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The following are the statement of financial position of P PLC and its subsidiary S LTD...

The following are the statement of financial position of P PLC and its subsidiary S LTD as at 30th September 2013.

                                                                                P PLC                                                     S LTD

                                                                                $000                                                       $000

Assets

Non-Current Assets                                       

Property, plant and equipment                 16,560                                                   13,240

Investment in S LTD                                            8,300                                                

Current assets                                                   4,970                                                     3,950

Total Assets                                                       29,830                                                   17,190

Equity and Liabilities

Equity

Ordinary share capital ($0.50)                     10,000                                                   6,000

Retained earnings                                           15,840                                                   8,030

Total equity                                                        25,840                                                   14,030

Current liabilities                                              3,990                                                     3,160

Total Equity and Liabilities                          29,830                                                   17,190

Notes to the Statement of Financial Position:

  1. P PLC acquired 9,000,000 ordinary shares (75%) in S LTD on October 1, 2012 when the retained earnings of S LTD were $4,800,000.
  2. The non-controlling interest in the net asset of S LTD at the date of acquisition were independently values at $2,800,000.
  3. Goodwill was impaired in the amount of $40,000 for the year ended September 30, 201

Requirement:

  1. Calculate the goodwill on acquisition of S LTD, and show the relevant journal entries.
  2. Account for the impairment of $40,000
  3. Calculate the goodwill on acquisition of S LTD if the non-controlling interest at the date of acquisition was based on their share of the subsidiary’s net assets.

Solutions

Expert Solution

a. At the time of acquisition share holder fund= Total assets - total outstider claim =

share capital of $6,000,000.00 + Retained earning of $4,800,000.00 = $10,800,000.00

P PLC acquired 75% of $10,800,000.00 should be 75% of $10,800,000.00 = $8,100,000.00 (Fair value)

But valued at for 25% non controlling interest $2,800,000.00

for 100% = $2,800,000.00/.25= $11,200,000.00

for 75% = $11,200,000*.75= $8,400,000.00 (purchased Value)

Goodwill = $8,400,000.00 - $8,100,000.00 = $300,000.00

Journal entry for the above trasction

investment in S LTD $8,100,000.00 Dr

Goodwill Ac $300,000.00 Dr

To Cash AC $8,400.000.00 Cr

b. Loss on goodwill impairment of $40,000.00 Dr

To Goodwill Ac $40,000.00 Cr

C. acquisition of S LTD if the non-controlling interest at the date of acquisition was based on their share of the subsidiary’s net assets then there will be no good will. It will be at fair value.

At the time of acquistion share holder fund =

share capital of $6,000,000.00 + Retained earning of $4,800,000.00 = $10,800,000.00

non controlling interest is 25%

25% should be valuded $10,800,000.00*.25= $2,700,000.00

ekkarill92 answered 1 year ago
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