general reserve Cr 1 800 (20% x $9 000) Transfer from business combination valuation reserve Dr 1 050 Business combination valuation reserve Cr 1 050 (20% x 70% x $7 500) NCI Dr 1 500 Dividend paid Cr 1 500 (20% x $7 500) NCI Dr 2 400 Dividend declared Cr 2 400 (20% x $12 000) 7. Dividend paid Dividend revenue Dr 6 000 Dividend paid Cr 6 000 (80% x $7 500) 8. Dividend declared Dividend payable Dr 9 600 Dividend declared Cr 9 600 (80% x $12 000) Dividend revenue Dr 9 600 Dividend receivable Cr 9 600 © John Wiley and Sons Australia, Ltd 2015 21.44  Chapter 21: Consolidation: non-controlling interest QUESTION 21.8 (cont’d) B: FULL GOODWILL METHOD At 1 July 2016: Net fair value of identifiable assets and liabilities of Devil Ltd = ($150 000 +$60 000 + $75 000) (equity) + $30 000 (1 – 30%) (patents) + $7 500 (1 – 30%) (machinery) + $10 000 (1 – 30%) (inventory) + $65 000 (1 – 30%) (brand) - $7 500 (goodwill) = $356 250 (a) Consideration transferred = $303 000 – (80% x $7 500) (divs rec) = $297 000 (b) Non-controlling interest = $73 870 Aggregate of (a) and (b) = $370 870 Goodwill = $14 620 Recorded goodwill = $7 500 Unrecorded goodwill = $7 120 Goodwill of Devil Ltd: Fair value of Devil Ltd = $73 870/0.2 = $369 350 Net fair value of identifiable assets and liabilities of Devil Ltd = $356 250 Goodwill of Devil Ltd = $13 100 Recorded goodwill = $7 500 Unrecorded goodwill = $5 600 Goodwill of Thorny Ltd: Goodwill acquired = $14 620 Goodwill of Devil Ltd = $13 100 Goodwill of Thorny Ltd – control premium = $1 520 DIFFERENT ENTRIES: Business combination valuation entries There is an extra BCVR entry under the full goodwill method: Goodwill Dr 5 600 Business combination valuation reserve Cr 5 600 Pre-acquisition entry The pre-acquisition changes under the full goodwill method: Retained earnings (1/7/18) * Dr 89 600 Share capital Dr 120 000 General reserve Dr 24 000 Business combination valuation reserve Dr 61 880 Goodwill Dr 1 520 Shares in Devil Ltd Cr 297 000 * (80% x $75 000) + (80% x $30 000) (GR transfer) + 80%(70% x $10000) (BCVR inv) © John Wiley and Sons Australia, Ltd 2015 21.45 Solutions manual to accompany Company Accounting 10e QUESTION 21.8 (cont’d) The first step in the calculation of the NCI changes to be: NCI share of equity at 1/7/16 Retained earnings (1/7/18) Dr 15 000 Share capital Dr 30 000 General reserve Dr 12 000 Business combination valuation reserve * Dr 16 870 NCI Cr 73 870 * now includes 20% x $5 600 of BCVR – goodwill = $1 120 © John Wiley and Sons Australia, Ltd 2015 21.46  Chapter 21: Consolidation: non-controlling interest Question 21.9 Partial goodwill method, gain on bargain purchase, intragroup transactions On 1 July 2015, Water Ltd paid $236 400 for 75% of the share capital of Rat Ltd. At this date, the equity of Rat Ltd consisted of: Share capital (200 000 shares) $ 200 000 General reserve 80 000 Retained earnings 40 000 A comparison of the carrying amounts and fair values of Rat Ltd’s assets at the acquisition date showed the following: Carrying Fair value amount Land $184 000 $200 000 Plant (cost $150 000) 100 000 120 000 Inventory 65 000 90 000 Accounts receivable 40 000 35 000 Goodwill 4 000 In relation to these assets, the following information is available:  The plant had a further 5-year life but was sold on 1 January 2017.  All the inventory was sold by 30 June 2016.  All the accounts receivable were collected by 30 June 2016. Any valuation reserves arising on consolidation are transferred on realisation of the asset to retained earnings. Water Ltd uses the partial goodwill method. The following transactions occurred between 1 July 2015 and 30 June 2017: 2016 Jan. 1 Rat Ltd transferred $20 000 from general reserve to retained earnings. Feb. 11 Rat Ltd paid an $8000 dividend, half being from profits earned prior to 1 July 2015. March 21 Rat Ltd sold inventory to Water Ltd for $50 000 recording a before-tax profit of $10 000. Both companies use a perpetual inventory system. The tax rate is 30%. June 25 Rat Ltd declared a $15 000 dividend. 30 Rat Ltd recorded a profit of $130 000. One-quarter of the inventory sold by Rat Ltd to Water Ltd on 21 March 2016 is still on hand in Water Ltd. Aug. 14 The $15 000 dividend declared by Rat Ltd was paid. Sept. 21 The remaining inventory in Water Ltd sold to it by Rat Ltd was sold outside the group. 2017 Jan. 1 Rat Ltd paid a $16 000 dividend. June 30 Rat Ltd recorded a profit of $150 000. Required Prepare the consolidation worksheet entries for the preparation of consolidated financial statements by Water Ltd at 30 June 2017 75% Water Ltd Rat Ltd Water Ltd 75% NCI 25% © John Wiley and Sons Australia, Ltd 2015 21.47 Solutions manual to accompany Company Accounting 10e Acquisition analysis At 1 July 2015: Net fair value of identifiable assets and liabilities of Rat Ltd = ($200 000 + $80 000 + $40 000) (equity) + $16 000 (1 – 30%) (BCVR - land) + $20 000 (1 – 30%) (BCVR - plant) + $25 000 (1 – 30%) (BCVR - inventory) - $4 000 (goodwill) - $5 000 (1 – 30%) (BCVR - accs rec) = $355 200 (a) Consideration transferred = $236 400 (b) Non-controlling interest = 25% x $355 200 = $88 800 Aggregate of (a) and (b) = $325 200 Gain on bargain purchase = $30 000 WORKSHEET ENTRIES AT 30 JUNE 2017 1. Business combination valuation entries Land Dr 16 000 Deferred tax liability Cr 4 800 Business combination valuation reserve Cr 11 200 Gain on sale/carrying amount of plant sold Dr 14 000 Depreciation expense Dr 2 000 Retained earnings (1/7/16) Dr 2 800 Income tax expense Cr 4 800 Transfer from business combination valuation reserve Cr 14 000 (Sale of plant) © John Wiley and Sons Australia, Ltd 2015 21.48  Chapter 21: Consolidation: non-controlling interest QUESTION 21.9 (cont’d) 2. Pre-acquisition entries Retained earnings (1/7/16) * Dr 25 500 Share capital Dr 150 000 General reserve ** Dr 45 000 Business combination valuation reserve Dr 18 900 Goodwill Cr 3 000 Shares in Rat Ltd Cr 236 400 * 75%($40 000 + $17 500 BCVR transfer inventory - $3 500 BCVR transfer accs. receivable + $20 000 general reserve transfer) - $30 000 gain on bargain purchase **75% ($80 000 - $20 000) Transfer from business combination valuation reserve Dr 10 500 Business combination valuation reserve Cr 10 500 (75% x $14 000 – sale of plant) 3. NCI share of equity at 1/7/15 Retained earnings (1/7/16) Dr 10 000 Share capital Dr 50 000 Business combination valuation reserve Dr 9 800 General reserve Dr 20 000 NCI Cr 89 800 (25% of balances) 4. NCI share of equity from 1/7/15 – 30/6/16 Retained earnings (1/7/16) Dr 31 050 General reserve Cr 5 000 Business combination valuation reserve Cr 3 500 NCI Cr 22 550 (RE: 25%($167 000 - $40 000 – ($4 000 - $1 200 depn on plant)) GR: 25% x $20 000) Note: RE of $167 000 = $40 000 + $20 000 GR -$8 000 div - $15 000 div +$130 000 profit © John Wiley and Sons Australia, Ltd 2015 21.49 Solutions manual to accompany Company Accounting 10e QUESTION 21.9 (cont’d) 5. NCI share of equity from 1/7/16 – 30/6/17 NCI share of profit Dr 34 700 NCI Cr 34 700 (25%($150 000 – ($14 000 + $2 000 - $4 800) plant) Transfer from business combination valuation reserve Dr 3 500 Business combination valuation reserve Cr 3 500 (25% x $14 000 plant) NCI Dr 4 000 Dividend paid Cr 4 000 (25% x $16 000) 6. Dividend paid Dividend revenue Dr 12 000 Dividend paid Cr 12 000 (75% x $16 000) 7. Unrealised profit in beginning inventory: Rat Ltd – Water Ltd Retained earnings (1/7/16) Dr 1 750 Income tax expense Dr 750 Cost of sales Cr 2 500 8. NCI adjustment NCI share of profit Dr 437.50 Retained earnings (1/7/16) Cr 437.50 (25% x $1 750) © John Wiley and Sons Australia, Ltd 2015 21.50  Chapter 21: Consolidation: non-controlling interest Question 21.10 Full goodwill method, consolidation worksheet, consolidated financial statements Western Ltd acquired 75% of the shares of Quoll Ltd on 1 July 2012. In exchange for these share Western Ltd gave a consideration of $26 000 cash and 10 000 shares in Western Ltd, these having a fair value of $2 each. At this date the shareholders’ equity of Quoll Ltd consisted of: Share capital (15 000 shares) $ 45 000 Retained earnings 9 000 At this date all the identifiable assets and liabilities of Quoll Ltd were recorded at amounts equal to their fair values except for plant for which the fair value was $2000 greater than the carrying amount of $25 000 (original cost was $35 000). The plant was expected to have a further 5-year life. The fair value of the non-controlling interest at 1 July 2012 was $15 000. Western Ltd uses the full goodwill method. The tax rate is 30%. Assets held by Quoll Ltd at 30 June 2017 include financial assets. Gains and losses on these assets are recognised in other comprehensive income. During the 2016–17 year Quoll Ltd recorded gains of $1500 on these assets. Financial information supplied by the two companies at 30 June 2017 was as follows: Western Quoll Ltd Ltd Sales revenue $75 000 $118 000 Interest revenue 375 1 000 Dividend revenue 2 700 1 000 78 075 120 000 Cost of sales (51 000) (87 750) Financial expenses (2 250) (3 000) Selling expenses (6 000) (9 000) Other expenses (2 250) (2 250) (61 500) (102 000) Profit before tax 16 575 18 000 Income tax expense (7 500) (8 200) Profit for the year 9 075 9 800 Retained earnings (1/7/16) 28 900 21 700 37 975 31 500 Dividend paid (4 000) (3 600) Retained earnings (30/6/17) 33 975 27 900 Share capital 60 000 45 000 Other components of equity — 7 500 Total equity 93 975 80 400 Current liabilities 12 750 4 350 Non-current liabilities: Loans — 7 500 Total liabilities 12 750 11 850 Total equity and liabilities $106 725 $92 250 Plant 45 000 90 000 Accumulated depreciation (25 500) (45 750) Shares in Quoll Ltd 46 000 0 Loans from Quoll Ltd 3 750 0 Inventory 13 400 23 250 Cash 21 075 750 Financial assets 0 16 500 © John Wiley and Sons Australia, Ltd 2015 21.51 Solutions manual to accompany Company Accounting 10e Deferred tax assets 3 000 7 500 Total assets $106 725 $92 250 Additional information (a) At 1 July 2017, Western Ltd held inventory that had been sold to it by Quoll Ltd in the previous year at a profit of $1200. (b) During the 2016–17 year, Quoll Ltd sold inventory to Western Ltd for $28 500. At 30 June 2017, Western Ltd still had on hand inventory that had been sold to it by Quoll Ltd for a profit of $1800 before tax. (c) Interest of $375 was paid by Western Ltd to Quoll Ltd on both 30 June 2016 and 30 June 2017. Required Prepare the consolidated financial statements of Western Ltd for the year ended 30 June 2017. 