ACCT4104_Advanance financial accounting

Tutorial question for Ch.23: Ex 23.2, 23.3

Exercise 23.2 Consolidation worksheet, consolidated financial statements, partial goodwill method
1. Prepare the consolidation worksheet entries immediately after acquisition date.
2. Prepare the consolidation worksheet entries for Jellyfish Ltd at 30 June 2011. Assume a profit for
Mouse Ltd for the 2010–11 period of $40 000.
3. Prepare the consolidated financial statements as at 30 June 2016.

JELLYFISH LTD – MOUSE LTD

75%
Jellyfish Ltd Mouse Ltd
Jellyfish Ltd 75%; NCI 25%
Pre-acquisition analysis
At 1 July 2010:

Net fair value of identifiable assets and liabilities of Mouse Ltd

= ($100 000 + $60 000 + $40 000) (equity)

+ $28 000 (plant)

+ $35 000 (land)

+ $21 000 (inventory)

= $284 000

(a) Consideration transferred = $250 000

(b) Non-controlling interest = 25% x $284 000

= $71 000

Aggregate of (a) and (b) = $321 000

Goodwill: parent only = $321 000 - $284 000

= $37 000
1. Consolidation worksheet entries at 1 July 2010
i. Business combination valuation entries
Plant Dr 8 000
Accumulated depreciation Dr 20 000
Business combination valuation reserve Cr 28 000

Land Dr 35 000
Business combination valuation reserve Cr 35 000

Inventory Dr 21 000
Business combination valuation reserve Cr 21 000

ii. Pre-acquisition entries

Retained earnings (1/7/10) Dr 30 000
Share capital Dr 75 000
General reserve Dr 45 000
Business combination valuation reserve Dr 63 000
Goodwill Dr 37 000
Shares in Mouse Ltd Cr 250 000

iii. NCI in equity at 1/7/10

Retained earnings (1/7/10) Dr 10 000
Share capital Dr 25 000
General reserve Dr 15 000
Business combination valuation reserve Dr 21 000
NCI Cr 71 000
2. Worksheet Entries at 30 June 2011
i. Business combination valuation entries
Plant Dr 8 000
Accumulated depreciation Dr 20 000
Business combination valuation reserve Cr 28 000

Depreciation expense (10% x $2 800) Dr 2 800

Accumulated depreciation Cr 2 800

Land Dr 35 000
Business combination valuation reserve Cr 35 000

Cost of sales Dr 21 000

Business combination valuation reserve Cr 21 000

ii. Pre-acquisition entries

Retained earnings (1/7/10) Dr 30 000
Share capital Dr 75 000
General reserve Dr 45 000
Business combination valuation reserve Dr 63 000
Goodwill Dr 37 000
Shares in Mouse Ltd Cr 250 000

iii. NCI in equity at 1/7//10

Retained earnings (1/7/09) Dr 10 000
Share capital Dr 25 000
General reserve Dr 15 000
Business combination valuation reserve Dr 21 000
NCI Cr 71 000

iv. NCI in equity: 1/7/07 - 30/6/11

NCI share of profit Dr 4 050
NCI Cr 4 050
(25% x [$40 000 – $2 800 – $21 000)])
3. Worksheet entries at 30 June 2016
i. Business combination valuation entries
Plant Dr 8 000
Accumulated depreciation Dr 20 000
Business combination valuation reserve Cr 28 000

Depreciation expense Dr 2 800

Retained earnings (1/7/15) Dr 14 000
Accumulated depreciation Cr 16 800

Land Dr 35 000
Business combination valuation reserve Cr 35 000

Retained earnings Dr 21 000

Business combination valuation reserve Cr 21 000

ii. Pre-acquisition entries

Retained earnings (1/7/15) * Dr 67 000
Share capital Dr 75 000
General reserve Dr 45 000
Business combination valuation reserve Dr 63 000
Shares in Mouse Ltd Cr 250 000
* $30 000 + $37 000 goodwill (written-off in 2013)

iii. NCI in equity at 1/7/10

Retained earnings (1/7/11) Dr 10 000
Share capital Dr 25 000
General reserve Dr 15 000
Business combination valuation reserve Dr 21 000
NCI Cr 71 000
iv. NCI in equity: 1/7/10 - 30/6/15
Nil (Retained earnings: 25% [$75 000 - $40 000 – $14,000 – $21 000] = $0

v. NCI in equity: 1/7/15- 30/6/16

NCI share of profit Dr 7 550
NCI Cr 7 550
Mouse’s profit = $80 000 – $35 000 – $7 000 – $5 000 = $33 000
NCI share of Mouse’s profit = 25% [$33 000 – $2 800] = $7 550
Financial Jellyfish Mouse Adjustments Group NCI Parent
Statements Ltd
Ltd Dr Cr Dr Cr

Sales revenue 510 600 80 000 590 600

Cost of sales 225 000 35 000 260 000

285 600 45 000 330 600

Other expenses 65 000 7 000 1 2 800 74 800

Profit before tax 220 600 38 000 255 800

Tax expense 50 000 5 000 55 000

Profit for the period 170 600 33 000 200 800 5 7 550 193 250
Retained earnings 120 000 75 000 1 14 000 93 000 3 10 000 83 000
(1/7/12) 1 21 000
2 67 000

Retained earnings 290 600 108 000 293 800 276 250
(30/6/13)
Share capital 400 000 100 000 2 75 000 425 000 3 25 000 400 000

