Question

Ding acquired 70% of the share capital of Sal on 1 April 2018. The retained earnings of Sal on 31 Dec 2017 were £260,000.

The fair value of the 30% non-controlling interest at acquisition was £290,000.

At acquisition the fair value of Sal's plant exceeded its book value by £200,000. Plants are depreciated at 30% rate (straight line method).

Goodwill should be written down by £35,000 from its original value to allow for impairment.

Below are the statements of financial position of as at 31 Dec 2018.

	Ding	Sal
Assets	£'000	£'000
Non-current assets
Property, plant and equipment	2400	590
Investment in Sal at cost	1000
	3400	590
Current assets
Inventory	400	250
Receivables	300	150
Cash	300	50
	1000	450
Total assets	4400	1040
Equity
Share capital	1100	480
Retained earnings	2750	460
	3850	940
Liabilities
Current liabilities	550	100
Total equity and liabilities	4400	1040

On 1 June 2018, Ding sold goods to Sal for 150,000 at mark-up of 20%. On 31 Dec 2018, 20% of these goods were still at the inventory of Sal.

Required: prepare the consolidated statement of financial position of Ding Group as at 31 Dec 2018, assuming the group uses the fair value method to account for non-controlling interest. In your answer, show the double entry to eliminate the impact of intra-group trading.

Include all relevant workings.

Answer 1

Step:1 Statement of Net Assets on Date of Acquisition i.e 1 April 2018

Particulars	on DOA 01.04.2018	Changes	Closing 31.12.2018
Share capital	480000	0	480000
Retained Earnings	260000 (01.01.2018)	200000 (12m profit)	460000
Total	740000	200000	940000
+/- Time Adjustment for 3m	50000	(50000) (200000*3/12)
+ Revaluation profit on plant	200000
- Additional depreciation		(45000) (200000*30%*9/12)
Net Assets	990000	105000

Share of profit to

Ding @ 80%= 105000*80%= 84000

NCI @ 20%= 21000

Step:2 Calculation of Goodwill/ Capital Reserve

Particulars	Amount
Consideration paid for acquiring 80% of Sal	1000000
+ Non controlling interest @ Fair Value	280000
	1280000
- Opening value of Net Assets	(990000)
Goodwill	290000
- Impairment loss	(30000)
Closing Goodwill	260000

Share of Impairment loss to

Ding @ 80%= 24000

NCI @ 20%= 6000

Step: 3 Calculation of Non controlling interest

Particulars	Amount
NCI on Date of Acquisition	280000
+ Share of Post Acquisition profit	21000
- Share of Impairment loss	(6000)
	295000

Step: 4 Calculation of Other Equity / Retained Earnings

Particulars	Amount
Balance of Retained Earnings in Ding	2750000
+ Share of Post Acquisition profit	84000
- Share of Impairment loss	(24000)
- Unrealised profit on Sale of goods to Sal	(16000)
	2794000

Working note: Calculation of Unrealised profit

Unsold stock in Sal books = 120000*2/3= 80000

Unrealised profit= 80000*25/125= 16000

Consolidated Statement of Financial position of Ding group on 31.12.2018

Particulars	Amount
Assets
Non current assets
Property, Plant and Equipment ( 2300+590+200-45)	3045
Goodwill	260
Current Assets
Inventory (300+200-16)	484
Receivables (300+150)	450
Cash (300+100)	400
	4639
Equity and Liabilities
Equity
Share capital	1000
Non controlling interest	295
Retained Earnings	2794
Liabilities
Current Liabilities (450+100)	550
	4639