Question

question about accounting

Parent Ltd acquired equity in Sub Ltd on 1 April 2006. At that date the equity of Sub Ltd comprised:

Share capital	$350 000
Retained earnings	250 000
Asset revaluation surplus (ARS)	110 000

The general ledger account balances for Sub Ltd and Parent Ltd, as at 31 March 2017, are provided in the consolidated worksheet is below.

Additional information:

(i) At the date of acquisition the identifiable net assets of Sub Ltd were considered to be fairly valued.

(ii) The directors of Parent Ltd believe that the goodwill acquired on acquisition was impaired by $5 000 in the current period. Previous impairments of goodwill amounted to

$17 500.

(iii) Each financial year Parent Ltd has been paying Sub Ltd an office rental fee of $26 000.

(v) During March 2016 Sub Ltd made sales to Parent Ltd of $30 000 and recognised a profit of $8 000. Parent Ltd had not sold this purchase of inventory as at 31 March 2016.

(vi) During March 2017 Sub Ltd made sales to Parent Ltd of $28 000 and recognised a profit of $7 400. This purchase remained in the inventory of Parent Ltd as at 31 March 2017.

(vii) During March 2016 Parent Ltd made sales to Sub Ltd of $6 000 and recognised a profit of $1 600. Sub Ltd sold this inventory to Damian Ltd on 15 April 2016.

(viii) During March 2017 Parent Ltd made sales to Sub Ltd of $5 600 and recognised a profit of $1 400. Sub Ltd sold this inventory to Melanie Ltd before the 2017 financial year end.

Part A

Assume Parent Ltd purchased 100% of the equity in Sub Ltd on 1 April 2006 for $900 000.

Required:

(a) Prepare an acquisition analysis for Parent Ltd.

                                                                                    

(b) Complete the consolidation worksheet below for Parent Ltd for the financial year ended 31 March 2017 in accordance with NZ IFRS 10 Consolidated Financial Statements and NZ IFRS 3 Business Combinations.   

Part B

Assume Parent Ltd purchased 60% of the equity in Sub Ltd on 1 April 2006 for $540 000.

Required:

(a) Prepare a 60 percent acquisition analysis for Parent Ltd.

(b) Prepare the notional journal entry to identify the non-controlling interest (NCI), to be reported in the group accounts as at 31 March 2017, in accordance with NZ IFRS 10 Consolidated Financial Statements and NZ IFRS 3 Business Combinations. The directors of Parent Ltd require the NCI to be measured at fair value.

(c) Prepare the notional journal entry to identify the non-controlling interest (NCI), to be reported in the group accounts as at 31 March 2017, in accordance with NZ IFRS 10 Consolidated Financial Statements and NZ IFRS 3 Business Combinations. Assume this time that the directors of Parent Ltd require the NCI to be measured at the NCI’s proportionate share in the recognised amounts of the acquiree’s identified net assets.

(d) Briefly explain why your answer for (b) is different to your answer to (c).

                                                                                                                                                                                                                                                                                                                                

(e) State the balance of the NCI account to be presented in the group balance sheet as at 31 March 2017 for both (b) and (c).

Part A (a) Acquisition analysis for Parent Ltd:

Question 2 Part A (b)	Parent Ltd	Sub Ltd	Notional Journal Entries         Dr                     Cr		Group
	$	$	$	$	$
Income (all types of income)	1 530 000	925 000
Less expenses (including COGS)	1 224 000	739 225
Profit before tax	306 000	185 775
Less income tax expense	75 000	32 750
Profit after tax	231 000	153 025
RE’s – opening balance	260 500	280 975
Less: dividends declared	200 000	120 000
Balance Sheet items:
RE’s – closing balance	291 500	314 000
Share capital	550 000	350 000
Asset revaluation surplus	143 000	175 000
Bank overdraft	20 000	-
Accounts payable	162 500	42 000
Dividend payable	130 000	-
Various liabilities	265 000	105 000
Total equity and liabilities	$1 562 000	$986 000
Cash	250	17 600
Accounts receivable	119 000	98 750
Inventory	115 000	84 000
Various assets	13 000	45 000
PPE (net)	414 750	740 650
Investment in Sub	900 000	-
		-
Total assets	$1 562 000	$986 000

Part B (a) A 60% acquisition analysis for Parent Ltd:

Part B (b) Notional journal entry to identify the NCI in Sub Ltd. Measured at FV.      All workings must be shown on each line of your notional journal entry below. If necessary round up or down to the nearest whole dollar.
	$ Dr	$ Cr

Part B (c) Notional journal entry to identify the NCI in Sub Ltd. All workings must be shown on each line of your notional journal entry below. If necessary round up or down to the nearest whole dollar.
	$ Dr	$ Cr

Part B (d) Briefly explain why your answer for (b) on page 6 is different to your answer to (c) above.

Part B (e) Balance of NCI in the group balance sheet will be:
NCI measured at FV in (b)	$
NCI measured ‘not at FV’ in (c)	$

Answer 1