Hi, I need help with detailed solutions for the questions below. The final answers are provided so the steps are required.

Question 1

On 31 December 20x8, M Ltd paid $300,000 to acquire 80% interest of N Ltd in 20x5 when the fair value of N Ltd's net assets was represented by share capital of $100,000 and retained profit of $100,000, except for N Ltd's freehold land which was carried at $100,000 but deemed to have a fair value of $150,000. On this date, N Ltd's share capital comprised 100,000 ordinary shares with a fair value of $2.60 per share.

(a)Assuming the group policy of measuring non-controlling interest at acquisition date based on its proportionate share of the fair value of identifiable net assets of subsidiaries acquired, "Goodwill on consolidation" in M Ltd's 20x8 consolidated financial statements

= $100,000

(b)Assuming the group policy of measuring non-controlling interest at acquisition date based on its fair value, "Goodwill on consolidation" in M Ltd's 20x8 consolidated financial statements

= $102,000

Question 2

On 31 December 20x8, A Ltd paid $2,200,000 to acquire 80% of B Ltd when B Ltd's net assets were represented by share capital of $1,000,000 and retained profit of $1,000,000. On this date, both A Ltd and B Ltd had an unrecognized brand-name that was deemed to have a market value of $500,000 each. On this date, B Ltd's assembled workforce was deemed to have a market value of $100,000.

In A Ltd's 20x8 consolidated financial statements:

(a) Goodwill on consolidation = $200,000

(b) Brand-name = $500,000

(c) Assembled workforce = $ nil

(d) Non-controlling interest = $500,000

Question 3

P Ltd acquired 80% of S Ltd in 20x6. In February 20x7, P Ltd sold a piece of land, which was carried in its books at $100 million, to S Ltd for $120 million. S Ltd sold the land to outside party for $150 million in March 20x8. The consolidation adjusting entries required in relation to the land for 20x7 and 20x8 consolidation should be

20x7: Dr Profit on sale of land $20 million

Cr Land $20 million

20x8: Dr Beginning retained profit $20 million

Cr Profit on sale of land $20 million

Question 4

When A Ltd acquired 90% of B Ltd in 20x5, A Ltd has "Freehold Land" carried in its book as property, plant and equipment (PPE) at cost of $100 million but has a fair value of $500 million, and B Ltd has "Freehold Land" carried in its book as PPE at cost of $100 million but has fair value of $300 million. At that date, A Ltd and B Ltd also each disclosed a contingent liability in which there was a 40% probability of having to pay $10 million damages to a third party.

As at 31 December 20x8, A Ltd's freehold land has a fair value of $800 million, and B Ltd's freehold land has fair value of $400 million. Thegroup's policy is to carry PPE at cost. As at this date, there is no change to the two contingent liabilities.

In A Ltd's 20x8 consolidated statement of financial position:

(i)Freehold land = $400 million

(ii)Provision for litigation loss = $4 million

Question 5

L Ltd acquired 100% of M Ltd in 20x5. At the date of acquisition, M Ltd had a piece of machinery carried in its book at an amount lower than its fair value. This piece of machinery was to be used by M Ltd for 10 years from 20x2. For the 20x8 consolidation, the following consolidation journal entry was shown

Dr Depreciation expense

CrAccumulated depreciation: Machinery

Required: briefly explain the purpose of the above CJE

To provide for additional depreciation charge. This is because M Ltd provided depreciation based on the book value of the machinery which is understated from group's viewpoint

In 20x5, L Ltd sold a piece of machinery to its subsidiary, N Ltd, at an amount higher than its carrying amount. The machinery is to be used by N Ltd for the next 5 years. For the 20x8 consolidation, the following consolidation journal entry was shown

Dr Accumulated depreciation: Machinery

CrDepreciation expense

Required: briefly explain the purpose of the above CJE

To record gradual realization of the unrealized profit arising from inter-co sale of machinery. The unrealized inter-co profit is to be realized through the depreciation process

Question 6

On 31 December 20x7, F Ltd acquired 60% of G Ltd. On this date, F Ltd and G Ltd each reported a contingent liability under which there is a 30% probability of paying a damage claim of $100,000 to a third party. In August 20x8, F Ltd and G Ltd settled their respective contingent liability out of court by each paying $50,000 to the third party.

In F Ltd's 20x7 consolidated financial statements

(a)F Ltd's contingent liability will be

(i)disclosed as a contingent liability in the notes to financial statements, why?

(b)G Ltd's contingent liability will be

(iii)recognized as a liability in the balance sheet at $30,000, why and how?

In F Ltd's 20x8 consolidated financial statements:

(iv)Litigation loss = $70,000

Question 7

When H Ltd acquired 90% of J Ltd on 1 January 20x5, J Ltd has a building carried in its books as Property, plant and equipment at cost of $50 million less accumulated depreciation of $20 million, but with a fair value of $45 million. The accounting policy of the companies and the group is to depreciate building using straight line method over 50 years. The building was purchased 20 years ago and has a remaining life of 30 years from the date of the business combination on 1 January 20x5.

For the year ended 31 December 20x8, J Ltd's profit after tax was $10 million.

In H Ltd's 20x8 consolidated financial statements:

(i)Profit after tax attributable to non-controlling interest = $0.95 million

(ii)Depreciation expense for the building = $1.5 million

(iii)The net book value of the Building = $39 million

Question 8

In June 20x6, D Ltd paid $160,000 to acquire 80% of E Ltd when the fair value of E Ltd's net assets were represented by share capital of $100,000 and retained profit of $100,000. On this date, D Ltd's net assets were represented by share capital of $200,000 and retained profit of $200,000.

For the year ended 31 December 20x8, the profit after tax of D Ltd and E Ltd were $80,000 and $40,000 respectively. There were no transactions between D Ltd and E Ltd except for a dividend of $10,000 paid by E Ltd to all its shareholders on 10 December 20x8.

As at 31 December 20x8, the retained profit of D Ltd and E Ltd were $300,000 and $150,000 respectively.

In D Ltd's 20x8 consolidated financial statements:

(a)Profit after tax attributable to the shareholders of the parent

= $104,000

(b)Retained profit

= $340,000

Question 9

P Ltd acquired 80% of S Ltd in January 20x5. For the year ended 31 December 20x8, the "profit after tax" of P Ltd and S Ltd were respectively $100 million and $60 million. During 20x8, S Ltd sold goods to P Ltd, and it was determined that there was unrealized profit of $10 million as at 31 December 20x8 arising from this inter-company sales.

In the 20x8 consolidated financial statements:

"Profit after tax attributable to shareholders of the parent"

= $140 million

"Profit after tax attributable to non-controlling interest"

= $10 million

Question 10

P Ltd acquired 90% of S Ltd in January 20x5 when S Ltd's retained profit was $30 million. For the year ended 31 December 20x8, the "profit after tax" of P Ltd and S Ltd were respectively $20 million and $10 million. As at 31 December 20x8, the "retained profits" of P Ltd and S Ltd were respectively $100 million and $50 million. During the consolidation process, it was learnt thatP Ltd sold some goods to S Ltd during 20x7, which S Ltd sold to outsiders during December 20x7 and January 20x8, and it was determined that there was unrealized profit of $2 million as at 31 December 20x7 arising from this inter-company sales.

In the 20x8 consolidated financial statements:

"Profit after tax attributable to shareholders of the parent"

= $31 million

"Group retained profit"

= $118 million