accounting question

On

1 April 2010

Parent Ltd acquired 90% of the equity in Subsidiary Ltd for $650 000 cash.

At this date the equity of Subsidiary Ltd comprised:

Share capital

$500 000

Retained earnings

130 000

Part A

(a) Assume the net assets of Subsidiary Ltd were at fair value on 1 April 2010. Prepare the

notional journal entry to offset the carrying amount of the asset Investment in Subsidiary Ltd

and the parents portion of equity in Subsidiary Ltd in accordance with the requirements of

NZ IFRS 3 Business Combinations

and

NZ IFRS 10 Consolidated Financial Statements.

(b) Assume the net assets of Subsidiary Ltd were

not

at fair value on 1 April 2010. At the

date of acquisition Subsidiary Ltd had an unrecognised intangible asset of $22 000 and a

contingent liability of $8 000. Prepare the notional journal entry to offset the carrying amount

of the asset Investment in Subsidiary Ltd and the parents portion of equity in Subsidiary Ltd

in accordance with the requirements of

NZ IFRS 3 Business Combinations

and

NZ IFRS 10

Consolidated Financial Statements.

(c) Briefly explain why the amount of acquired goodwill recognised above in (a) and (b) will

not be the same amount.

Part B

Assume the net assets of Subsidiary Ltd were at fair value on 1 April 2010. Prepare the

notional journal entry to identify the non-controlling interest (NCI) in Subsidiary Ltd to be

reported in the group accounts as at 31 March 2017 in accordance with the requirements of

NZ IFRS 3 Business Combinations

and

NZ IFRS 10 Consolidated Financial Statements

.

Parent Ltd measures the NCI at the NCIs proportionate share of the acquirees identifiable

net assets.

Additional information provided for Part B:

(i) During March 2016 Subsidiary Ltd made sales to Parent Ltd and realised a profit of

$2 000. At 31 March 2016 this purchase was included in the inventory balance of Parent Ltd.

(ii) During March 2017 Subsidiary Ltd made sales to Parent Ltd and realised a profit of

$3 000. Parent Ltd had not sold this purchase of inventory by 31 March 2017.

(iii) At the date of consolidation 31 March 2017 the equity of Subsidiary Ltd comprised:

Share capital

$500 000

Retained earnings - opening

145 000

Profit after tax

62 000

Dividends declared and paid

35 000

172 000

ARS

30 000

Total equity

702 000

(iv) The directors of Parent Ltd believe the acquired goodwill in Subsidiary Ltd was impaired

by $4 500 in the year ended 31 March 2017.

Part A (a) ALL workings must be shown on each line of your notional journal entry below. These workings will be marked.

Part A (b) ALL workings must be shown on each line of your notional journal entry below. These workings will be marked.

Part A (c) Explanation:

Part B ALL workings must be shown on each line of your notional journal entry below. These workings will be marked.