Accounting question

Parent Ltd acquired equity in Subsidiary Ltd on 1 April 2011. At that date, the identifiable net assets were considered to be fairly valued and the equity of Subsidiary Ltd comprised:

Share capital	$500 000
Retained earnings	94 000
Asset revaluation surplus	21 000
	$615 000

Parent Ltd has requested your help in the preparation of their consolidated financial statements for the financial year ended 31 March 2019 and has provided you with the following information:

• At 31 March 2019, Sub Ltd declared a final dividend of $35 000, and Parent Ltd declared a final dividend of $90 000. Both these dividends were paid during April 2019.

• Subsidiary Ltd rents a small part of its warehouse to Parent Ltd at a cost of $9 000 per annum. At 31 March 2019, Parent Ltd still owed Subsidiary Ltd $1 200 of rental for the year ended 31 March 2019.

• During March 2018, Subsidiary Ltd made sales to Parent Ltd of $7 600 and recognised a profit of $3 800. Parent Ltd sold this purchase of inventory to Me Ltd on 29 April 2018.

• During March 2019, Subsidiary Ltd made sales to Parent Ltd of $9 460. The inventory sold has cost Subsidiary Ltd $5 460. At 31 March 2019, the inventory Parent Ltd had on hand included this purchase from Subsidiary Ltd.

• In 2013 the total goodwill of Subsidiary Ltd was considered by the directors to be impaired by $4 100 and impaired again in 2016 by $2 500. The directors of Parent Ltd believe that the total goodwill has been further impaired by $1 200 during this financial year ended 31 March 2019.

• During March 2018, Parent Ltd made sales to Subsidiary Ltd of $6 000 and recognised a profit of $2 860. Subsidiary Ltd sold this inventory to Yu Ltd on 28 March 2018.

Question 3 continued:

• During March 2019, Parent Ltd made sales to Subsidiary Ltd of $6 850. The inventory sold has cost Parent Ltd $3 750. The inventory of Subsidiary Ltd at 31 March 2019 included this purchase.

Required:

(a) Assume Parent Ltd acquired 100% of the equity in Subsidiary Ltd for $800 000 on

1 April 2011. Complete the consolidation worksheet, in the answer booklet, for Parent Ltd for the financial year ended 31 March 2019 in accordance with NZ IFRS 10 Consolidated Financial Statements and NZ IFRS 3 Business Combinations.

(b) Assume Parent Ltd only acquired 80% of the equity in Subsidiary Ltd for $640 000 on

1 April 2011. The directors of Parent Ltd require the NCI in Subsidiary Ltd to be measured at fair value. Complete the consolidation worksheet, in the answer booklet, for Parent Ltd for the financial year ended 31 March 2019 in accordance with NZ IFRS 10 Consolidated Financial Statements and NZ IFRS 3 Business Combinations.

(c) Paragraph 19 of NZ IFRS 3 Business Combinations provides a choice of measurement for the non-controlling interest (NCI) in the acquiree. Start with your answer for (b) and reconcile the NCI measured at fair value to the NCI measured at the proportionate share in the recognised amounts of the subsidiarys identifiable net assets. In your reconciliation you must clearly indicate if your adjustments are being added or subtracted.

