Question

XXX Corporation acquired 80% of the outstanding shares of United Company on June 1, 2020 for P3,517,500. United Company’s stockholders equity components at the end of this year as follows: Ordinary shares, P100 par, P1,500,000, Share premium P675,000 and Retained earnings P1,335,000. Non-controlling interest is measured at fair value and the fair value is P705,000. The assets of united were fairly valued, except for inventories, which are overstated by P66,000 and equipment which was understated by P90,000. Remaining useful life of equipment is 4 years. Stockholder’s equity of XXX on January 1, 2020 is composed of ordinary shares P4,500,000, Share Premium P1,050,000, Retained Earnings P3,150,000. Goodwill, if any, should be written down by P85,350 at year-end. Net income for the first year of parent is P450,000 and the net income of subsidiary from the date of acquisition is P255,000. Dividends declared at the end of the year amounted to P120,000 and P90,000 for XXX and United respectively. During the year, there was no issuance of new ordinary shares .

What is the amount of consolidated shareholder’s equity and the non-controlling interest on December 31, 2020?

Answer 1

Amount of consolidated shareholders equity and non controlling interest on December 31, 2020 to be calcuated as follows-

First we need to prepare some working notes for above calculation.

Given in question:-

(1)Date of acquisition : June 1, 2020

(2)Reporting date: December 31, 2020

(3)calculation of post acquisition profit

Profit of united company from date of acquisition till reporting date = 255000

Following adjustments are to be done to this profit:

Profit = 255000

+ Dividend declared= 90000

- depreciation charged on equipment = (22500)

( on remaining useful life 90000/4= 22500)

Post acquisition profit = 322500

Parent share in this profit@80%= 258000

NCI share in this profit@20%= 64500

4)Dividend declared by subsudiary to be bifurcated into parent share and NCI share.

Dividend declared = 90000

Parent share@80%= 72000

NCI share@20%= 18000

5) Goodwill impairment to be bifurcated into parent share and nci share.

Goodwill impaired= 85350

Parent share@80%= 68280

NCI share@20%= 17070

Main solution

Calculation of consolidated shareholders equity on December 31,2020

(A)Share capital= 45,00,000

(B)Securities Premium= 10,50,000

(C) Retained earnings:-

Opening balance= 31,50,000

Add:- Parent Profit= 4,50,000 (given in question)

Add:- Post acquisition profit parent share= 2,58,000 (calculated as per above working note 3)

Less:- Dividend paid= (72,000) (calculated in above working note 4)

Less:- Goodwill impaired parent share= (68280) (calculated in above working note 5)

Closing retained earnings= 37,17720

Total condolidated equity (A+B+C)= 92,67,720

Calculation on NCI on December 31, 2020

Opening NCI= 705,000

Add:- Post acquistion profit= 64500

Less:- Dividend Paid= (18000)

Less:- Goodwill Impaired= (17070)

(Refer above working NCI share taken)

NCI on December 31, 2020 = 7,34,430