75% Western Ltd Quoll Ltd Western Ltd 75% NCI 25% Acquisition analysis At 1 July 2012: Net fair value of identifiable assets and liabilities of Quoll Ltd = $45 000 + $9 000 (equity) + $2 000 (1 – 30%) (BCVR – plant) = $55 400 (a) Consideration transferred = $46 000 (b) Non-controlling interest = $15 000 Aggregate of (a) and (b) = $61 000 Goodwill = $5 600 Goodwill of Quoll Ltd: Fair value of Quoll Ltd = $15 000/25% = $60 000 Net fair value of identifiable assets and liabilities of Quoll Ltd = $55 400 Goodwill of Quoll Ltd = $4 600 Goodwill of Western Ltd: Goodwill acquired = $5 600 Goodwill of Quoll Ltd = $4 600 Goodwill of Western Ltd – control premium = $1000 1. Business combination valuation entry Depreciation expense Dr 400 Income tax expense Cr 120 Retained earnings (1/7/16) Dr 1 120 Transfer from business combination valuation reserve Cr 1 400 © John Wiley and Sons Australia, Ltd 2015 21.52  Chapter 21: Consolidation: non-controlling interest (1/5 x $2000 p.a. for 5 years) Goodwill Dr 4 600 Business combination valuation reserve Cr 4 600 2. Pre-acquisition entry At 30 June 2017 (same as at 1/7/12): Retained earnings (1/7/16) Dr 6 750 Share capital Dr 33 750 Business combination valuation reserve Dr 4 500 Goodwill Dr 1 000 Shares in Quoll Ltd Cr 46 000 Transfer from business combination valuation reserve Dr 1 050 Business combination valuation reserve Cr 1 050 (75% x $1 400) 3 NCI share of equity at 1/7/12 Retained earnings (1/7/16) Dr 2 250 Share capital Dr 11 250 Business combination valuation reserve Cr 1 500 NCI Cr 15 000 4. NCI share of equity: 1/7/12 - 30/6/16 Retained earnings (1/7/16) Dr 2 895 Other components of equity (1/7/16) Dr 1 500 NCI Cr 4 395 RE: 25% ($21 700 - $9 000 - $1 120) OCE: 25% x $6 000 5. NCI share of equity: 1/7/16- 30/6/17 NCI share of profit Dr 2 450 NCI Cr 2 450 (25% x $9 800) Transfer from business combination valuation reserve Dr 350 Business combination valuation reserve Cr 350 (25% x $1 400) Gain/(losses): other components of equity Dr 375 NCI Cr 375 (25% x $1500) © John Wiley and Sons Australia, Ltd 2015 21.53 Solutions manual to accompany Company Accounting 10e NCI Dr 900 Dividend paid Cr 900 (25% x $3 600) 6. Profit in opening inventory: Quoll Ltd - Western Ltd Retained earnings (1/7/16) Dr 840 Income tax expense Dr 360 Cost of sales Cr 1 200 7. NCI adjustment NCI share of profit Dr 210 Retained earnings (1/7/16) Cr 210 (25% x $840) 8. Profit in ending inventory: Quoll Ltd - Western Ltd Sales Dr 28 500 Cost of sales Cr 26 700 Inventory Cr 1 800 Deferred tax asset Dr 540 Income tax expense Cr 540 9. NCI adjustment NCI Dr 315 NCI share of profit Cr 315 (25% x $1260) 10. Loans Loans Dr 3 750 Loans from Quoll Ltd Cr 3 750 11. Interest on loans Interest revenue Dr 375 Financial expenses Cr 375 12. Dividend paid © John Wiley and Sons Australia, Ltd 2015 21.54  Chapter 21: Consolidation: non-controlling interest Dividend revenue Dr 2 700 Dividend paid Cr 2 700 (75% x $3 600) © John Wiley and Sons Australia, Ltd 2015 21.55  Solutions manual to accompany Company Accounting 10e QUESTION 21.10 (cont’d) Financial Western Quoll Adjustments Group NCI Parent Statements Ltd Ltd Dr Cr Dr Cr Sales revenue 75 000 118 000 8 28 500 164 500 Interest rev. 375 1 000 11 375 1 000 Dividend rev. 2 700 1 000 12 2 700 1 000 78 075 120 000 166 500 Cost of sales 51 000 87 750 1 200 6 110 850 26 700 8 Financial exp. 2 250 3 000 375 11 4 875 Selling exp. 6 000 9 000 15 000 Other exp. incl 2 250 2 250 1 400 4 900 depreciation 61 500 102 000 135 625 Profit before 16 575 18 000 30 875 tax Tax expense 7 500 8 200 6 360 120 1 15 400 540 8 Profit 9 075 9 800 15 475 5 2 450 315 9 13 130 7 210 Retained 28 900 21 700 1 1 120 41 890 3 2 250 210 7 36 955 earnings 2 6 750 4 2 895 (1/7/16) 6 840 Transfer from 2 1 050 1 400 1 350 5 350 0 BCVR 37 975 31 500 57 715 50 085 Dividend paid 4 000 3 600 2 700 12 4 900 900 5 4 000 Retained 33 975 27 900 52 815 46 085 earnings (30 /6/17) Share capital 60 000 45 000 2 33 750 71 250 3 11 250 60 000 BCVR 0 0 2 4 500 4 600 1 1 150 3 1 500 350 5 0 1 050 2 93 975 72 900 125 215 106 085 Other comp (op) 0 6 000 6 000 4 1 500 4 500 Gains/losses 0 1 500 1 500 5 375 1 125 Other comp (cl) 0 7 500 7 500 5 625 Total equity: 132 715 111 710 parent Total equity: 5 900 15 000 3 21 005 NCI 9 315 4 395 4 2 450 5 375 5 Total equity 93 975 80 400 132 715 132 715 Current 12 750 4 350 17 100 liabilities Loans 0 7 500 10 3 750 3 750 Total liabilities 12 750 11 850 20 850 Total equity 106 725 92 250 153 565 and liabilities © John Wiley and Sons Australia, Ltd 2015 21.56  Chapter 21: Consolidation: non-controlling interest QUESTION 21.10 (cont’d) Plant 45 000 90 000 135 000 Accumulated (25500) (45750) (71 250) depreciation Shares in Quoll 46 000 0 46 000 2 0 Ltd Loans from 3 750 0 3 750 10 0 Quoll Ltd Inventory 13 400 23 250 1 800 8 34 850 Cash 21 075 750 21 825 Financial assets 0 16 500 16 500 Deferred tax 3 000 7 500 8 540 11 040 assets Goodwill 0 0 1 4 600 5 600 2 1 000 Total assets 106 725 92 250 90 235 90 235 153 565 WESTERN LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 30 June 2017 Revenue Sales revenue $164 500 Interest revenue 1 000 Dividend revenue 1 000 Total revenue 166 500 Expenses: Cost of sales 110 850 Financial Expenses 4 875 Selling 15 000 Other 4 900 Total expenses 135 625 Profit before income tax 30 875 Income tax expense 15 400 Profit for the period $15 475 Other comprehensive income: Other components of equity: gains 1 500 Comprehensive income for the period $16 975 Profit for the period attributable to: Parent interest $13 130 Non-controlling interest 2 345 $15 475 Comprehensive income for the period attributable to: Parent interest $14 255 Non-controlling interest 2 720 $16 975 © John Wiley and Sons Australia, Ltd 2015 21.57 Solutions manual to accompany Company Accounting 10e QUESTION 21.10 (cont’d) WESTERN LTD Consolidated Statement of Changes in Equity for the financial year ended 30 June 2017 Group Parent Comprehensive income for the period $14 255 $2 720 Retained earnings: Balance at 1 July 2016 $41 890 $36 955 Profit for the period 15 475 13 130 Transfer from BCVR 350 0 Dividend paid (4 900) (4 000) Balance at 30 June 2017 $52 815 $46 085 Other components of equity: Balance at 1 July 2016 $6 000 $4 500 Gains/losses 1 500 1 125 Balance at 30 June 2017 $7 500 $5 625 Business combination valuation reserve at 1 July 2016 $1 500 0 Transfer to retained earnings 350 0 Business combination valuation reserve at 30 June 2017 $1 150 0 Share capital: Balance at 1 July 2016 $71 250 $60 000 Balance at 30 June 2017 $71 250 $60 000 © John Wiley and Sons Australia, Ltd 2015 21.58  Chapter 21: Consolidation: non-controlling interest QUESTION 21.10 (cont’d) WESTERN LTD Consolidated Statement of Financial Position as at 30 June 2017 ASSETS Current Assets Inventories $34 850 Cash 21 825 Financial assets 16 500 Total Current Assets 73 175 Non-current Assets Property, plant and equipment Plant $135 000 Accumulated depreciation (71 250) 63 750 Tax assets: Deferred tax assets 11 040 Goodwill 5 600 Total Non-current Assets 80 390 Total Assets $153 565 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital $60 000 Reserves: Other components of equity 5 625 Retained earnings 46 085 Parent Entity Interest 111 710 Non-controlling Interest 21 005 Total Equity $132 715 Current Liabilities: 17 100 Non-current Liabilities: Interest-bearing liabilities: Loans 3 750 Total Liabilities $20 850 Total Equity and Liabilities $153 565 © John Wiley and Sons Australia, Ltd 2015 21.59 Solutions manual to accompany Company Accounting 10e Question 21.11 Partial goodwill method, consolidation worksheet. Northern Ltd acquired 80% of the shares (cum div.) of Bettong Ltd on 1 July 2016 for $399 600. At this date, the shareholders’ equity of Bettong Ltd consisted of: Share capital $ 375 000 General reserve 15 000 Asset revaluation surplus 22 500 Retained earnings 15 000 At this date, Bettong Ltd’s liabilities included a dividend payable of $3000 while the assets included goodwill of $37 500. The dividend was paid on 15 August 2016. All the identifiable assets and liabilities of Bettong Ltd at 1 July 2016 had carrying amounts equal to their fair values except for: Carrying amount Fair value Plant (cost $280 000) $100 000 $130 000 Brands 150 000 165 000 Land 90 000 120 000 Inventory 100 000 115 000 Note the following in relation to these assets:  Plant had an estimated useful life of 5 years.  Brands were assessed to have an indefinite useful life.  Land was sold on 1 January 2017 for $130 000.  