Question

When calculating the NCI share of equity the step approach is used. Demonstrate the step approach, explaining in detail each journal entry, using the following information:

Time Ltd acquired 90% of Out Ltd for $252,000 cash on 1 July 2018. At that date the equity of Out included the following:

       Share Capital          $200 000

       Retained Earnings              80 000

                                   280 000

On 30 June 2020, Out Ltd provided the following information:

Profit after tax               $ 40 000

Retained earnings (1/7/19)       100 000

Dividend paid                    10 000

Answer 1

All Entry are in the books of Time Ltd

On the date of acqusition 30th june 2018

Assets A/c Dr. $ 2 80 000

To Cash 2 52 000

To NCI 28 000

(Being 90% share holding acquired)

On 30th June 2018 (After 1st Year End) Profit Earned (100 000-80 000)=20 000

1st Year Profit is calculated from Retained earning of 30june 2018 and 1 july 2019

Entry on 30 june 2019

Profit = 20 000 Total

NCI Intrest = 2000 (10 % NCI )

Profit for Time Limited 18000

Income on investment in Subsidiery Dr,. 20000

TO NCI 2000

To Consolidated P/l 18000

( Being profit for the Year Recognised)

On 30th June 2020 (At the end of 2nd YEar)

Profit= $40000

NCI Share in Profit = 40 000 *10%== 4 000

Remaing Profit is for Time Limited = $36000

Dividend Distributed Share

total 10,000

NCI Share = 10000*10%= 1000 Remaing 9000 For Time limited

NCI= 28000 +2000(Profit Share for 2019) +4000 (Profit share for 2020)-1000(Dividend Paid)

Income on investment in Subsidiery Dr,. 40000

TO NCI 4000

To Consolidated P/l 36000

( Being profit for the Year Recognised)

Entry For Dividend paid:

NCI Dr. 1000

Consolidated P/l Dr 9000

to Divend Payables 10000

(Being Dividend PAid)