accounting question

Part A

(a) There is one asset that appears in the consolidated balance sheet of the group but probably

does not appear in the parent entitys or subsidiary entitys separate financial statements, and

there is also one asset that will appear in the balance sheet of the parent entity but will not

appear in the consolidated financial statements. Name these two assets.

(b) What is the primary criterion for determining whether or not to consolidate an entity?

Briefly explain this criterion.

Part B

Parent Ltd acquired equity in Subsidiary Ltd on 1 April 2009. At that date the identifiable net

assets were considered to be fairly valued and the equity of Subsidiary Ltd comprised:

Share capital

$100,000

Retained earnings

30,000

Nine years later Parent Ltd is preparing consolidated financial statements for the financial

year ended 31 March 2018 and has gathered the following information:

?

Prior years impairment of total goodwill amounted to $26,000. For the current year

ended 31 March 2018 the directors of Parent Ltd believe that the total goodwill has

been further impaired by $4,000.

?

During the financial year ended 31 March 2017 Subsidiary Ltd made sales to Parent

Ltd of $30,000 and recorded a profit of $5,000. Parent Ltd had not sold this purchase

of inventory as at 31 March 2017.

?

During the financial year ended 31 March 2018 Parent Ltd made sales to Subsidiary

Ltd of $7,000 and recorded a profit of $3,200. This purchase remained in the

inventory of Subsidiary Ltd as at 31 March 2018.

?

Subsidiary Ltd billed Parent Ltd $2,100 for consulting advice provided on 25 March

2018. This transaction had been recorded by both entities; it remained unpaid as at 31

March 2018.

?

The following account balances have been extracted from the financial statements of

Subsidiary Ltd at 31 March 2018:

$

Profit after tax

60,000

Retained earnings-opening balance

40,000

Dividends declared and paid

15,000

Retained earningsclosing balance

85,000

Share capital

100,000

Required:

(a) Assume Parent Ltd acquired 100% of the equity in Subsidiary Ltd for $200,000 on

1 April 2009. Complete the consolidation worksheet in the answer book for Parent

Ltd for the financial year ended 31 March 2018 in accordance with NZ IFRS 10 and

NZ IFRS 3. Other relevant information about intercompany transactions are provided

in the consolidation worksheet.

(b) Assume Parent Ltd only acquired 80% of the equity in Subsidiary Ltd for $160,000

on 1 April 2009. Prepare the notional journal entry as at 31 March 2018 to identify the

non-controlling interest (NCI), in Subsidiary Ltd, to be reported in the group accounts

in accordance with NZ IFRS 10 and NZ IFRS 3. The directors of Parent Ltd require

the non-controlling interest in Subsidiary Ltd to be measured at the non-controlling

interests proportionate share of the Subsidiary Ltds identifiable net assets i.e. not at

fair value. Workings must be included in your notional journal entry.

(c) Assume Parent Ltd only acquired 80% of the equity in Subsidiary Ltd for $160,000

on 1 April 2009. Calculate the amount at which the group equity account NCI would

be reported at in the consolidated financial statements, as at 31 March 2018, in

accordance with NZ IFRS 10 and NZ IFRS 3, if the directors of Parent Ltd required

the NCI to be measured at fair value. Workings must be included.