Consolidation worksheet entries, analysis of non‐controlling interest, sequential acquisitions    LO2, 3, 4, 5 A client of yours is the chief accountant of Comoros Ltd which, at 30 June 2020, has two subsidiaries, Cook Islands Ltd and Chile Ltd. He is unsure how to prepare the consolidated financial statements and has asked for your help. He has provided you with the information below concerning the group, and has determined a series of questions for which he wants clear, well‐written answers. Provide the answers to these questions. Assume a tax rate of 30%. Part A Comoros Ltd acquired 40% of the issued shares of Cook Islands Ltd on 1 July 2017 for a total consideration of $79 400, consisting of $9400 cash and 14 000 Comoros Ltd shares having an estimated fair value of $5 per share. The equity of Cook Islands Ltd at this date is as follows. Share capital $100 000 General reserve 50 000 Retained earnings 40 000 All the identifiable assets and liabilities of Cook Islands Ltd were recorded at fair value except for plant (carrying amount $60 000, net of $10 000 depreciation) for which the fair value was $65 000. The plant has a further 5‐year useful life. During January 2018, Cook Islands Ltd paid a dividend of $5000. Further, in January 2018, a transfer to retained earnings of $4000 was made from the general reserve established before 1 July 2017. Required 1. Prepare the business combination valuation entries and pre‐acquisition entries in relation to Comoros Ltd’s acquisition of Cook Islands Ltd at 30 June 2018, assuming Cook Islands Ltd is a subsidiary of Comoros Ltd at this date. 2. Explain how the calculations used in requirement 1 meet the requirements of AASB 3/IFRS 3 Business Combinations. 3. If Comoros Ltd acquired its shares in Cook Islands Ltd at 1 July 2017, but did not achieve control until 1 July 2018 when the retained earnings of Cook Islands Ltd were $60 000 and the fair value of plant was $30 000 greater than the carrying amount, should the fair values be measured at 1 July 2017, or at 1 July 2018 when Comoros Ltd obtained control of Cook Islands Ltd? Explain your answer, referring to requirements of appropriate accounting standards. 4. If Cook Islands Ltd earned a $10 000 profit between 1 July 2017 and 30 June 2018, determine the non‐controlling interest’s share of Cook Islands Ltd’s equity at 30 June 2018. 5. Explain your calculation of the non‐controlling interest’s share of profit in requirement 4. Part B Cook Islands Ltd acquired 75% of the issued shares of Chile Ltd at 1 January 2018 for $137 000 when the equity of Chile Ltd consisted of $100 000 capital and $62 000 retained earnings which included profit of $12 000 earned after 1 July 2017. At acquisition date, all the identifiable assets and liabilities of Chile Ltd were recorded at fair value except for the following assets. Carrying amount Fair value Land $80 000 $90 000 Plant (net of accumulated depreciation of $15 000) 60 000 65 000 Inventories 20 000 25 000 Of the inventories, 90% were sold by 30 June 2018 and the remainder by 30 June 2019. The land was sold in January 2020 for $120 000. The plant has a further 5‐year useful life. Required Prepare the business combination valuation entries and pre‐acquisition entries in relation to Cook Islands Ltd’s acquisition of Chile Ltd at 30 June 2018 and 30 June 2020. Part C The following transactions affect the preparation of consolidated financial statements of Comoros Ltd’s group at 30 June 2020.

(a) Sale of inventories in June 2019 from Chile Ltd to Comoros Ltd — the inventories cost Chile Ltd $2000, and were sold to Comoros Ltd for $3000. At 30 June 2020, Comoros Ltd did not hold any of these inventories.

(b) Sale of plant on 1 January 2019 from Chile Ltd to Comoros Ltd — the plant had a carrying amount in Chile Ltd of $12 000 at time of sale, and was sold for $15 000. The plant had a further 5‐year useful life.

(c) Dividend of $10 000 declared in June 2020 by Chile Ltd to be paid in August 2020.

(d) Payment of a $4500 management fee from Chile Ltd to Comoros Ltd in February 2020. Required In relation to the preparation of the consolidated financial statements for Comoros Ltd’s group at 30 June 2020: 1. Provide consolidation worksheet journal entries for the above transactions, including related non‐controlling interest adjustments. 2. Explain the adjustment entry for transaction (a). 3. Explain the non‐controlling interest adjustment entry in relation to transaction (c). 4. If the retained earnings (1/7/19) of Chile Ltd was $80 000 and the profit for the period ended 30 June 2020 was $10 000, calculate the non‐controlling interests share of Chile Ltd’s equity at 30 June 2020, assuming no changes in reserves. 5. The calculation of non‐controlling interest is based on the concept of sharing only those profits that are realised to the group. Explain this concept, showing how it is implemented using transactions (a),

(b) and (d).