Inventory was all sold outside the group by 30 June 2017. Northern Ltd uses the partial goodwill method. During the year ending 30 June 2017, the following events occurred: (a) Bettong Ltd sold inventory to Northern Ltd for $12 000. This inventory had cost Bettong Ltd $8000. At 30 June 2017, one-fifth of this inventory still remained in Northern Ltd. (b) On 1 April 2017, Bettong Ltd sold plant to Northern Ltd for $22 500. The plant had a carrying amount of $15 000 in the records of Bettong Ltd at time of sale to Northern Ltd. The asset was classified as inventory by Northern Ltd. It remained unsold at 30 June 2017. (c) Bettong Ltd recorded, as part of other comprehensive income, gains on revaluation of specialised plant of $7500. The tax rate is 30%. Financial information provided by the two companies at 30 June 2017 is as follows: Northern Ltd Bettong Ltd Sales $300 000 $240 000 Other income 110 000 50 000 Total income 410 000 290 000 Cost of sales (220 000) (184 000) Other expenses (106 000) (51 000) Total expenses (326 000) (235 000) Trading profit 84 000 55 000 Gains/(losses) on sale of non-current assets 15 000 30 000 Profit before tax 99 000 85 000 Tax expense (34 000) (28 000) Profit for the year 65 000 57 000 Retained earnings at 1 July 2016 50 000 15 000 Transfer from general reserve — 12 000 115 000 84 000 © John Wiley and Sons Australia, Ltd 2015 21.60  Chapter 21: Consolidation: non-controlling interest Dividend paid (20 000) (15 000) Dividend declared (10 000) (6 000) (30 000) (21 000) Retained earnings at 30 June 2017 85 000 63 000 Share capital 500 000 375 000 General reserve 20 000 3 000 Asset revaluation surplus — 30 000 Provisions 15 000 10 000 Payables 20 000 8 000 Deferred tax liabilities 5 000 2 000 Non-current liabilities 120 000 50 000 Total equity and liabilities $765 000 $541 000 Shares in Bettong Ltd $397 200 — Plant 460 000 $410 000 Accumulated depreciation – plant (370 000) (250 000) Land 80 000 120 000 Brands 100 000 170 000 Deferred tax assets 8 000 8 500 Goodwill — 37 500 Cash 5 800 5 000 Receivables 2 000 5 000 Inventory 82 000 35 000 Total assets $765 000 $541 000 Required Prepare the consolidation worksheet for the preparation of consolidated financial statements by Northern Ltd at 30 June 2017. 80% Northern Ltd Bettong Ltd Northern Ltd 80% NCI 20% A. Consolidation worksheet entries Acquisition analysis At 1 July 2016: Net fair value of identifiable assets and liabilities of Bettong Ltd = ($375 000 + $15 000 + $22 500 + $15 000) (equity) + $15 000 (1 – 30%) (inventory) + $30 000 (1 –30%) (land) + $30 000 (1 – 30%) (plant) + $15 000 (1 – 30%) (brands) - $37 500 (goodwill) = $453 000 (a) Consideration transferred = $399 600 – (80% x $3 000) div. = $397 200 (b) Non-controlling interest = 20% x $453 000 = $90 600 Aggregate of (a) and (b) = $487 800 Goodwill acquired: parent only = $487 800 - $453 000 © John Wiley and Sons Australia, Ltd 2015 21.61 Solutions manual to accompany Company Accounting 10e = $34 800 Unrecorded goodwill = $34 800 – (80% x $37 500) = $4 800 1. Business combination valuation entries at 30 June 2017 Cost of sales Dr 15 000 Income tax expense Cr 4 500 Transfer from business combination valuation reserve Cr 10 500 Gain on sale of land Dr 30 000 Income tax expense Cr 9 000 Transfer from business combination valuation reserve Cr 21 000 Brands Dr 15 000 Deferred tax liability Cr 4 500 Business combination valuation reserve Cr 10 500 Accumulated depreciation - Plant Dr 180 000 Plant Cr 150 000 Deferred tax liability Cr 9 000 Business combination valuation reserve Cr 21 000 © John Wiley and Sons Australia, Ltd 2015 21.62  Chapter 21: Consolidation: non-controlling interest QUESTION 21.11 (cont’d) Depreciation expense - Plant Dr 6 000 Accumulated depreciation - Plant Cr 6 000 ($30 000/5) Deferred tax liability Dr 1 800 Income tax expense Cr 1 800 2. Pre-acquisition entry 30/6/17 Retained earnings (1/7/16) Dr 12 000 Share capital Dr 300 000 General reserve Dr 12 000 Asset revaluation surplus Dr 18 000 Business combination valuation reserve Dr 50 400 Goodwill Dr 4 800 Shares in Bettong Ltd Cr 397 200 Transfer from general reserve Dr 9 600 General reserve Cr 9 600 (80% x $12 000) Transfer from business combination valuation reserve Dr 8 400 Business combination valuation reserve Cr 8 400 (Sale of inventory: 80% x $10 500) Transfer from business combination valuation reserve Dr 16 800 Business combination valuation reserve Cr 16 800 (Sale of land: 80% x $21 000) 3. NCI share of equity at 1 July 2016 Retained earnings (1/7/16) Dr 3 000 Share capital Dr 75 000 General reserve Dr 3 000 Asset revaluation surplus Dr 4 500 Business combination valuation reserve Dr 12 600 NCI Cr 98 100 (20% of balances) © John Wiley and Sons Australia, Ltd 2015 21.63 Solutions manual to accompany Company Accounting 10e QUESTION 21.11 (cont’d) 4. NCI share of equity: 1/7/16 – 30/6/17 NCI share of profit Dr 1 860 NCI Cr 1 860 (20% ($45 000 – ($15 000 - $4 500) – ($30 000 - $9 000) –($6 000 – $1 800))) Transfer from general reserve Dr 2 400 General reserve Cr 2 400 (NCI share of reserve transfer: 20% x $12 000) Transfer from business combination valuation reserve Dr 6 300 Business combination valuation reserve Cr 6 300 (20% ($10 500 + $21 000)) Gains/Losses: asset revaluation surplus Dr 1 500 NCI Cr 1 500 (20% x $7 500) NCI Dr 3 000 Interim dividend paid Cr 3 000 (20% x $15 000) NCI Dr 1 200 Final dividend declared Cr 1 200 (20% x $6 000) 5. Interim dividend paid Dividend revenue Dr 12 000 Dividend paid Cr 12 000 (80% x $15 000) 6. Final dividend declared Dividend payable Dr 4 800 Dividend declared Cr 4 800 (80% x $6 000) Dividend revenue Dr 4 800 Dividend receivable Cr 4 800 © John Wiley and Sons Australia, Ltd 2015 21.64  Chapter 21: Consolidation: non-controlling interest QUESTION 21.11 (cont’d) 7. Intragroup sales of inventory: Bettong Ltd – Northern Ltd Sales Dr 12 000 Cost of goods sold Cr 11 200 Inventory Cr 800 Deferred tax asset Dr 240 Income tax expense Cr 240 8. NCI adjustment NCI Dr 112 NCI share of profit Cr 112 (20% x $560) 9. Transfer of plant to inventory: Bettong Ltd – Northern Ltd Gain on sale of plant Dr 7 500 Inventory Cr 7 500 Deferred tax asset Dr 2 250 Income tax expense Cr 2 250 10. NCI adjustment NCI Dr 1 050 NCI share of profit Cr 1 050 (20%($7 500 - $2 250)) © John Wiley and Sons Australia, Ltd 2015 21.65  Solutions manual to accompany Company Accounting 10e QUESTION 21.11 (cont’d) Financial Northern Bettong Adjustments Group NCI Parent Statements Ltd Ltd Dr Cr Dr Cr Sales revenue 300 000 240 000 7 12 000 528 000 Other income 110 000 50 000 5 12 000 143 200 6 4 800 410 000 290 000 671 200 Cost of sales 220 000 184 000 1 15 000 11 200 7 407 800 Other expenses 106 000 51 000 1 6 000 163 000 326 000 235 000 570 800 Trading profit 84 000 55 000 100 400 Gains on non- 15 000 30 000 1 30 000 7 500 current assets 9 7 500 Profit before 99 000 85 000 107 900 tax Tax expense 34 000 28 000 4 500 1 44 210 9 000 1 1 800 1 240 7 2 250 9 Profit 65 000 57 000 63 690 4 1 860 112 8 62 992 1 050 10 Ret. earnings 50 000 15 000 2 12 000 53 000 3 3 000 50 000 (1/7/16) Transfer from 0 0 2 8 400 10 500 1 6 300 4 6 300 0 BCV reserve 2 16 800 21 000 1 Transfer from 0 12 000 2 9 600 2 400 4 2 400 0 general reserve 115 000 84 000 125 390 112 992 Dividend paid 20 000 15 000 12 000 5 23 000 3 000 4 20 000 Div. declared 10 000 6 000 4 800 6 11 200 1 200 4 10 000 30 000 21 000 34 200 30 000 Ret. earnings 85 000 63 000 91 190 82 992 (30/6/17) Share capital 500 000 375 000 2 300 000 575 000 3 75 000 500 000 General reserve 20 000 3 000 2 12 000 9 600 2 20 600 3 3 000 2 400 4 20 000 BCVR 0 0 2 50 400 10 500 1 6 300 3 12 600 6 300 4 0 21 000 1 8 400 2 16 800 2 605 000 441 000 693 090 602 992 ARS (1/7/16) 0 22 500 2 18 000 4 500 3 4 500 0 Gains/Losses 0 7 500 7 500 4 1 500 6 000 ARS (30/6/17) 0 30 000 12 000 6 000 Total equity: 608 992 parent Total equity: 4 3 000 98 100 3 96 098 NCI 4 1 200 1 860 4 8 112 1 500 4 10 1 050 Total equity 605 000 471 000 705 090 705 090 © John Wiley and Sons Australia, Ltd 2015 21.66  Chapter 21: Consolidation: non-controlling interest QUESTION 21.11 (cont’d) Provisions 15 000 10 000 25 000 Payables 20 000 8 000 6 4 800 23 200 Deferred tax 5 000 2 000 1 1 800 4 500 1 18 700 liabilities 9 000 1 Non-current 120 000 50 000 170 000 liabilities Total liabilities 160 000 70 000 236 900 Total equity 765 000 541 000 941 990 and liabilities Shares in 397 200 0 397 200 2 0 Bettong Ltd Plant 460 000 410 000 150 000 1 720 000 Accumulated (370 000)(250 000) 1 180 000 6 000 1 (446 000) depreciation Land 80 000 120 000 200 000 Brands 100 000 170 000 1 15 000 285 000 Deferred tax 8 000 8 500 7 240 18 990 assets 9 2 250 Cash 5 800 5 000 10 800 Receivables 2 000 5 000 4 800 6 2 200 Inventory 82 000 35 000 800 7 108 700 7 500 9 Goodwill 0 37 500 2 4 800 42 300 Total assets 765 000 541 000 723 390 723 390 941 990 © John Wiley and Sons Australia, Ltd 2015 21.67 Solutions manual to accompany Company Accounting 10e Question 21.12 Partial goodwill, consolidation worksheet On 1 July 2015, Mallee Ltd acquired 80% of the issued shares (cum div.) of Fowl Ltd for $166 400. At this date, the equity of Fowl Ltd consisted of: Share capital $ 120 000 General reserve 24 000 Retained earnings 16 000 At 1 July 2015, one of the liabilities of Fowl Ltd was a dividend payable of $10 000. This was paid on 1 September 2015. One of the assets recorded by Fowl Ltd was goodwill of $5000. Mallee Ltd uses the partial goodwill method. At 1 July 2015, all the identifiable assets and liabilities of Fowl Ltd were recorded at amounts equal to their fair values except for: Carrying amount Fair value Plant (cost $100 000) $80 000 $88 000 Land 60 000 80 000 Inventory 40 000 52 000 In relation to these assets:  The plant had an expected useful life of 4 years.  Land is measured in the records of Mallee Ltd at fair value. The land on hand at 1 July 2015 was sold by Mallee Ltd on 8 February 2017. On sale any related asset revaluation surplus is transferred to retained earnings.  The inventory was all sold by 30 June 2016. Additional information (a) In June 2016, Fowl Ltd transferred $8000 from the general reserve existing at 1 July 2015 to retained earnings. There were no other transfers relating to the general reserve in 2015– 16. (b) At 30 June 2016, Fowl Ltd recognised gains on revaluation of land of $6000 in other comprehensive income for the period. (c) In June 2016, Fowl Ltd sold inventory to Mallee Ltd for $7000. This had originally cost Fowl Ltd $5000. 