Question

(A) Opperman Ltd owns all the share capital of Jewel Ltd. During the year ended 30 June 2018, Opperman Ltd paid a dividend of $20 000, and Jewel Ltd paid and declared dividends of $10 000 and $30 000 respectively. The tax rate is 30%. Explain in detail the journal entries that would be required in preparing the consolidated financial statements for 30 June 2018.

(B) What is a non-controlling interest and how should it be disclosed? Does the existence of the NCI affect the BCVR entries? Why or why not? Using the following information demonstrate how the existence of an NCI affects the pre-acquisition entry. Explain the journal entry in detail, line by line. Harnesh Ltd acquired 80% of Maxima Ltd for $450 000 cash on 1 July 2017. At that date the equity of Maxima included the following: Share Capital $400 000 General Reserve 50 000 Retained Earnings 50 000 500 000 All assets and liabilities of Maxima Ltd are at fair value. The tax rate is 30%.

(C) 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: Harnesh Ltd acquired 80% of Maxima Ltd for $450 000 cash on 1 July 2016. At that date the equity of Maxima included the following: Share Capital $400 000 General Reserve 50 000 Retained Earnings 50 000 500 000 All assets and liabilities of Maxima Ltd are at fair value. The partial goodwill method is used. The tax rate is 30%. On 30 June 2018, Maxima Ltd provided the following information: Retained earnings (1/7/17) $ 80 000 General Reserve (1/7/17) 70 000 Profit after tax 50 000 Dividend paid 10 000

Answer 1

Answer b)

Non controlling interest also known as minority Interest is an ownership position whereby a shareholder owns less than 50% of outstanding shares and has no control over decisions. Non-controlling interests are measured at the net asset value of entities and do not account for potential voting rights.

It is shown in Balance sheet as part of equity. It is shown after Share application money as seprate head.

Yes existence of NCI affect BCVR entries.

As on date of acquisiton

S/capital 400,000

G/Reserve 50,000

Retained Earning 50,000

Total 500000 : Holding interest (80%) 400,000

Minority interest (20%) 100,000

Answer a) Treatment of dividend while consolidation

dividend paid by parent company would have no treatment while consolidation of accounts ; similarlly if dividend paid by wholly owned subsy is paid if recorded correctly in books of parent company would not require any entry while consolidation. But incase wrong entry is done in parents books that need to be rectified by paasing rectification entry.

Correct entry for dividend recieved from subsy co. by parent company is as follows:

Pre acquisition dividends: Bank a/c DR.

To Investment a/c

Post acquisition dividends : Bank a/c DR

To P&L a/c