The statement of financial position of Subsidiary Co as at 31 December 20x0, the date it was acquired by Parent Co, and income statements for Parent Co and Subsidiary Co for the year ended 31 December 20x1 are shown below:

Additional information:

(a) Parent paid $1,000,000 for an 80% stake in Subsidiary on 31 December 20x0. Fair value of non-controlling interests was $250,000 at acquisition date that was proportional to the consideration transferred by Parent Co.

(b) On 31 December 20x1, total goodwill was assessed to be impaired to the extent of $50,000.

(c) There were no intragroup transactions other than Parent Co's investment in Subsidiary Co and dividends declared by S Co.

(d) Information relating to “undervalued” and “overvalued” identifiable assets is as follows:
(i) Remaining useful life of undervalued fixed asset as at 31 December 20x0 was ten years.
(ii) Undervalued inventory was sold in 20x1.
(iii) Overvalued accounts receivable was written down for a potential bad debt. The debt was confirmed bad in 20x1 and written off in Subsidiary’s books in 20x1.

(e) Assume a tax rate of 20%. Recognize tax effects on fair value adjustments.

Required:
1. What is the goodwill arising from the application of the requirements of IFRS 3 Business Combinations?
2. Prepare the consolidation adjustments for the year ended 31 December 20x1.
3. Perform an analytical check on the non-controlling interests’ balance as at 31 December 20x1.
4. Show the consolidation adjustments that need to be passed in 20x2 to re-enact the consolidation adjustments of 20x1.
5. Prepare the consolidated income statement for the year ended 31 December 20x1.

Transcribed Image Text:

Subsidiary Co Statement of Financial Position As at 31 December 20x0 (date of acquisition) Book value $600,000 Fixed assets, net.. Current assets: Inventory. 40,000 Fair value $750,000 50,000