Suppose, Thompson Inc. purchased 70% of outstanding shares of Panna Corporation for $ 120,000 on January...

Suppose, Thompson Inc. purchased 70% of outstanding shares of Panna Corporation for $ 120,000 on January 1, 2018.

For non-wholly owned subsidiary, the consolidation of financial statements is a complex system. There will be two groups of shareholders – Controlling and non-controlling. There are many theories for the determination of non-controlling interest (NCI). One acceptable method of consolidating subsidiaries after January 1, 2011, is “Entity Theory”. Under this theory, the full fair value of the subsidiary is determined by combining the fair value of the controlling interest and the fair value of NCI.

Another theory for the determination of NCI value is “Parent Company Extension Theory” which is also acceptable method for the valuation of NCI after January 1,2011. Under IFRS, either entity theory or parent company extension theory can be used. It is also stated in IFRS that a gain on a bargain purchase can only be recognized by the acquirer. It means NCI must be measured at its share of fair value of the identifiable net assets.

In this situation, you are required to –

Explain the appropriate theory applicable for NCI valuation.(3)

Solutions

Expert Solution

First image shows the explanation of both the theory i.e. Entity Theory and Parent Company Extension Theory.

And the second image shows the better / Appropriate theory applicable for NCI Valuation.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

On January 5, 2008, Grace Co. purchased 70% of the outstanding shares of Leo Co. at...

On January 5, 2008, Grace Co. purchased 70% of the outstanding shares of Leo Co. at a cost of P500,000. On that date, the outstanding ordinary shares of Leo had a P700,000 balance, while accumulated profits had a P100,000 balance. All the book values of assets and liabilities of Leo approximated their fair values except for an equipment which was understated by P50,000 For the year 2008, Grace sold an equipment to Leo reporting a gain on sale of P25,000...

On January 1, Year 4, Handy Company (Handy) purchased 70% of the outstanding common shares of...

On January 1, Year 4, Handy Company (Handy) purchased 70% of the outstanding common shares of Dandy Limited (Dandy) for $7,000. On that date, Dandy’s shareholders’ equity consisted of common shares of $390 and retained earnings of $5,900. The financial statements for Handy and Dandy for Year 9 were as follows: BALANCE SHEETS At December 31, Year 9 Handy Dandy Cash $ 1,480 $ 920 Accounts receivable 2,940 1,190 Inventory 3,540 3,060 Property, plant, and equipment—net 4,480 3,150 Investment in...

On January 1, 2020, Palka, Inc., acquired 70% of the outstanding shares of Sellinger Company for...

On January 1, 2020, Palka, Inc., acquired 70% of the outstanding shares of Sellinger Company for $1,290,800 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,570,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $264,000. On January 1, 2021. Palka acquired an additional 25%...

On January 1, Hamblin Corporation had 120,000 shares of $10 par value common stock outstanding. On...

On January 1, Hamblin Corporation had 120,000 shares of $10 par value common stock outstanding. On March 17 the company declared a 10% stock dividend to stockholders of record on March 20. Market value of the stock was $13 per share on March 17. The entry to record the transaction of March 17 would include a Group of answer choices debit to Common Stock Dividends Distributable for $120,000. credit to Stock Dividends for $36,000. credit to Cash for $156,000. credit...

(I have ONE hour) On January 1, 2020, Pearl Corporation purchased 36,000 of the 120,000 outstanding...

(I have ONE hour) On January 1, 2020, Pearl Corporation purchased 36,000 of the 120,000 outstanding common shares of Krab Corporation, paying $32 per share cash. During the year, Krab Corporation paid $1.10 per share cash dividends and at the end of the year, Krab Corporation reported $840,000 of net income. At the end of 2020, the market value of the Krab Corporation common stock is $36 per share. Part A: Short Answer Pearl Corporation must use the equity method...

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January...

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: Errant Inc. Grub Inc. Grub Inc. (carrying value) (carrying value) (fair value) Cash $120,000 $76,000 $76,000 Accounts Receivable $80,000...

On January 1, 2020, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company...

On January 1, 2020, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,316,700 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,580,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $291,000. On January 1, 2021, Palka acquired an additional...

On January 1, 2014, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company...

On January 1, 2014, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,290,800 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,570,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $264,000. On January 1, 2015, Palka acquired an additional...

On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company...

On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,625,400 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $2,060,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $252,000. On January 1, 2018, Palka acquired an additional...

On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company...

On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,274,000 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,540,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $270,000. On January 1, 2018, Palka acquired an additional...

Subjects