20% of this inventory remained unsold by Mallee Ltd at 30 June 2016. (d) During the 2016–17 period, Fowl Ltd inventory to Mallee Ltd for $120 000. At 30 June 2017, Mallee Ltd holds inventory sold to it by Fowl Ltd for $20 000 which had cost Fowl Ltd $15 000. (e) On 1 January 2016, Fowl Ltd sold an item of inventory to Mallee Ltd at a before tax profit of $5000. This asset was classified as plant by Mallee Ltd and depreciated over a 5-year period. (f) The tax rate is 30%. (g) Financial information provided by the companies at 30 June 2017 was as follows: Mallee Ltd Fowl Ltd Sales revenue $910 000 $624 000 Other revenue 60 000 65 600 Total revenue 970 000 896 600 Cost of sales (625 000) (464 000) Other expenses (225 000) (129 600) Total expenses 850 000 573 600 Profit before tax 120 000 96 000 Tax expense (30 000) (32 000) Profit for the period 90 000 64 000 © John Wiley and Sons Australia, Ltd 2015 21.68  Chapter 21: Consolidation: non-controlling interest Retained earnings at 1 July 2016 100 000 48 000 Transfer from asset revaluation surplus — 14 000 Transfer to general reserve — (12 000) Dividend paid (20 000) (12 000) Dividend declared (30 000) (16 000) Retained earnings at 30 June 2017 140 000 86 000 Share capital 400 000 120 000 General reserve — 28 000 Asset revaluation surplus — 10 000 Total equity 540 000 254 000 Provisions 40 000 30 000 Payables 30 000 40 000 Deferred tax liabilities 12 000 15 000 Non-current liabilities 78 000 65 000 Total liabilities 160 000 150 000 Total equity and liabilities $700 000 $404 000 Shares in Fowl Ltd $153 400 — Plant 800 000 $320 000 Accumulated depreciation – plant (544 000) (120 000) Land 60 000 90 000 Intangibles 75 000 60 000 Deferred tax assets 15 000 8 000 Cash 20 000 5 000 Receivables 40 600 6 000 Inventory 80 000 30 000 Goodwill 4 000 5 000 Total assets $700 000 $404 000 Required Prepare the consolidation worksheet for the preparation of consolidated financial statements by Mallee Ltd at 30 June 2017. 80% Mallee Ltd Fowl Ltd Mallee Ltd 80% NCI 20% Acquisition analysis At 1 July 2015: Net fair value of assets and liabilities of Fowl Ltd = ($120 000 + $24 000 + $16 000) (equity) + $8 000 (1 – 30%) plant + $20 000 (1 – 30%) land + $12 000 (1 – 30%) inventory - $5 000 (goodwill) = $183 000 (a) Consideration transferred = $161 400 – (80% x $10 000) div receivable i. = $153 400 (b) Non-controlling interest = 20% x $183 000 = $36 600 Aggregate of (a) and (b) = $190 000 Goodwill: parent only = $7 000 Unrecorded goodwill = $7 000 – (80% x $5000) © John Wiley and Sons Australia, Ltd 2015 21.69 Solutions manual to accompany Company Accounting 10e = $3 000 1. BCVR entries Accumulated depreciation - plant Dr 20 000 Plant Cr 12 000 Deferred tax liability Cr 2 400 Business combination valuation reserve Cr 5 600 Depreciation expense Dr 2 000 Retained earnings (1/7/16) Dr 2 000 Accumulated depreciation Cr 4 000 (1/4 x $8 000 p.a. for 2 years) Deferred tax liability Dr 1 200 Income tax expense Cr 600 Retained earnings (1/7/16) Cr 600 2. Pre-acquisition entries at 30/6/17 Retained earnings (1/7/16) * Dr 25 920 Share capital Dr 96 000 Asset revaluation surplus Dr 11 200 General reserve Dr 12 800 Business combination valuation reserve Dr 4 480 Goodwill Dr 3 000 Shares in Fowl Ltd Cr 153 400 * = 80% ($16 000 + $8 000 transfer from general reserve + $8 400 BCVR inventory) Transfer from asset revaluation surplus Dr 11 200 Transfer to retained earnings Cr 11 200 (Transfer on sale of land in current period) © John Wiley and Sons Australia, Ltd 2015 21.70  Chapter 21: Consolidation: non-controlling interest QUESTION 21 12 (cont’d) 3. NCI share of equity at 1/7/15 Retained earnings (1/7/16) Dr 3 200 Share capital Dr 24 000 Asset revaluation surplus Dr 2 800 General reserve Dr 4 800 Business combination valuation reserve Dr 2 800 NCI Cr 37 600 4. NCI share of equity: 1/7/15-30/6/16 Retained earnings (1/7/16) Dr 7 800 Asset revaluation surplus Dr 1 200 General reserve Cr 1 600 BCVR Cr 1 680 NCI Cr 5 720 (RE: 20% ($48 000 - $16 000 – ($2 000 - $600) +$8 400 t’fer BCVR inventory) BCVR: 20% x $8 400 sale of inventory GR: 20% x $8 000 ARS: 20% [$20 000 - $14 000]) 5. NCI share of equity: 1/7/16-30/6/17 NCI share of profit Dr 12 520 NCI Cr 12 520 (20% ($64 000 – ($2 000 - $600)) Transfer from asset revaluation surplus Dr 2 800 Transfer to retained earnings Cr 2 800 (20% x $14 000) Gains on revaluation of land Dr 800 NCI Cr 800 (20% x $4 000) General reserve Dr 2 400 Transfer to general reserve Cr 2 400 (20% x $12 000) NCI Dr 2 400 Dividend paid Cr 2 400 (20% x $12 000) NCI Dr 3 200 Dividend declared Cr 3 200 (20% x $16 000) 6. Dividend paid this period Dividend revenue Dr 9 600 Dividend paid Cr 9 600 (80% x $12 000) © John Wiley and Sons Australia, Ltd 2015 21.71 Solutions manual to accompany Company Accounting 10e QUESTION 21.12 (cont’d) 7. Dividend declared this period Dividend payable Dr 12 800 Dividend declared Cr 12 800 (80% x $16 000) Dividend revenue Dr 12 800 Dividend receivable Cr 12 800 8. Unrealised profit in opening inventory: Fowl Ltd to Mallee Ltd Retained earnings (1/7/16) Dr 280 Income tax expense Dr 120 Cost of sales Cr 400 (Unrealised profit is 20% x $2 000) 9. NCI adjustment NCI share of profit Dr 56 Retained earnings (1/7/16) Cr 56 (20% x $280) 10. Unrealised profit in closing inventory: Fowl Ltd to Mallee Ltd Sales revenue Dr 120 000 Cost of sales Cr 115 000 Inventory Cr 5 000 Deferred tax asset Dr 1 500 Income tax expense Cr 1 500 11. NCI adjustment NCI Dr 700 NCI share of profit Cr 700 (20% x $3500) 12. Sale of inventory to non-current asset: Fowl Ltd to Mallee Ltd Retained earnings (1/7/16) Dr 3 500 Deferred tax asset Dr 1 500 Plant Cr 5 000 13. NCI adjustment NCI Dr 700 Retained earnings (1/7/16) Cr 700 (20% x $3 500) © John Wiley and Sons Australia, Ltd 2015 21.72  Chapter 21: Consolidation: non-controlling interest QUESTION 21 12 (cont’d) 14. Depreciation on plant Accumulated depreciation Dr 1 500 Depreciation expense Cr 1 000 Retained earnings (1/7/16) Cr 500 (Depreciation of 20% x $5 000 p.a. for 1.5 years) Income tax expense Dr 300 Retained earnings (1/7/16) Dr 150 Deferred tax asset Cr 450 15. NCI adjustment NCI share of profit Dr 140 Retained earnings (1/7/16) Dr 70 NCI Cr 210 (20% x ($1 000 - $300) p.a.) © John Wiley and Sons Australia, Ltd 2015 21.73  Solutions manual to accompany Company Accounting 10e QUESTION 21 12 (cont’d) Financial Mallee Fowl Adjustments Group NCI Parent Statements Ltd Ltd Dr Cr Dr Cr Sales revenue 910 000 624 000 10 120 000 1 414 000 Other revenue 60 000 65 600 6 9 600 103 200 7 12 800 970 000 869 600 1 517 200 Cost of sales 625 000 464 000 400 8 973 600 115 000 10 Other expenses 225 000 129 600 1 2 000 1 000 14 355 600 850 000 573 600 1 329 200 Profit before 120 000 96 000 188 000 tax Tax expense 30 000 32 000 8 120 600 1 60 320 14 300 1 500 10 Profit 90 000 64 000 127 680 5 12 520 700 11 115 664 9 56 15 140 Retained 100 000 48 000 1 2 000 600 1 117 250 3 3 200 56 9 106 936 earnings 2 25 920 500 14 4 7 800 700 13 (1/7/16) 8 280 15 70 12 3 500 14 150 Transfer from 0 14 000 2 11 200 2 800 5 2 800 0 ARS 190 000 126 000 247 730 222 600 Transfer to 0 12 000 12 000 2 400 5 9 600 general reserve Dividend paid 20 000 12 000 9 600 6 22 400 2 400 5 20 000 Dividend 30 000 16 000 12 800 7 33 200 3 200 5 30 000 declared 50 000 40 000 67 600 59 600 Ret. earnings 140 000 86 000 180 130 163 000 (30/6/16) Share capital 400 000 120 000 2 96 000 424 000 3 24 000 400 000 General reserve 0 28 000 2 12 800 15 200 3 4 800 1 600 4 9 600 5 2 400 BCVR 0 0 2 4 480 5 600 1 1 120 3 2 800 1 680 4 0 540 000 234 000 620 450 572 600 ARS (1/7/16) 0 20 000 2 11 200 8 800 3 2 800 4 800 4 1 200 Transfer to RE (14 000) 11 200 2 (2 800) 2 800 5 0 Gains/losses 0 4 000 4 000 5 800 3 200 ARS (30/6/17) 0 10 000 10 000 8 000 Total equity: 580 600 parent Total equity: 5 2 400 37 600 3 49 850 NCI 5 3 200 5 720 4 11 700 12 520 5 13 700 800 5 210 15 Total equity 540 000 254 000 630 450 72 386 72 386 630 450 © John Wiley and Sons Australia, Ltd 2015 21.74  Chapter 21: Consolidation: non-controlling interest QUESTION 21.11 (cont’d) Financial Mallee Fowl Adjustments Group NCI Parent Statements Ltd Ltd Provisions 40 000 30 000 80 000 Payables 30 000 40 000 7 12 800 57 200 Deferred tax 12 000 15 000 1 1 200 2 400 1 28 200 liabilities Non-current 78 000 65 000 143 000 liabilities Total liabilities 160 000 150 000 308 400 Total equity 700 000 404 000 938 850 and liabilities Shares in Fowl 153 400 0 153 400 2 0 Ltd Plant 800 000 320 000 12 000 1 1103 000 5 000 12 Accumulated (544 000)(120 000) 1 20 000 4 000 1 (646 500) depreciation 14 1 500 Land 60 000 90 000 150 000 Intangibles 75 000 60 000 135 000 Deferred tax 15 000 8 000 10 1 500 450 14 25 550 assets 12 1 500 Cash 20 000 5 000 25 000 Receivables 40 600 6 000 12 800 7 33 800 Inventory 76 000 30 000 5 000 10 101 000 Goodwill 4 000 5 000 2 3 000 12 000 Total assets 700 000 404 000 353 850 353 850 938 850 © John Wiley and Sons Australia, Ltd 2015 21.75 Solutions manual to accompany Company Accounting 10e Question 21.13 Full goodwill method, consolidation worksheet, consolidated financial statements King Ltd acquired 80% of the shares of Parrot Ltd on 1 July 2013 for $115 000. At this date the equity of Parrot Ltd consisted of: Share capital (100 000 shares) $ 80 000 General reserve 2 400 Retained earnings 29 600 All the identifiable assets and liabilities of Parrot Ltd were recorded at amounts equal to their fair values except for: Carrying Fair value amount Plant (cost $65 000) $52 000 $56 000 Land 40 000 45 000 Inventory 25 000 28 000 The plant was expected to have