In: Accounting
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
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)