General reserve 60 000 60 000 2 45 000 75 000 3 15 000 60 000

BCVR - - 2 63 000 28 000 1 21 000 3 21 000 --

35 000 1
21 000 1

Total equity: parent 736 250

Total equity: NCI 71 000 3 78 550
7 550 5

Total equity 750 600 268 000 814 800 78 550 78 550 814 800

Payables 72 900 12 000 84 900

Total liabilities 72 900 12 000 84 900

Total liabilities & 899 700

Equity

Shares in Mouse Ltd 250 000 - 250 000 2 --

Plant 425 500 190 000 1 8 000 623 500
Accum. depreciation (124 000) (24 000) 1 20 000 16 800 1 (144 800)

Land 110 000 50 000 1 35 000 195 000

Current assets 162 000 64 000 226 000

Goodwill -

Total assets 823 500 280 000 899 700

 JELLYFISH LTD
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2016

Revenues:
Sales revenue $590 600
Expenses:
Cost of sales 260 000
Other expenses 74 800
334 800
Profit before income tax 255 800
Income tax expense 55 000
Profit for the period 200 800
Attributable to:
Parent shareholders 193 250
Non-controlling interest 7 550
$200 800
 JELLYFISH LTD
Consolidated Statement of Financial Position
as at 30 June 2016

ASSETS
Current Assets $226 000
Non-current Assets:
Property, plant and equipment
Plant $623 500
Accumulated depreciation (144 800)
Land 195 000 673 700
Total Non-current Assets 673 700
Total Assets $899 700

EQUITY AND LIABILITIES

Equity attributable to owners of the parent:
Share capital $400 000
Other reserves: General reserve 60 000
Retained earnings 276 250
Parent Interest 736 250
Non-controlling Interest 78 550
Total Equity 814 800
Current Liabilities
Payables 84 900
Total Liabilities 84 900
Total Equity and Liabilities $899 700
\
Exercise 23.3 CONSOLIDATION WORKSHEET ENTRIES INCLUDING NCI

1. What are the entries for the consolidation worksheet if prepared immediately after 1 July 2016?
2. What are the entries for the consolidation worksheet if prepared at 30 June 2017? Assume a profit
for Rudny Ltd for the 2016–17 period of $20 000.
3. If the non-controlling interest had a fair value of $31 800 on 1 July 2016, and the full goodwill
method had been used, what entries in parts 1 and 2 above would change? Prepare the changed
entries.

NORILSK LTD – RUDNY LTD

90%
Norilsk Ltd Rudny Ltd
Norilsk Ltd 90%, NCI 10%

At 1 July 2016:
Net fair value of identifiable assets and liabilities of Rudny Ltd
= $200 000 + $80 000 (equity)
+ $7 000 (land)
+ $1 400 (inventory)
+ $14 000 (machinery)
= $302 400
(a) Consideration transferred = $290 160

(b) Non-controlling interest = 10% x $302 400

= $30 240
Aggregate of (a) and (b) = $320 400
Goodwill of the parent = $320 400 - $302 400
= $18 000
1. Worksheet entries at 1 July 2016
i. Business combination valuation entries
Land Dr 7 000
Business combination valuation reserve Cr 7 000

Machinery Dr 14 000
Business combination valuation reserve Cr 14 000

Inventory Dr 1 400
Business combination valuation reserve Cr 1 400

ii. Pre-acquisition entries

Share capital Dr 180 000
Retained earnings (1/7/16) Dr 72 000
Business combination valuation reserve Dr 20 160
Goodwill Dr 18 000
Shares in Rudny Ltd Cr 290 160

iii. NCI share of equity at 1 July 2016

Share capital Dr 20 000
Retained earnings (1/7/16) Dr 8 000
Business combination valuation reserve Dr 2 240
NCI Cr 30 240
2. Worksheet entries at 30 June 2017
i. Business combination valuation entries
Land Dr 7 000
Business combination valuation reserve Cr 7 000

Machinery Dr 14 000
Business combination valuation reserve Cr 14 000

Depreciation expense (1/10 x $14 000) Dr 1 400

Accumulated depreciation Cr 1 400

Cost of sales Dr 1 400

Business combination valuation reserve Cr 1 400

ii. Pre-acquisition entries

Retained earnings (1/7/16) Dr 72 000
Share capital Dr 180 000
Business combination valuation reserve Dr 20 160
Goodwill Dr 18 000
Shares in Rudny Ltd Cr 290 160

iii. NCI share of equity at 1 July 2016

Share capital Dr 20 000
Business combination valuation reserve Dr 2 240
Retained earnings (1/7/16) Dr 8 000
NCI Cr 30 240

iv. NCI share of equity: 1/7/16 - 30/6/17

NCI share of profit Dr 1 720
NCI Cr 1 720
(10% ($20 000 – $1 400 – $1 400)
3. FULL GOODWILL METHOD
NCI has fair value of $31 800
At 1 July 2016:
Net fair value of identifiable assets and liabilities of Rudny Ltd = $302 400
(a) Consideration transferred = $290 160
(b) Non-controlling interest = $31 800
Aggregate of (a) and (b) = $321 960
Goodwill ($321 960 - $302 400) = $19 560

Goodwill of Subsidiary
Fair value of Rudny Ltd ($31 800/10%) = $318 000
Net fair value of identifiable assets and liabilities = $302 400
Goodwill of subsidiary = $15 600

Goodwill of parent
Goodwill acquired = $19 560
Goodwill of subsidiary = $15 600
Goodwill of parent (control premium) = $3 960

There will need to be an additional BCVR entry:

Goodwill Dr 15 600
Business combination valuation entry Cr 15 600

The pre-acquisition entry at 1 July 2016 would change to:

Share capital Dr 180 000
Retained earnings (1/7/16) Dr 72 000
Business combination valuation reserve Dr 34 200
Goodwill Dr 3 960
Shares in Rudny Ltd Cr 290 160

The Step 1 NCI would change to:

Share capital Dr 20 000
Retained earnings (1/7/16) Dr 8 000
Business combination valuation reserve Dr 3 800
NCI Cr 31 800