a further useful life of 10 years. The land was sold on 1 January 2016. The inventory was all sold by 30 June 2014. King Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2013 was $28 000. At 1 July 2013, Parrot Ltd had unrecorded brands that had a fair value of $18 000. These had an indefinite life. Additional information (a) Parrot Ltd had inventory on hand at 30 June 2015 that included inventory at cost of $8000 that had been sold to it by King Ltd. This inventory had cost King Ltd $6000. It was all sold by Parrot Ltd by 30 June 2016. (b) During the 2015–16 year, Parrot Ltd sold inventory to King Ltd for $48 000. At 30 June 2016, King Ltd still had some of this inventory on hand. This inventory had been sold to it by Parrot Ltd at a profit of $4000. (c) On 1 January 2015, Parrot Ltd sold plant to King Ltd for $16 000. This had a carrying amount in Parrot Ltd at time of sale of $12 000. Plant of this class is depreciated at 20% p.a. (d) Management and consultation fees derived by King Ltd are all from Parrot Ltd and represent charges for administration $1760 and technical services for the manufacturing section $2240. (e) All debentures issued by Parrot Ltd are held by King Ltd. (f) Other components of equity relate to movements in the fair values of financial assets held by the entities. Gains and losses on these financial assets are recognised in other comprehensive income. The balance of the other components of equity account at 1 July 2015 was $8000 (King Ltd) and $6400 (Parrot Ltd). (g) Financial information provided by the two companies at 30 June 2016 was: King Ltd Parrot Ltd Sales revenue $252 800 $176 000 Debenture interest 4 000 — Management and consultation fees 4 000 — Dividends 9 600 — Total revenue 270 400 176 000 Cost of sales (104 000) (68 000) Manufacturing expenses (82 000) (53 000) Depreciation on plant (12 000) (12 000) © John Wiley and Sons Australia, Ltd 2015 21.76  Chapter 21: Consolidation: non-controlling interest Administrative expenses (12 000) (6 400) Financial expenses (8 800) (4 000) Other expenses (11 200) (9 600) Total expenses 230 000 153 000 Profit from trading 40 400 23 000 Gains on sale of non-current assets 10 000 5 000 Profit before income tax 50 400 28 000 Income tax expense (20 000) (13 600) Profit for the year 30 400 14 400 Retained earnings at 1 July 2015 40 000 36 000 70 400 50 400 Dividend paid (8 000) (8 000) Dividend declared (8 000) (4 000) (16 000) (12 000) Retained earnings at 30 June 2016 54 400 38 400 Share capital 240 000 80 000 General reserve 37 600 8 000 Other components of equity 10 400 8 000 Debentures 160 000 80 000 Current tax liability 20 000 13 600 Dividend payable 8 000 4 000 Deferred tax liabilities 12 000 5 600 Other current liabilities 60 000 9 600 Total equity and liabilities $602 400 $247 200 Shares in Parrot Ltd $115 000 — Debentures in Parrot Ltd 80 000 — Plant 96 000 $81 600 Accumulated depreciation (52 000) (44 000) Intangibles 60 800 44 000 Accumulated amortisation (32 000) (20 000) Deferred tax assets 58 600 24 000 Financial assets 40 000 48 000 Land 120 000 45 600 Inventory 72 000 44 000 Receivables 44 000 24 000 Total assets $602 400 $247 200 Required Prepare the consolidated financial statements of King Ltd at 30 June 2016. 80% King Ltd Parrot Ltd King Ltd 80% NCI 20% Acquisition analysis At 1 July 2013: Net fair value of assets and liabilities of Parrot Ltd = $80 000 + $2 400 + $29 600 (equity) + $4 000 (1 – 30%) (plant) + $5 000 (1 – 30%) (land) + $3 000 (1 – 30%) (inventory) + $18 000 ( 1- 30%) (brands( © John Wiley and Sons Australia, Ltd 2015 21.77 Solutions manual to accompany Company Accounting 10e = $133 000 (a) Consideration transferred = $115 000 (b) Non-controlling interest = $28 000 Aggregate of (a) and (b) = $143 000 Goodwill = $10 000 Goodwill of Parrot Ltd: Fair value of Parrot Ltd = $28 000/20% = $140 000 Net fair value of identifiable assets and liabilities of Parrot Ltd = $133 000 Goodwill of Parrot Ltd = $7 000 Goodwill of King Ltd: Goodwill acquired = $10 000 Goodwill of Parrot Ltd = $7 000 Goodwill of King Ltd: control premium = $3 000 1. Business combination valuation entries At 30 June 2016: Accumulated depreciation Dr 13 000 Plant Cr 9 000 Deferred tax liability Cr 1 200 Business combination valuation reserve Cr 2 800 Depreciation expense Dr 400 Retained earnings (1/7/15) Dr 800 Accumulated depreciation Cr 1 200 ($4 000/10 = $400 p.a.) Deferred tax liability Dr 360 Income tax expense Cr 120 Retained earnings (1/7/15) Cr 240 © John Wiley and Sons Australia, Ltd 2015 21.78  Chapter 21: Consolidation: non-controlling interest QUESTION 21.13 (cont’d) Gain/loss on sale of land Dr 5 000 Income tax expense Cr 1 500 Transfer from business combination valuation reserve Cr 3 500 Brands Dr 18 000 Deferred tax liability Cr 5 400 Business combination valuation reserve Cr 12 600 Goodwill Dr 7 000 Business combination valuation reserve Cr 7 000 2. Pre-acquisition entries Retained earnings (1/7/15)* Dr 25 360 Share capital Dr 64 000 General reserve Dr 1 920 Business combination valuation reserve ** Dr 20 720 Goodwill Dr 3 000 Shares in Parrot Ltd Cr 115 000 * 80% ($29 600 + $2 100 BCVR inventory) ** 80% x ($2 800 + $3 500 + $12 600 + $7 000) Transfer from business combination valuation reserve Dr 2 800 Business combination valuation reserve Cr 2 800 (80% x $3 500 BCVR land) 3. NCI share of equity at 1/7/13 Retained earnings (1/7/15) Dr 5 920 Share capital Dr 16 000 General reserve Dr 480 Business combination valuation reserve * Dr 5 600 NCI Cr 28 000 * 20% x ($2 800 + $3 500 + $2 100 + $12 600 + $7 000) 4. NCI share of equity: 1/7/13 - 30/6/15 Retained earnings (1/7/15) Dr 1 588 General reserve Dr 1 120 Other components of equity (1/7/15) Dr 1 120 Business combination valuation reserve Cr 420 NCI Cr 3 408 (RE: 20% ($36 000 - $29 600 + $2 100 BCVR inventory – ($800 - $240)) GR: 20% ($8 000 - $2 400) BCVR: 20% x $2 100 OCE: 20% x $6 400) © John Wiley and Sons Australia, Ltd 2015 21.79 Solutions manual to accompany Company Accounting 10e QUESTION 21.13 (cont’d) 5. NCI share of equity: 1/7/15 - 30/6/16 NCI share of profit Dr 3 530 NCI Cr 3 530 (20% ($14 400 – ($400 - $120))) Transfer from business combination valuation reserve Dr 700 Business combination valuation reserve Cr 700 (20% x $3 500) Gains/Losses: other components of equity Dr 320 NCI Cr 320 (20%[$8 000 - $6 400]) NCI Dr 1 600 Interim dividend paid Cr 2 000 (20% x $8 000) NCI Dr 800 Final dividend declared Cr 800 (20% x $4 000) 6. Unrealised profit in opening inventory: King Ltd to Parrot Ltd Retained earnings (1/7//15) Dr 1 400 Income tax expense Dr 600 Cost of sales Cr 2 000 7. Unrealised profit in closing inventory: Parrot Ltd to King Ltd Sales Dr 48 000 Cost of sales Cr 44 000 Inventory Cr 4 000 Deferred tax asset Dr 1 200 Income tax expense Cr 1 200 8. NCI adjustment NCI Dr 560 NCI share of profit Cr 560 (20% x $2 800) 9. Transfer of plant in prior period: Parrot Ltd – King Ltd Retained earnings (1/7/15) Dr 2 800 Deferred tax asset Dr 1 200 Plant Cr 4 000 © John Wiley and Sons Australia, Ltd 2015 21.80  Chapter 21: Consolidation: non-controlling interest QUESTION 21.13 (cont’d) 10. NCI adjustment NCI Dr 560 Retained earnings (1/7/15) Cr 560 (20% x $2 800) 11. Depreciation on plant transfer Accumulated depreciation Dr 1 200 Depreciation expense Cr 800 Retained earnings (1/7/15) Cr 400 (20% x $4000 p.a. for 1.5 years) Income tax expense Dr 240 Retained earnings (1/7/15) Dr 120 Deferred tax asset Cr 360 12. NCI adjustment NCI share of profit Dr 112 Retained earnings (1/7/15) Dr 56 NCI Cr 168 13. Intragroup services Management and consulting fees Dr 4 000 Administrative expenses Cr 1 760 Manufacturing expenses Cr 2 240 14. Debentures Debentures Dr 80 000 Debentures in Parrot Ltd Cr 80 000 Debenture interest revenue Dr 4 000 Financial expenses Cr 4 000 15. Dividend paid Dividend revenue Dr 6 400 Dividend paid Cr 6 400 (80% x $8 000) 16. Dividend declared Dividend payable Dr 3 200 Dividend declared Cr 3 200 (80% x $4 000) Dividend revenue Dr 3 200 Dividend receivable Cr 3 200 © John Wiley and Sons Australia, Ltd 2015 21.81  Solutions manual to accompany Company Accounting 10e QUESTION 21.13 (cont’d) Financial King Parrot Adjustments Group NCI Parent Statements Ltd Ltd Dr Cr Dr Cr Sales revenue 252 800 176 000 7 48 000 380 800 Interest 4 000 0 14 4 000 0 revenue Management 4 000 0 13 4 000 0 fees Dividend 9 600 0 15 6 400 0 revenue 16 3 200 Total revenues 270 400 176 000 380 800 Cost of sales 104 000 68 000 2 000 6 126 000 44 000 7 Manufacturing 81 000 53 000 2 240 13 131 760 expenses Depreciation 13 000 12 000 1 400 800 11 24 600 Administrative 12 000 6 400 1 760 13 16 640 Financial 8 800 4 000 4 000 14 8 800 Other 11 200 9 600 20 800 Total expenses 230 000 153 000 328 600 Profit from 40 400 23 000 52 200 trading Gains on sale 10 000 5 000 1 5 000 10 000 Profit before 50 400 28 000 62 200 tax Tax expense 20 000 13 600 6 600 120 1 31 620 11 240 1 500 1 1 200 7 Profit for year 30 400 14 400 30 580 5 3 530 560 8 27 498 12 112 Retained 40 000 36 000 1 800 240 1 46 160 3 5 920 560 10 39 156 earnings 2 25 360 400 11 4 1 588 (1/7/15) 6 1 400 12 56 9 2 800 11 120 Transfer from 0 0 2 2 800 3 500 1 700 5 700 0 BCVR 70 400 50 400 77 440 66 654 Dividend paid 8 000 8 000 6 400 15 9 600 1 600 5 8 000 Div. declared 8 000 4 000 3 200 16 8 800 800 5 8 000 16 000 12 000 18 400 16 000 Retained 54 400 38 400 59 040 50 654 earnings (30/6/16) Share capital 240 000 80 000 2 64 000 256 000 3 16 000 240 000 General reserve 37 600 8 000 2 1 920 43 680 3 480 42 080 4 1 120 332 000 126 400 358 720 332 734 Other comp (op) 8 000 6 400 14 400 4 1 120 13 280 Gains/losses 2 400 1 600 4 000 5 320 3 680 Other comp (cl) 10 400 8 000 18 400 16 960 342 400 134 400 377 120 349 694 © John Wiley and Sons Australia, Ltd 2015 