Question

Juan Ltd acquired 80 percent share capital of Beach Ltd. On 1 July 2018 for a cost of $500,000. As at the date of acquisition, all assets and liabilities of Beach Ltd fairly valued except a land that has a carrying value $50,000 less than the fair value. The recorded balance of equity of Beach Ltd as at 1 July 2018 were as: Share capital $350,000 Retained earnings $100,000 Total $450,000 Additional information: ? The management of Juan Ltd values non-controlling interest at the proportionate share of Beach Ltd identifiable net assets ? Beach Ltd has a profit after tax of $70000 for the year ended 30 June 2019 ? During the financial year to 30 June 2019, Beach Ltd sold inventory to Juan Ltd for a price of $60000. The inventory costs Beach Ltd $30000 to produce. 25 percent of the inventory are still on the hand of Juan Ltd as at 30 June 2019. ? During the year Beach Ltd paid $10000 in management fees to Juan Ltd. ? On 1 July 2018, Beach Ltd sold an item of plant to Juan Ltd $40000. The equipment had a carrying value of $30000 (Cost $50000, accumulated depreciation $20000). At the date of sale it was expected that the equipment had a remaining life of 4 years and no residual value. ? The tax rate is 30 percent. Required: (a) Based on the above information, calculate the non-controlling interest as at 30 June 2019. (b) Pass necessary journal entry to recognise the non-controlling interest as at 30 June 2019.

Answer 1

Part (a):

Equity of Beach Ltd as on the date of acquisition
Particulars	Amount ($)	Amount ($)
Share capital		350000
Add:
Retained earnings	100000
Undervaluation of land	50000
		150000
Equity of Beach Ltd as on 01 July, 2018		500000
Controlling interest owns by Juan Ltd.	80%
Non-controlling interest	20%
Thus, non-controlling interests as on July 01, 2018 (500000 x 20%)		100000
Add: Share of non-controlling interest in adjusted profit (55000 x 20%)		11000
Non-controlling interest as at 30th June, 2019		111000

Workings:

Adjusted current year profit of Beach Ltd.
Profit after tax for the year ended on June 30, 2019		70000
Less: Unrealized profit on closing stock of Juan Ltd purchased from Beach Ltd.
{(60000 x 25%) x 50%}	7500
Unrealized profit on sale of equipment (40000 - 30000)	10000
		17500
		52500
Add:
Excess depreciation charged on Equipment (10000-7500)		2500
Adjusted profit for the year of Beach Ltd		55000

Depreciation charged (40000/4)	10000
Actual depreciation that should have been charged (30000/4)	7500

Part (b):

Journal entries
Date	Account titles	Debit ($)	Credit ($)
	Profit and loss account (7500 + 10000)	17500
	Closing stock		7500
	Equipment		10000
	(Being the value of stock and equipment adjusted )
	Equipment	2500
	Depreciation		2500
	(Being the excess depreciation adjusted)
	Depreciation	2500
	Profit and loss account		2500
	(Being the excess depreciation adjusted)