Additional information

Answer format

Notional Jounral Entries Share Capital Dr 8,000,000 Retained Earnings Dr 520,000 To Investment in Sub Ltd (8096) 6,816,000 To Non Controlling Interest (20%) 1,704,000 (Shares capital and retained earnings trfd.) Land and Building Dr 920,000 Land Dr 1700,000 Equipment Dr 202,000 Intangible Assets Dr 890,000 Goodwill Dr (Balancing Figure) 5,108,000 To Liability 340,000 To Investment in Sub Ltd (13600,000-6816,000) 6,784,000 To Non Controlling Interest (3400,000-1704,000) 1696,000 (Assets recorded at the fair value, liabilities recognised and balance of good will recognised under full Goodwill method) Considerarion at Fair Value (13,600,000*100/80) 17,000,000 Less: FV of INA acquired 11,892,000 Goodwill 5,108,000 Parent Ltd. acquired 100% of the equity in Sub Ltd. for $1,500,000. Calculation of Goodwill on Acquisition 1,500,000 Purchase Consideration Less: Fair value of Net Identifibale Assets (1,023,000) Goodwill on Acquisition 477,000 Adjusting Journal Entries Date Account Titles and Explanation Debit ($) Credit ($) Consolidated Income 1,500 Consolidated Expense 1,500 (To eliminate Intragroup Interest Expense) Loan payable to Sub Ltd 60,000 Loan receivable from Parent Ltd 60,000 (To eliminate Intragroup Loan balance) Interest payable to Sub Ltd 1,200 Interest receivable from parent Ltd 1,200 (To eliminate Intra group balance outstanding) Consolidated Income (Dividend Revenue) 120,000 Dividend declared 120,000 (To eliminate Intragroup dividend) Consolidated Income (Rent Income) 26,000 Consolidated Expenses (Rental Expense) 26,000 (To eliminate Intragroup rent transaction) Rent payable to Parent Ltd 5,000 Rent receivable from Sub Ltd 5,000 (To eliminate Intragroup balance of rent) Consolidated Income-Sales Revenue 4,860 To Cost of Goods Sold 2,000 To Inventory 2,860 (To eliminate unrealised profit from Retained earnings) Consolidated Income-Sales Revenue 4,860 To Cost of Goods Sold 2,000 To Inventory 2,860 (To eliminate unrealised profit from Retained earnings) Consolidated Income- Sales Revenue 8,500 To Cost of Goods Sold 5,400 To Inventory 3,100 (To eliminate unrealised profit from Retained earnings) Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019. Parent Ltd Sub Ltd Group Notional Journal Entries $ $ Dr $Cr $ Income Statement/dividend Items: 2,450,000 2,400,000 160,860 4,689,140 Income (includes all type of income) Less expenses (including COGS) Profit before tax 1,633,000 1,600,000 34,900 3,198,100 817,000 800,000 1,491,040 Less Income tax expense 280,780 261,000 541,780 Profit after tax 536,220 539,000 949,260 Retained earnings- opening bal 580,000 300,000 880,000 Less dividends declared 200,000 180,000 120,000 260,000 Balance Sheet Items: 916,220 659,000 Retained earnings- Closing bal Asset Revalutaion Surplus 134,900 70,000 Share Capital 600,000 700,000 Total Equity 1,651,120 1,429,000 Bank Overdraft 2,300 2,300 Dividend Payable 75,000 120,000 120,000 75,000 Loan Payable to Sub Ltd 60,000 60,000 Interest payable to Sub Ltd 1,200 1,200 Various Liabilities 2,352,380 598,900 2,951,280 Rent Payable to Parent Ltd 5,000 5,000 Total Liabilities 2,490,880 723,900 186,200 3,028,580 Total Equity and Liabilities 4,142,000 2,152,900 Cash 6,700 6,700 Inventory 174,000 140,000 5,960 308,040 Interest receivable from Parent Ltd 1,200 1,200 60,000 60,000 Loan receivable from Parent Ltd Dividend Income Receivable Rent receivable from Sub Ltd Various Assets 120,000 120,000 5,000 5,000 638,000 945,000 1,583,000 PPE(net) 1,705,000 1,000,000 2,705,000 Investment in Sub Ltd 1,500,000 Goodwill Total Assets 4,142,000 2,152,900 Question 3 (a) Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Income statement dividend items: $ $ $ Dr $ Cr Income 1 450 000 1 200 000 (including dividend income) Less expenses 1 009 000 790 000 (including COGS) Profit before tax 441 000 410 000 Less income tax expense 134 780 175 480 Profit after tax 306 220 2023 234 520 Retained earnings - opening bal 480 000 300 000 Less: dividends declared 160 000 60 000 Balance Sheet items: Retained earnings - closing bal 626 220 474 520 Asset revaluation surplus 73 780 23 000 Share capital 600 000 500 000 Total equity $1 300 000 $997 520 Question 3 (a) continued on next page... Question 3 (a) continued: The Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Balance Sheet items continued: S $ S Dr $ Cr $ Dividend payable 90 000 35 000 Various liabilities 400 600 205 000 Rent payable to Sub Ltd 1 200 Total liabilities 491 800 240 000 Total equity and liabilities $1 791 800 $1 237 520 Cash 18 800 4380 Inventory 94 000 82 000 Rent receivable 1 200 Dividend receivable 35 000 Various assets 239 000 149 940 PPE (net) 605 000 1 000 000 Investment in Subsidiary Ltd 800 000 Goodwill Total assets $1 791 800 $1 237 520 Question 3 (b) Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Income statement dividend items: $ $ $ Dr S Cr S 1 450 000 1 200 000 Income (including dividend income) 1 009 000 790 000 Less expenses (including COGS) Profit before tax 441 000 410 000 Less income tax expense 134 780 175 480 Profit after tax 306 220 234 520 Less NCI portion of PAT PAT Retained earnings - opening bal 480 000 300 000 Less: dividends declared 160 000 60 000 Balance Sheet items: Retained earnings - closing bal 626 220 474 520 Asset revaluation surplus 73 780 23 000 NCI Share capital 600 000 500 000 Total equity $1 300 000 $997 520 Question 3 (b) continued: The Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Balance Sheet items continued: S s $ Dr S Cr S Dividend payable 90 000 35 000 Various liabilities 400 600 205 000 Rent payable to Sub Ltd 1 200 Total liabilities 491 800 240 000 Total equity and liabilities $1 791 800 $1 237 520 Cash 18 800 4 380 Inventory 94 000 82 000 Rent receivable 1 200 Dividend receivable 28 000 Various assets 406 000 149 940 PPE (net) 605 000 1 000 000 640 000 Investment in Subsidiary Ltd Goodwill Total assets $1 791 800 $1 237 520 (c) Reconciliation of the two measurement methods for the NCI NCI measured at Fair value NCI measured at the proportionate share in the recognised amounts of the Subsidiary's INA Notional Jounral Entries Share Capital Dr 8,000,000 Retained Earnings Dr 520,000 To Investment in Sub Ltd (8096) 6,816,000 To Non Controlling Interest (20%) 1,704,000 (Shares capital and retained earnings trfd.) Land and Building Dr 920,000 Land Dr 1700,000 Equipment Dr 202,000 Intangible Assets Dr 890,000 Goodwill Dr (Balancing Figure) 5,108,000 To Liability 340,000 To Investment in Sub Ltd (13600,000-6816,000) 6,784,000 To Non Controlling Interest (3400,000-1704,000) 1696,000 (Assets recorded at the fair value, liabilities recognised and balance of good will recognised under full Goodwill method) Considerarion at Fair Value (13,600,000*100/80) 17,000,000 Less: FV of INA acquired 11,892,000 Goodwill 5,108,000 Parent Ltd. acquired 100% of the equity in Sub Ltd. for $1,500,000. Calculation of Goodwill on Acquisition 1,500,000 Purchase Consideration Less: Fair value of Net Identifibale Assets (1,023,000) Goodwill on Acquisition 477,000 Adjusting Journal Entries Date Account Titles and Explanation Debit ($) Credit ($) Consolidated Income 1,500 Consolidated Expense 1,500 (To eliminate Intragroup Interest Expense) Loan payable to Sub Ltd 60,000 Loan receivable from Parent Ltd 60,000 (To eliminate Intragroup Loan balance) Interest payable to Sub Ltd 1,200 Interest receivable from parent Ltd 1,200 (To eliminate Intra group balance outstanding) Consolidated Income (Dividend Revenue) 120,000 Dividend declared 120,000 (To eliminate Intragroup dividend) Consolidated Income (Rent Income) 26,000 Consolidated Expenses (Rental Expense) 26,000 (To eliminate Intragroup rent transaction) Rent payable to Parent Ltd 5,000 Rent receivable from Sub Ltd 5,000 (To eliminate Intragroup balance of rent) Consolidated Income-Sales Revenue 4,860 To Cost of Goods Sold 2,000 To Inventory 2,860 (To eliminate unrealised profit from Retained earnings) Consolidated Income-Sales Revenue 4,860 To Cost of Goods Sold 2,000 To Inventory 2,860 (To eliminate unrealised profit from Retained earnings) Consolidated Income- Sales