21.82  Chapter 21: Consolidation: non-controlling interest BCVR 0 0 2 20 720 2 800 1 4 480 3 5 600 420 4 0 12 600 1 700 5 7 000 1 2 800 2 Parent interest 349 694 NCI 5 1 600 28 000 3 31 906 5 800 3 408 4 8 560 3 530 5 10 560 320 5 168 12 Total equity 342 400 134 400 381 600 40 066 40 066 381 600 Current tax 20 000 13 600 33 600 liability Deferred tax 12 000 5 600 1 360 1 200 1 23 840 liability 5 400 1 Dividend 8 000 4 000 16 3 200 8 800 payable Debentures 160 000 80 000 14 80 000 160 000 Other liabilities 60 000 9 600 69 600 260 000 112 800 295 840 Total equity 602 400 247 200 677 440 and liabilities Shares in 115 000 0 115 000 2 0 Parrot Ltd Debentures in 80 000 0 80 000 14 0 Parrot Ltd Plant 96 000 81 600 9 000 1 164 600 4 000 9 Accumulated (52 000) (44 000) 1 13 000 1 200 1 (83 000) depreciation 11 1 200 Intangibles 60 800 44 000 1 18 000 122 800 Accumulated (32 000) (20 000) (52 000) amortisation Deferred tax 58 600 24 000 7 1 200 360 11 84 640 assets 9 1 200 Financial assets 40 000 48 000 88 000 Land 120 000 45 600 165 600 Inventory 72 000 44 000 4 000 7 112 000 Receivables 44 000 24 000 3 200 16 64 800 Goodwill 0 0 1 7 000 10 000 2 3 000 Total assets 602 400 247 200 319 920 319 920 677 440 © John Wiley and Sons Australia, Ltd 2015 21.83 Solutions manual to accompany Company Accounting 10e QUESTION 21.13 (cont’d) KING LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 30 June 2016 Revenue: Sales $380 800 Expenses: Cost of sales 126 000 Manufacturing 131 760 Depreciation 24 600 Administrative 16 640 Financial 8 800 Other 20 800 328 600 Profit from trading 52 200 Gains from sale of non-current assets 10 000 Profit before tax 62 200 Income tax expense 31 620 Profit for the period $30 580 Other comprehensive income: Other components of equity: gains 4 000 Comprehensive income for the period $ 34 580 Profit for the period attributable to: Parent entity interest $27 498 Non-controlling interest $3 082 Comprehensive income for the period attributable to: Parent interest $31 178 Non-controlling interest $3 402 © John Wiley and Sons Australia, Ltd 2015 21.84  Chapter 21: Consolidation: non-controlling interest QUESTION 21.13 (cont’d) KING LTD Consolidated Statement of Changes in Equity for the financial year ended 30 June 2016 Group Parent Comprehensive income for the period $34 580 $31 178 Retained earnings: Balance at 1 July 2015 $46 160 $39 156 Profit for the period 30 580 27 498 Dividend paid (9 600) (8 000) Dividend declared (8 800) (8 000) Balance at 30 June 2016 $59 040 $50 654 General reserve: Balance at 1 July 2015 $43 680 $42 080 Balance at 30 June 2016 $43 680 $42 080 Business combination valuation reserve Balance at 1 July 2015 $5 180 -- Balance at 30 June 2016 $4 480 -- Other components of equity: Balance at 1 July 2015 $14 400 $13 280 Gains/Losses 4 000 $3 680 Balance at 30 June 2016 $18 400 $16 960 © John Wiley and Sons Australia, Ltd 2015 21.85 Solutions manual to accompany Company Accounting 10e QUESTION 21.13 (cont’d) KING LTD Consolidated Statement of Financial Position as at 30 June 2016 Current Assets Inventories $112 000 Receivables 64 800 Financial assets 88 000 264 800 Non-current Assets Property, plant and equipment Plant 164 600 Accumulated depreciation (83 000) Land 165 600 247 200 Intangibles 122 800 Accumulated amortisation (52 000) Tax assets: Deferred tax asset 84 640 Goodwill 10 000 Total Non-current Assets 412 640 Total Assets $677 440 Equity and liabilities Equity attributable to equity holders of the parent Share capital $240 000 Reserves: General reserve 42 080 Other components of equity 16 960 Retained earnings 50 654 Parent Entity Interest 349 694 Non-controlling Interest 31 906 Total Equity 381 600 Current Liabilities Tax liabilities: Current tax liability 33 600 Payables: Dividend payable 8 800 Other 69 600 Total Current Liabilities 112 000 Non-current Liabilities Interest-bearing liabilities: Debentures 160 000 Tax liabilities: Deferred tax liability 23 840 Total Non-current Liabilities 183 840 Total Liabilities 295 840 Total Equity and Liabilities $677 440 © John Wiley and Sons Australia, Ltd 2015 21.86  Chapter 21: Consolidation: non-controlling interest Question 21.14 Partial and full goodwill methods, consolidation worksheet entries On 1 July 2012, Fin Ltd acquired 75% of the shares (cum div.) of Whale Ltd for $67 500. At this date the equity of Whale Ltd consisted of: Share capital $ 30 000 General reserve 3 000 Retained earnings 15 000 At the date of the business combination, all the identifiable assets and liabilities of Whale Ltd had carrying amounts equal to their fair values except for: Carrying Fair value amount Plant (cost $60 000) $40 000 $55 000 Inventory 25 000 31 000 Receivables 33 000 30 000 The plant had a further useful life of 5 years. It was sold by Whale Ltd on 1 April 2017 for $3000. At 30 June 2013, all the inventory was sold to entities outside the group. Also, by 30 June 2013, receivables of $33 000 had been collected. One of the liabilities of Whale Ltd at 1 July 2012 was dividend payable of $10 000. The tax rate is 30%. Fin Ltd uses the partial goodwill method. Additional information (a) At 30 June 2016, inventory of Fin Ltd included assets sold to it by Whale Ltd for a before- tax profit of $300. These items were sold to external entities during the 2016–17 year. (b) During the 2016–17 year, Whale Ltd had sold inventory to Fin Ltd for $60 000. The mark-up on sales was 25% on cost. At 30 June 2017, Fin Ltd still had some of this inventory on hand, amounting to items acquired from Whale Ltd for $3000. (c) On 1 January 2017, Whale Ltd sold plant to Fin Ltd for a before-tax profit of $1200. This plant was carried at $3000 (original cost $20 000) in the records of Whale Ltd at time of sale. Depreciation on this type of plant is calculated using a 20% p.a. straight-line method. (d) Financial information provided by Whale Ltd concerning events affecting it during the 2016–17 year was as follows: Profit for the year $23 400 Retained earnings at 1 July 2016 30 000 53 400 Dividend paid (12 000) Dividend declared (6 000) Transfer to general reserve (1 500) 19 500 Retained earnings at 30 June 2017 $33 900 Whale Ltd also reported a comprehensive income for the year of $34 650, which included gains on revaluation of land of $750 as the asset revaluation surplus in relation to the land had increased from $3000 to $3750 over the year. Required A. Prepare the consolidation worksheet entries for the preparation of the consolidated financial statements of Fin Ltd at 30 June 2017. © John Wiley and Sons Australia, Ltd 2015 21.87 Solutions manual to accompany Company Accounting 10e B. Prepare the consolidation worksheet entries that would be used at 30 June 2017 if Fin Ltd had used the full goodwill method and the fair value of the non-controlling interest at 1 July 2012 was $19 500. 75% Fin Ltd Whale Ltd Fin Ltd 75% NCI 25% A: PARTIAL GOODWILL METHOD Acquisition analysis At 1 July 2012: Net fair value of identifiable assets and liabilities of Whale Ltd = ($30 000 + $3 000 + $15 000) (equity) + $15 000 (1 – 30%)(plant) + $6 000 (1 – 30%) (inventory) - $3 000 (1 – 30%) (receivables) = $60 600 (a) Consideration transferred = $67 500 – (75% x $10 000) (div) = $60 000 (b) Non-controlling interest = 25% x $60 600 = $15 150 Aggregate of (a) and (b) = $75 150 Goodwill = $75 150 - $60 600 = $14 550 1. Business combination valuation entries at 30/6/17 Depreciation expense Dr 2 250 Gain/(loss) on sale of plant Dr 750 Income tax expense Cr 900 Retained earnings (1/7/12) Dr 8 400 Transfer from business combination valuation reserve Cr 10 500 (Depreciation is 20% x $15 000 per annum) 2. Pre-acquisition entries at 30/6/17 Pre-acquisition entries at 1/7/12 Retained earnings (1/7/12) Dr 11 250 Share capital Dr 22 500 Business combination valuation reserve Dr 9 450 General reserve Dr 2 250 Goodwill Dr 14 550 Shares in Whale Ltd Cr 60 000 © John Wiley and Sons Australia, Ltd 2015 21.88  Chapter 21: Consolidation: non-controlling interest QUESTION 21.14 (cont’d) Pre-acquisition entry at 30/6/17 Retained earnings (1/7/16) * Dr 12 825 Share capital Dr 22 500 Business combination valuation reserve ** Dr 7 875 General reserve Dr 2 250 Goodwill Dr 14 550 Shares in Whale Ltd Cr 60 000 * 75%[$15 000 + $4 200 (inventory) – $2 100 (receivables)] ** 75% x $10 500 plant Transfer from business combination valuation reserve Dr 7 875 Business combination valuation reserve Cr 7 875 (75% x $10 500) 3. NCI share of equity at 1/7/12 Retained earnings (1/7/16) Dr 3 750 Share capital Dr 7 500 Business combination valuation reserve Dr 3 150 General reserve Dr 750 NCI Cr 15 150 (25% of balances) 4. NCI share of equity: 1/7/12 - 30/6/16 Retained earnings (1/7/15) Dr 1 650 Asset revaluation surplus (1/7/15) Dr 750 Business combination valuation reserve Cr 525 NCI Cr 1 875 RE: 25% ($30 000 - $15 000 - $8 400) BCVR: 25% (70% [$6 000 - $3 000]) ARS: 25% x $3 000 © John Wiley and Sons Australia, Ltd 2015 21.89 Solutions manual to accompany Company Accounting 10e QUESTION 21.14 (cont’d) 5. NCI share of equity: 1/7/16 - 30/6/17 NCI share of profit Dr 5 325 NCI Cr 5 325 (25%($23 400 – ($2 250 + $750 - $900))) General reserve Dr 375 Transfer to general reserve Cr 375 (25% x $1 500) Gains/Losses on revaluation of land Dr 187.50 NCI Cr 187.50 (25% x $750) Transfer from business combination valuation reserve Dr 2 625 Business combination valuation reserve Cr 2 625 (Sale of plant: 25% x $10 500) NCI Dr 3 000 Dividend paid Cr 3 000 (25% x $12 000) NCI Dr 1 500 Dividend declared Cr 1 500 (25% x $6 000) 6. Dividend paid Dividend revenue Dr 9 000 Dividend paid Cr 9 000 (75% x $12 000) 7. Dividend declared Dividend payable Dr 4 500 Dividend declared Cr 4 500 (75% x $6 000) Dividend revenue Dr 4 500 Dividend receivable Cr 4 500 © John