Prepare the national journal entry on consolidation to offset the carrying amount of the asset Investment in Subsidiary Ltd

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Parent Ltd measures the NCI in Subsidiary Ltd at the NCI's proportionate share of the acquiree's INA

 

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QUESTION 1

Parent Ltd acquired equity in Sub Ltd on 1 April 2014. At that date the identifiable net assets of Sub Ltd were considered to be fairly valued and the equity of Sub Ltd comprised:

Share capital                      $100 000

Retained earnings               140 000

 

Parent Ltd is preparing financial statements for the financial year ended 31 March 2015 and has provided you with the following information:

i)The directors of Parent Ltd believe that the total goodwill has become impaired, during this financial year ended 31 March 2015, by $3 800.

 

ii)During March 2015 Sub Ltd sold inventory to Parent Ltd for $8 000; this inventory cost Sub Ltd $6 000. The inventory of Parent Ltd at 31 March 2015 included this purchase.

 

iii)During March 2015 Sub Ltd sold inventory to Parent Ltd for $3 000; this inventory cost Sub Ltd 2 400. Parent Ltd sold this inventory to XYZ Ltd on 28 March 2015 for $3 900.

 

iv)During the financial year ended 31 March 2015 Parent Ltd made sales to Sub Ltd of $4 000 and recorded a profit of $1 200. This purchase remained in the inventory of Sub Ltd as at 31 March 2015.

 

v)In October 2014 Sub Ltd borrowed $5 000 from Parent Ltd.

 

vi)Parent Ltd temporarily (for the month of February 2015) rented space in a building belonging to Sub Ltd and paid a total rental fee of $10 000.

 

vii)The tax rate is 28%.

 

Required:

Assume Parent Ltd acquired 100% of the equity in Sub Ltd for $260 000 on 1 April 2014. Complete the consolidation worksheet in the answer booklet for Parent Ltd for the financial year ended 31 March 2015 in accordance with NZ IFRS 10 Consolidated Financial Statements and NZ IFRS 3 Business Combinations.

 

 

QUESTION 2

Acquirer Ltd acquired all the issued shares of Sub Ltd for $1,400,000 cash

As at the date of acquisition:As per the general ledger

of Sub Ltd

At fair value
Accounts receivable$600,000$485,000
Inventory370,000200,000
Property, plant and equipment1,800,0001,950,000
Intangible asset (internally generated)200,000
Various liabilities900,5601,350,000
Contingent liability3,000

 

Required:

 a)Prepare an acquisition analysis for Acquirer Ltd. Show your workings.

 

b)What does the acquirer need to do with the answer to a) when following the requirements of NZ IFRS 3?

 

QUESTION 3

On 1 April 2009 Parent Ltd acquired 70% of the equity in Subsidiary Ltd.  Parent Ltd has provided you with their incomplete consolidation worksheet for the year ended 31 March 2015.

Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2015
Parent

Ltd

$

Subsidiary Ltd

$

Notional AdjustmentsGroup

$

DrCr
Income Statement and dividend items:     
Sales income237,900198,000
less Cost of goods sold123,000120,000 

 

Gross profit114,90078,000
Dividend income17,000
Debenture interest income3,500
Rent income        2,000
Gross profit and other income135,40080,000
less Expenses (including interest)34,60020,000 

 

Profit before tax100,80060,000
less Income tax expense32,00020,000
Profit after tax68,80040,000
Retained earnings-opening balance24,00012,000 

 

 

less Dividends declared58,00017,000
Balance sheet items:
Retained earnings–closing balance34,80035,000
Share capital320,000120,000
Asset revaluation surplus68,00022,000
Accounts payable and provisions39,00026,000
Other debt13,00042,840
Debentures57,000
Total equity and liabilities$474,800  $302,840$
Accounts receivable (net)26,50011,800
Inventory69,00057,040
Property, plant and equipment (net)162,300234,000
Debentures in Subsidiary Ltd57,000           –
Investment in Subsidiary Ltd160,000          –
Total Assets$474,800$302,840$

 

Question 3 continued

Additional information:

i)At the date of acquisition the equity of Subsidiary Ltd comprised:

Share capital                                $120,000

Retained earnings                         4,000

Asset revaluation surplus            6,000

 

ii)During March 2014 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $2,000. This inventory remained in Parent Ltd’s inventory at year end.

 

iii)During March 2015 Subsidiary Ltd made sales to Parent Ltd and realised a profit of $6,000. Parent Ltd had not sold this inventory at year end.

 

iv)During March 2015 Parent Ltd made sales to Subsidiary Ltd and realised a profit of $2 500. The inventory of Subsidiary Ltd at year end contained this purchase from Parent Ltd.

 

v)Total Goodwill arising on acquisition (whatever the amount) has been impaired by the following amounts:

31 March 2015                             $5 000

31 March 2013                               2 000

31 March 2010                               1 200

 

Required:

a) For each of the two independent scenarios described below prepare the national journal entry on consolidation to offset the carrying amount of the asset Investment in Subsidiary Ltd and the parent’s portion of equity in Subsidiary Ltd.

In relation to the identifiable net assets of Subsidiary Ltd as at the date of acquisition:

 

Scenario 1: The identifiable net assets were considered to be fairly valued.

 

Scenario 2:  The identifiable net assets were not considered to be fairly valued.  Property, plant and equipment had a carrying amount of $180 000 but a fair value of $200 000. Subsidiary Ltd also had an unrecognised intangible asset of $10 000 and a contingent liability of $3 000.
b) For each of the two independent scenarios described above prepare the national journal entry to identify the non-controlling interest (NCI) in Subsidiary Ltd to be reported in the group accounts as at 31 March 2015.

For each of the two independent scenarios assume:

i)Parent Ltd measures the NCI in Subsidiary Ltd at fair value, and then assume

 

ii)Parent Ltd measures the NCI in Subsidiary Ltd at the NCI’s proportionate share of the acquiree’s INA.

 

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