Revenue 8,500 To Cost of Goods Sold 5,400 To Inventory 3,100 (To eliminate unrealised profit from Retained earnings) Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019. Parent Ltd Sub Ltd Group Notional Journal Entries $ $ Dr $Cr $ Income Statement/dividend Items: 2,450,000 2,400,000 160,860 4,689,140 Income (includes all type of income) Less expenses (including COGS) Profit before tax 1,633,000 1,600,000 34,900 3,198,100 817,000 800,000 1,491,040 Less Income tax expense 280,780 261,000 541,780 Profit after tax 536,220 539,000 949,260 Retained earnings- opening bal 580,000 300,000 880,000 Less dividends declared 200,000 180,000 120,000 260,000 Balance Sheet Items: 916,220 659,000 Retained earnings- Closing bal Asset Revalutaion Surplus 134,900 70,000 Share Capital 600,000 700,000 Total Equity 1,651,120 1,429,000 Bank Overdraft 2,300 2,300 Dividend Payable 75,000 120,000 120,000 75,000 Loan Payable to Sub Ltd 60,000 60,000 Interest payable to Sub Ltd 1,200 1,200 Various Liabilities 2,352,380 598,900 2,951,280 Rent Payable to Parent Ltd 5,000 5,000 Total Liabilities 2,490,880 723,900 186,200 3,028,580 Total Equity and Liabilities 4,142,000 2,152,900 Cash 6,700 6,700 Inventory 174,000 140,000 5,960 308,040 Interest receivable from Parent Ltd 1,200 1,200 60,000 60,000 Loan receivable from Parent Ltd Dividend Income Receivable Rent receivable from Sub Ltd Various Assets 120,000 120,000 5,000 5,000 638,000 945,000 1,583,000 PPE(net) 1,705,000 1,000,000 2,705,000 Investment in Sub Ltd 1,500,000 Goodwill Total Assets 4,142,000 2,152,900 Question 3 (a) Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Income statement dividend items: $ $ $ Dr $ Cr Income 1 450 000 1 200 000 (including dividend income) Less expenses 1 009 000 790 000 (including COGS) Profit before tax 441 000 410 000 Less income tax expense 134 780 175 480 Profit after tax 306 220 2023 234 520 Retained earnings - opening bal 480 000 300 000 Less: dividends declared 160 000 60 000 Balance Sheet items: Retained earnings - closing bal 626 220 474 520 Asset revaluation surplus 73 780 23 000 Share capital 600 000 500 000 Total equity $1 300 000 $997 520 Question 3 (a) continued on next page... Question 3 (a) continued: The Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Balance Sheet items continued: S $ S Dr $ Cr $ Dividend payable 90 000 35 000 Various liabilities 400 600 205 000 Rent payable to Sub Ltd 1 200 Total liabilities 491 800 240 000 Total equity and liabilities $1 791 800 $1 237 520 Cash 18 800 4380 Inventory 94 000 82 000 Rent receivable 1 200 Dividend receivable 35 000 Various assets 239 000 149 940 PPE (net) 605 000 1 000 000 Investment in Subsidiary Ltd 800 000 Goodwill Total assets $1 791 800 $1 237 520 Question 3 (b) Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Income statement dividend items: $ $ $ Dr S Cr S 1 450 000 1 200 000 Income (including dividend income) 1 009 000 790 000 Less expenses (including COGS) Profit before tax 441 000 410 000 Less income tax expense 134 780 175 480 Profit after tax 306 220 234 520 Less NCI portion of PAT PAT Retained earnings - opening bal 480 000 300 000 Less: dividends declared 160 000 60 000 Balance Sheet items: Retained earnings - closing bal 626 220 474 520 Asset revaluation surplus 73 780 23 000 NCI Share capital 600 000 500 000 Total equity $1 300 000 $997 520 Question 3 (b) continued: The Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Balance Sheet items continued: S s $ Dr S Cr S Dividend payable 90 000 35 000 Various liabilities 400 600 205 000 Rent payable to Sub Ltd 1 200 Total liabilities 491 800 240 000 Total equity and liabilities $1 791 800 $1 237 520 Cash 18 800 4 380 Inventory 94 000 82 000 Rent receivable 1 200 Dividend receivable 28 000 Various assets 406 000 149 940 PPE (net) 605 000 1 000 000 640 000 Investment in Subsidiary Ltd Goodwill Total assets $1 791 800 $1 237 520 (c) Reconciliation of the two measurement methods for the NCI NCI measured at Fair value NCI measured at the proportionate share in the recognised amounts of the Subsidiary's INA