Wiley and Sons Australia, Ltd 2015 21.90  Chapter 21: Consolidation: non-controlling interest QUESTION 21.14 (cont’d) 8 Sale of inventory in prior period: Fin Ltd– Whale Ltd Retained earnings (1/7/16) Dr 210 Income tax expense Dr 90 Cost of sales Cr 300 9. NCI adjustment NCI share of profit Dr 52.50 Retained earnings (1/7/16) Cr 52.50 (25% x $210) 10. Profit in closing inventory: Fin Ltd – Whale Ltd Sales Dr 60 000 Cost of sales Cr 59 400 Inventory Cr 600 Deferred tax asset Dr 180 Income tax expense Cr 180 11. NCI adjustment NCI Dr 105 NCI share of profit Cr 105 (25% x $420) 12. Sale of non-current asset: Fin Ltd – Whale Ltd Gain on sale of non-current assets Dr 1 200 Plant Cr 1 200 Deferred tax asset Dr 360 Income tax expense Cr 360 13. NCI adjustment NCI Dr 210 NCI share of profit Cr 210 (25% x $840) © John Wiley and Sons Australia, Ltd 2015 21.91 Solutions manual to accompany Company Accounting 10e QUESTION 21.14 (cont’d) 14. Depreciation Accumulated depreciation Dr 120 Depreciation expense Cr 120 (1/2 x 20% x $1200) Income tax expense Dr 36 Deferred tax asset Cr 36 15. NCI adjustment NCI share of profit Dr 21 NCI Cr 21 (25% x $84) © John Wiley and Sons Australia, Ltd 2015 21.92  Chapter 21: Consolidation: non-controlling interest QUESTION 21.14 (cont’d) B: FULL GOODWILL METHOD Acquisition analysis At 1 July 2012 Net fair value of identifiable assets and liabilities of Whale Ltd = ($30 000 + $3 000 + $15 000) (equity) + $15 000 (1 – 30%)(plant) + $6 000 (1 – 30%) (inventory) - $3 000 (1 – 30%) (receivables) = $60 600 (a) Consideration transferred = $67 500 – (75% x $10 000) dividend = $60 000 (b) Non-controlling interest = $19 500 Aggregate of (a) and (b) = $79 500 Goodwill = $18 900 Goodwill of Whale Ltd: Fair value of Whale Ltd = $19 500/25% = $78 000 Net fair value of identifiable assets and liabilities of Whale Ltd = $60 600 Goodwill of Whale Ltd = $17 400 Goodwill of Fin Ltd: Goodwill acquired = $18 900 Goodwill of Whale Ltd = $17 400 Goodwill of Fin Ltd – control premium = $1 500 DIFFERENT ENTRIES 1. Business combination valuation entries at 30/6/17 An additional entry is required: Goodwill Dr 17 400 Business combination valuation reserve Cr 17 400 2. Pre-acquisition entry at 30/6/13: Retained earnings (1/7/16) * Dr 12 825 Share capital Dr 22 500 Business combination valuation reserve ** Dr 20 925 General reserve Dr 2 250 Goodwill Dr 1 500 Shares in Whale Ltd Cr 60 000 * 75%[$15 000 + $4 200 (inventory) – $2 100 (receivables)] ** 75% ($10 500 plant + $17 400 goodwill) 3. NCI share of equity at 1/7/12 Retained earnings (1/7/16) Dr 3 750 Share capital Dr 7 500 Business combination valuation reserve Dr 7 500 General reserve Dr 750 NCI Cr 19 500 * 25% x ($10 500 + $4 200 - $2 100 + $17 400) © John Wiley and Sons Australia, Ltd 2015 21.93 Solutions manual to accompany Company Accounting 10e Question 21.15 Full goodwill method, consolidated financial statements On 1 July 2014, Mudlark Ltd acquired 80% of the shares of Peewee Ltd on an ex div basis for $305 600. At this date, all the identifiable assets and liabilities of Peewee Ltd were recorded at amounts equal to fair value except for: Carrying amount Fair value Inventory $120 000 $130 000 Machinery (cost $200 000) 160 000 165 000 At 30 June 2014, Peewee Ltd had recorded a dividend payable of $10 000. The inventory on hand at 1 July 2014 was all sold by 30 November 2014. The machinery had a further 5-year life, but was sold on 1 April 2017. At acquisition date, Peewee Ltd reported a contingent liability of $15 000 that Mudlark Ltd considered to have a fair value of $7000. This liability was settled in June 2015 for $10 000. At acquisition date, Peewee Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Mudlark Ltd placed a fair value on the asset of $12 000, reflecting expected benefits existing at acquisition date. The asset was considered to have a further 10-year life. On 1 January 2016, the asset met the requirements of IAS 38 Intangible Assets and subsequent expenditure by Peewee Ltd on the asset was capitalised. Mudlark Ltd uses the full goodwill method. At 1 July 2014, the fair value of the non- controlling interest was $75 000. Additional information (a) On 1 July 2015, Peewee Ltd sold an item of plant to Mudlark Ltd at a profit before tax of $4000. Mudlark Ltd depreciates this class of plant at a rate of 10% p.a. on cost while Peewee Ltd applies a rate of 20% p.a. on cost. (b) At 30 June 2016, Mudlark Ltd had on hand some items of inventory purchased from Peewee Ltd in June 2015 at a profit before tax of $500. These were all sold by 30 June 2017. (c) During the 2016–17 period Mudlark Ltd sold $12 000 inventory to Peewee Ltd at a mark- up of 20% on cost. $3000 of this inventory remains unsold by 30 June 2017. (d) The other components of equity relate to financial assets. These assets are measured at fair value with movements in fair value being recognised in other comprehensive income. (e) The parent and the subsidiary are considered to be separate cash generating units. Management have analysed the impairment indicators on an annual basis and conducted an impairment test on the subsidiary cash generating unit in the 2015–16 year, which resulted in the writing down of goodwill in the records of the subsidiary by $4000. There have been no other business combinations involving these entities since 1 July 2014. (f) The tax rate is 30%. (g) Shareholder approval is not required in relation to dividends. (h) On 30 June 2017 the trial balances of Mudlark Ltd and Peewee Ltd were as follows: Debit balances Mudlark Peewee Ltd Ltd Shares in Peewee Ltd $305 600 — Inventory 180 000 $60 000 Financial assets 229 000 215 000 Other current assets 10 000 2 000 Deferred tax assets 15 800 8 000 Plant 452 100 303 000 Land 144 200 42 000 Equipment design — 18 000 Goodwill 20 000 22 000 © John Wiley and Sons Australia, Ltd 2015 21.94  Chapter 21: Consolidation: non-controlling interest Cost of sales 120 000 70 000 Other expenses 50 000 10 000 Income tax expense 35 000 40 000 Dividend paid 14 000 6 000 Dividend declared 20 000 4 000 $1 595 700 $800 000 Credit balances Share capital $800 000 $330 000 Other components of equity 100 000 80 000 Other reserves 50 000 1 000 Retained earnings (1/7/16) 45 000 16 000 Transfer from other reserves — 2 000 Sales 200 000 140 000 Other revenue 40 000 25 000 Gains/losses on sale of non-current assets 10 000 5 000 Debentures 70 000 20 000 Deferred tax liability 20 000 12 000 Other current liabilities 38 700 35 000 Dividend payable 10 000 4 000 Accumulated amortisation – equipment design — 4 000 Accumulated impairment losses – goodwill — 16 000 Accumulated depreciation – plant 212 000 110 000 $1 595 700 $800 000 (i) Extracts from the statement of changes in equity for Peewee Ltd were as follows: 2014–15 2015–16 2016–17 Retained earnings (opening balance) $20 000 $19 000 $16 000 Profit for the year 20 000 20 000 50 000 Dividends paid (3 000) (6 000) (6 000) Dividends declared (15 000) (17 000) (4 000) Transfers to/from other reserves* (3 000) — 2 000 Retained earnings (closing balance) $19 000 $16 000 $58 000 Other reserves (opening balance) $30 000 $33 000 $33 000 Transfers to/from retained earnings* 3 000 — (2 000) Bonus issue* — — (30 000) Other reserves (closing balance) $33 000 $33 000 $1 000 Other components of equity (op. bal.) $10 000 $42 000 $72 000 Movements in fair value 32 000 30 000 8 000 Other components of equity (cl. bal.) $42 000 $72 000 $80 000 Share capital (opening balance) $300 000 $300 000 $300 000 Bonus issue* — — 30 000 Share capital (closing balance) $300 000 $300 000 $330 000 * These items were from equity earned prior to 1 July 2014. Required Prepare the consolidated financial statements of Mudlark Ltd at 30 June 2017. At 1 July 2014: Peewee Ltd: Goodwill $22 000 Accum. impairment losses ($16 000 - $4 000) 12 000 10 000 © John Wiley and Sons Australia, Ltd 2015 21.95 Solutions manual to accompany Company Accounting 10e Net fair value of identifiable assets, liabilities and contingent liabilities of Peewee Ltd = $300 000 + $30 000 + $10 000 + $20 000 + $10 000 (1 – 30%) (BCVR – inventory) + $5 000 (1 – 30%) (BCVR – machine) - $7 000 (1 – 30%) (BCVR – provision) + $12 000 (1 – 30%) (BCVR – equip. design) - $10 000 (goodwill) = $364 000 (a) Consideration transferred = $305 600 (b) Non-controlling interest = $75 000 Aggregate of (a) and (b) = $380 600 Goodwill = $16 600 Goodwill of Peewee Ltd: Fair value of Peewee Ltd = $75 000/20% = $375 000 Net fair value of identifiable assets and liabilities of Peewee Ltd = $364 000 Goodwill of Peewee Ltd = $11 000 Recorded goodwill = $10 000 Unrecorded goodwill = $1 000 Goodwill of Mudlark Ltd: Goodwill acquired = $16 600 Goodwill of Peewee Ltd = $11 000 Goodwill of Mudlark Ltd – control premium = $5 600 © John Wiley and Sons Australia, Ltd 2015 21.96  Chapter 21: Consolidation: non-controlling interest QUESTION 21.15 (cont’d) CONSOLIDATION WORKSHEET ENTRIES 1. Business combination entries Equipment design Dr 12 000 Deferred tax liability Cr 3 600 Business combination valuation reserve Cr 8 400 Amortisation expense Dr 1 200 Retained earnings (1/7/16) Dr 2 400 Accumulated amortisation Cr 3 600 (1/10 x $12 000 p.a. for 3 years) Deferred tax liability Dr 1 080 Income tax expense Cr 360 Retained earnings (1/7/16) Cr 720 Depreciation expense Dr 750 Gain on sale of machinery Dr 2 250 Income tax expense Cr 900 Retained earnings (1/7/16) Dr 1 400 Transfer from business combination valuation reserve Cr 3 500 (Depreciation is 1/5 x $5 000 p.a.) Accumulated impairment losses – goodwill Dr 12 000 Goodwill Cr 12 000 Goodwill Dr 1 000 Business combination valuation reserve Cr 1 000 © John Wiley and Sons Australia, Ltd 2015 21.97 Solutions manual to accompany Company Accounting 10e QUESTION 21.15 (cont’d) 2. Pre-acquisition entries At 1 July 2014: Retained earnings (1/7/14) Dr 16 000 Share capital Dr 240 000 Other reserves (1/7/14) Dr 24 000 Other components of equity (1/7/14) Dr 8 000 Business combination valuation reserve Dr 12 000 Goodwill Dr 5 600 Shares in Peewee Ltd Cr 305 600 At 30 June 2017: Retained earnings (1/7/16) Dr 15 280 Share capital Dr 240 000 Other reserves (1/7/16) Dr 26 400 Other components of equity (1/7/16) Dr 8 000 Business combination valuation reserve Dr 10 320 Goodwill Dr 5 600 Shares in Peewee Ltd Cr 305 600 RE: 80%[$20 000 + $7 000 (BCVR – inv) - $4 900 (BCVR –prov) - $3 000 (transfer to other reserves)] Other reserves: 80% ($30 000 + $3 000) BCVR: 80%($3 500 + $8 400 + $1 000) Share capital Dr 24 000 Other reserves: bonus issue Cr 24 000 (Bonus issue: 80% x $30 000) Transfer from other reserves [RE] Dr 1 600 Transfer to retained earnings [OR] Cr 1 600 (80% x $2 000) Transfer from business combination valuation reserve Dr 2 800 Business combination valuation reserve Cr 2 800 (80% x $3500) © John Wiley and Sons Australia, Ltd 2015 21.98  Chapter 21: Consolidation: non-controlling interest QUESTION 21.15 (cont’d) 3. NCI share of equity at acquisition date 1/7/14 Retained earnings (1/7/16) Dr 4 000 Share capital Dr 60 000 Other reserves (1/7/09) Dr 6 000 Other components of equity (1/7/16) Dr 2 000 Business combination valuation reserve * Dr 3 000 NCI Cr 75 000 (20% of balances) * 20% x ($7 000 inv + $3 500 mach - $4 900 liab. + $8 400 eq design + $1000 g’will) 4. NCI share of changes in equity from 1/7/14 to 30/6/16 Other reserves (1/7/16) Dr 600 Other components of equity (1/7/16) Dr 12 400 Retained earnings (1/7/16) Cr 1 416 Business combination valuation reserve Cr 420 NCI Cr 11 164 RE: 20% [$16 000 - $20 000 - $1 400 – ($2 400 - $720)] BCVR: 20% ($7 000 - $4 900) Other reserves: 20% ($33 000 - $30 000) Other components: 20% ($72 000 - $10 000) 5. NCI share of changes in equity from 1/7/16 to 30/6/17 NCI share of profit Dr 9 412 NCI Cr 9 412 (20% [$50 000 – ($1 200 - $360) – ($750 + $2 250 - $900)] NCI Dr 1 200 Dividend paid Cr 1 200 (20% x $6 000) NCI Dr 800 Dividend declared Cr 800 (20% x $4 000) Transfer from other reserves [RE] Dr 400 Transfer to retained earnings [OR] Cr 400 (20% x $2 000) Share capital Dr 6 000 Other reserves: bonus issue Cr 6 000 (20% x $30 000) Movements in fair value [OCE] Dr 1 600 NCI Cr 1 600 (20% x $8 000) © John Wiley and Sons Australia, Ltd 2015 21.99 Solutions manual to accompany Company Accounting 10e QUESTION 21.15 (cont’d) Transfer from business combination valuation reserve Dr 700 Business combination valuation reserve Cr 700 (20% x $3 500) 6. Dividend paid Dividend revenue Dr 4 800 Dividend paid Cr 4 800 (80% x $6 000) 7. Dividend declared Dividend revenue Dr 3 200 Dividend declared Cr 3 200 (80% x $4 000) Dividend payable Dr 3 200 Dividend receivable Cr 3 200 8. Sale of plant: Peewee Ltd to Mudlark Ltd Retained earnings (1/7/16) Dr 2 800 Deferred tax asset Dr 1 200 Plant Cr 4 000 9. NCI effect NCI Dr 560 Retained earnings (1/7/16) Cr 560 (20% x $2 800 10. Depreciation Accumulated depreciation Dr 800 Retained earnings (1/7/16) Cr 400 Depreciation expense Cr 400 (10% x $4 000 p.a.) Income tax expense Dr 120 Retained earnings (1/7/16) Dr 120 Deferred tax asset Cr 240 11. NCI effect NCI share of profit Dr 56 Retained earnings (1/7/16) Dr 56 NCI Cr 112 © John Wiley and Sons Australia, Ltd 2015 21.100  Chapter 21: Consolidation: non-controlling interest QUESTION 21.15 (cont’d) 12. Profit in opening inventory Retained earnings (1/7/16) Dr 350 Income tax expense Dr 150 Cost of sales Cr 500 13 NCI effect NCI share of profit Dr 70 Retained earnings (1/7/16) Cr 70 14. Sales of inventory: current period Mudlark Ltd to Peewee Ltd Sales Dr 12 000 Cost of sales Cr 11 500 Inventory Cr 500 Deferred tax asset Dr 150 Income tax expense Cr 150 © John Wiley and Sons Australia, Ltd 2015 21.101  Solutions manual to accompany Company Accounting 10e QUESTION 21.15 (cont’d) Financial Mudlark Peewee Group NCI Parent Statements Ltd Ltd Dr Cr Sales revenue 200 000 140 000 14 12 000 328 000 Other revenue 40 000 25 000 6 4 800 57 000 7 3 200 240 000 165 000 385 000 Cost of sales 120 000 70 000 500 12 178 000 11 500 14 Other expenses 50 000 10 000 1 1 200 400 10 61 550 1 750 170 000 80 000 239 550 Trading profit 70 000 85 000 145 450 Gains on non- 10 000 5 000 1 2 250 12 750 current assets Profit before 80 000 90 000 158 200 tax Tax expense 35 000 40 000 10 120 360 1 73 860 12 150 900 1 150 14 Profit 45 000 50 000 84 340 5 9 412 74 802 11 56 13 70 Ret. earnings 45 000 16 000 1 2 400 720 1 39 770 3 4 000 1 416 4 37 760 (1/7/16) 1 1 400 400 10 11 56 560 9 2 15 280 70 13 8 2 800 10 120 12 350 Transfer from 0 0 2 2 800 3 500 1 700 5 700 0 BCVR Transfer from 0 2 000 2 1 600 400 5 400 0 other reserves 90 000 68 000 125 210 112 562 Dividend paid 14 000 6 000 4 800 6 15 200 1 200 5 14 000 Div. declared 20 000 4 000 3 200 7 20 800 800 5 20 000 34 000 10 000 36 000 34 000 Ret. earnings 56 000 58 000 89 210 78 562 (30/6/17) Share capital 800 000 330 000 2 240 000 866 000 3 60 000 800 000 2 24 000 6 000 BCVR 0 0 2 10 320 8 400 1 1 880 3 3 000 420 4 0 1 000 1 700 5 2 800 2 856 000 388 000 957 090 878 562 Other reserves 35 000 33 000 2 26 400 41 600 3 6 000 35 000 (1/7/16) 4 600 Transfer 15 000 (2 000) 1 600 2 14 600 400 5 15 000 to/from RE Bonus issue 0 (30 000) 24 000 2 (6 000) 6 000 0 Other reserves 50 000 1 000 50 200 50 000 (30/6/17) © John Wiley and Sons Australia, Ltd 2015 21.102  Chapter 21: Consolidation: non-controlling interest OCE (1/7/16) 90 000 72 000 2 8 000 154 000 3 2 000 139 600 4 12 400 Movements 10 000 8 000 18 000 5 1 600 16 400 OCE (30/6/17) 100 000 80 000 172 000 156 000 Total equity: 1 084 562 parent Total equity: 5 1 200 75 000 3 94 728 NCI 5 800 11 164 4 9 560 9 412 5 1 600 5 112 11 Total equity 1006000 469 000 1179290 108 854 108 854 1 179 290 Dividend 10 000 4 000 7 3 200 10 800 payable Other current 38 700 35 000 73 700 Deferred tax 20 000 12 000 1 1 080 3 600 1 34 520 liabilities Debentures 70 000 20 000 90 000 Total liabilities 138 700 71 000 209 020 Total equity 1144700 540 000 1388310 and liabilities Shares in 305 600 0 305 600 2 0 Peewee Ltd Plant 452 100 303 000 4 000 8 751 100 Accumulated (212 000)(110 000) 10 800 (321 200) depreciation Equipment 0 18 000 1 12 000 30 000 design Accumulated 0 (4 000) 3 600 1 (7 600) amortisation Land 144 200 42 000 186 200 Deferred tax 15 800 8 000 8 1 200 240 10 24 910 assets 14 150 Inventory 180 000 60 000 500 14 239 500 Financial assets 229 000 215 000 444 000 Receivables 10 000 2 000 3 200 7 8 800 Goodwill 20 000 22 000 1 1 000 12 000 1 36 600 2 5 600 Accumulated 0 (16 000) 1 12 000 (4 000) impairment losses Total assets 1144700 540 000 396 970 396 970 1388310 © John Wiley and Sons Australia, Ltd 2015 21.103 Solutions manual to accompany Company Accounting 10e QUESTION 21.15 (cont’d) MUDLARK LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 30 June 2017 Revenue: Sales $328 000 Other 57 000 Total revenue 385 000 Expenses: Cost of sales 178 000 Other 61 550 239 550 Profit from trading 145 450 Gains from sale of non-current assets 12 750 Profit before tax 158 200 Income tax expense 73 860 Profit for the period $84 340 Other comprehensive income: Movements in fair value of financial assets 18 000 Comprehensive income for the period $102 340 Profit for the period attributable to: Parent entity interest $74 802 Non-controlling interest $9 538 Comprehensive income for the period attributable to: Parent interest $91 202 Non-controlling interest $11 138 © John Wiley and Sons Australia, Ltd 2015 21.104  Chapter 21: Consolidation: non-controlling interest QUESTION 21.15 (cont’d) MUDLARK LTD Consolidated Statement of Changes in Equity for the financial year ended 30 June 2017 Group Parent Comprehensive income for the period $102 340 $91 202 Retained earnings: Balance at 1 July 2016 $39 770 $37 760 Profit for the period 84 340 74 802 Transfer from BCVR 700 0 Transfer from other reserves 400 0 Dividend paid (15 200) (14 000) Dividend declared (20 800) (20 000) Balance at 30 June 2017 $89 210 $78 562 Other reserves: Balance at 1 July 2016 $41 600 $35 000 Transfers to/from retained earnings 14 600 15 000 Bonus issue of shares (6 000) ____0 Balance at 30 June 2017 $50 200 $50 000 Business combination valuation reserve Balance at 1 July 2016 $2 550 0 Balance at 30 June 2017 $1 880 0 Other components of equity: Balance at 1 July 2016 $154 000 $139 600 Gains/Losses 18 000 $16 400 Balance at 30 June 2017 $172 000 $156 000 © John Wiley and Sons Australia, Ltd 2015 21.105 Solutions manual to accompany Company Accounting 10e QUESTION 21.15 (cont’d) MUDLARK LTD Consolidated Statement of Financial Position as at 30 June 2017 Current Assets Inventories $239 500 Receivables 8 800 Financial assets 444 000 692 300 Non-current Assets Property, plant and equipment Plant 751 100 Accumulated depreciation (321 200) Equipment design 30 000 Accumulated amortisation (7 600) Land 186 200 Tax assets: Deferred tax asset 24 910 Goodwill 36 600 Accumulated impairment losses (4 000) Total Non-current Assets 696 010 Total Assets $1 388 310 Equity and liabilities Equity attributable to equity holders of the parent Share capital $800 000 Reserves: Other reserves 50 000 Other components of equity 156 000 Retained earnings 78 562 Parent Entity Interest 1 084 562 Non-controlling Interest 94 728 Total Equity 1 179 290 Current Liabilities Payables: Dividend payable 10 800 Other 73 700 Total Current Liabilities 84 500 Non-current Liabilities Interest-bearing liabilities: Debentures 90 000 Tax liabilities: Deferred tax liability 34 520 Total Non-current Liabilities 124 520 Total Liabilities 209 020 Total Equity and Liabilities $1 388 310 © John Wiley and Sons Australia, Ltd 2015 21.106