(Ignore deferred tax issue in consolidation)

On July 1, 2018, Ibiza Company (Ibiza) purchased 4,800 ordinary shares (6% shareholding) of Jupiter Limited (Jupiter) for $91,200. And on October 1, 2018, Ibiza purchased another 4,800 ordinary shares (6% shareholding) of Jupiter for $93,600. Ibiza's policy is to record investments with an ownership percentage of less than 20% using FVPL. The market value of Jupiter's ordinary share increased to $20 per share on December 31, 2018.

On January 1, 2019, Ibiza purchased an additional 60,800 ordinary shares of Jupiter for $1,264,000. After the further acquisition, Ibiza owned 88% of Jupiters ordinary share, and thus Ibiza obtained control power over Jupiter. Jupiters shares were traded actively in the recognised stock at $20 per share before and after Ibizas acquisition.

On January 1, 2019, the shareholders equity of Jupiter included the following

Ibiza uses the cost method to account for its investment in Jupiter in its book after obtaining the control and the partial goodwill method for measuring non-controlling interest at the acquisition date in its consolidated statements. The fair value of the non-controlling interest of Jupiter can be measured by the Jupiters share price on January 1, 2019.

An appraisal made on January 1, 2019 determined that the book values of Jupiters reported assets and liabilities appropriately reflected their fair values except for

(1) a building which is understated by $110,000.

The building was purchased on January 1, 2015 for $900,000 and had a carrying amount of $660,000 on the acquisition date. This building can be used for a further 11 years from the acquisition date.

(2) a plot of land which is understated by $70,000.

Other than the reported assets and liabilities, Jupiter had an unrecorded in-process research and development project appraised at $120,000. This project was expected to provide benefit to the company for the next six years.

On January 1, 2020, Jupiter signed a supply contract with Ibiza. Under the contract, Jupiter would consistently deliver inventories to Ibiza at a transfer price of $1,600,000 (with a cost $1,000,000) each year. The resold status of these inventories is summarised in the following table:

The remaining inventory would all be sold out to external parties in the subsequent year.

Since acquisition, three fixed assets were transferred in between Ibiza and Jupiter. Details of the transfer are listed as follows:

The transfer price approximated the fair value at the date of transfer. On January 1, 2022, Jupiter Ibiza sold the property transferred from Ibiza Jupiter on January 1, 2020, to an external party for $610,000. And on October 1, 2022, Jupiter sold the land transferred from Ibiza on July 1, 2022, to an external party for $476,000.

Ibiza undertook an impairment review for its investment in Jupiter on December 31, 2022; goodwill was impaired by 7% of its acquisition value.

The statements of comprehensive income and statements of financial position for the year ended December 31, 2022 for both companies are shown below:

Notes:

*1 Both companies have used first-in-first-out inventory policy.

*2 Amortisation expenses, depreciation expenses and impairment losses

were all included in the operating expenses.

*3 Losses on disposal of fixed assets were included in the other expenses.

*4 Dividends declared were all paid within the year.

*5 Lands, property, plant and equipment and intangible assets are accounted

for by cost method. And straight-line depreciation with no residual value

is used for all depreciable property, plant and equipment.

*6 'Investment & Other Financial Assets' includes the investment in Jupiter

and other non-strategic investments.

*7 Jupiters current account receivable balance with Ibiza on December 31,

2022 was $180,000. The amount was the same as the equivalent accounts

payable of Ibiza.

*8 Since the acquisition, both companies have neither issued nor reacquired any of their shares.

(a) Determine the goodwill for Ibizas investment in Jupiter on January 1, 2019.

(b) Prepare necessary consolidation entries for the preparation of the consolidated statements for the year ended December 31, 2022.

(c) Determine the consolidated net income for the year ended December 31, 2022 and what amounts are allocated to the parents shareholders and non-controlling interests?

(d) Determine the consolidated balance on December 31, 2022 for the following accounts (1) Goodwill, (2) Non-controlling Interests and (3) Retained Earnings

(e) The followings are the two issues raised by the top management of Ibiza.

Issue 1: The top management disagreed with eliminating the profits arising from the intercompany inventory transfer in the consolidation process. They stated that

Issue 2:

those inventories were transferred from Jupiter to Ibiza this year. And so, these profits were legitimate to be included in the consolidated net income. Non-controlling shareholders of Jupiter own 12% of Jupiters shareholdings. And therefore, the top management believes that the non-controlling interest reported in the consolidated statement should be equal to 12% of the reported net assets value of Jupiter in Jupiters financial statement; however, this is different from your answer in (d)(2).

(1) For issue 1, explain to the top management by addressing their views using the revenue recognition principle.

(2) For issue 2, determine and explain to the top management the difference.

On January 1, 2023, Ibiza purchased 100% of the ordinary shares of Kylie Limited (Kylie), a foreign company using Korean Won as its functional and presentational currency, for 1 billion. On January 1, 2023, the shareholders equity of Kylie included the following.

The fair value of identifiable net assets of Kylie was the same as its carrying values. Exchange rates between $ and were as follow

(f) Determine the amount of goodwill arising from the investment in Kylie reported in the consolidated financial statement of Ibiza on December 31, 2023.

\begin{tabular}{|c|r|} \hline Year & Inventory Remaining at Year-End (at transfer price) \\ \hline 2020 & $400,000 \\ \hline 2021 & 480,000 \\ \hline 2022 & 320,000 \\ \hline \end{tabular} \begin{tabular}{|l|r|r|r|} \hline Transferred Asset & Building & Patent & Land \\ \hline Buyer & Jupiter & Jupiter & Jupiter \\ \hline Date of Transfer & January 1,2020 & July 1,2022 & July 1,2022 \\ \hline Transfer Price (\$) & 800,000 & 135,000 & 464,000 \\ \hline UsefulLifedeterminedatthedateofTransfer & 10 years & 4.5 years & \\ \hline Seller & Ibiza & Ibiza & Ibiza \\ \hline Original Cost (\$) & 900,000 & 240,000 & 440,000 \\ \hline Date of Original Purchase & January 1,2016 & January 1, 2021 & April 1, 2022 \\ \hline UsefulLifedeterminedatthedateoforiginalpurchase & 12 years & 6 years & \\ \hline \end{tabular} \begin{tabular}{|lrr|} \cline { 2 - 3 } & 6,032 & 3,620 \\ Share Capital (of $1 each) * & 200 & 80 \\ Share Premium & 4,800 & 400 \\ Retained Earnings & 2,468 & 900 \\ Total Equity & 7,468 & 1,350 \\ Total Liabulities and Equity & 13.500 & 5000 \\ \hline \end{tabular} \begin{tabular}{|l|r|} \hline Share Capital (\$1 Par) & 100 million \\ \hline Share Premium & 500 million \\ \hline Retained Earnings & 200 million \\ \hline \end{tabular} January 1, 2023: : : $0.00080 Average of 2023: $1:$0.00077 December 31, 2023: : :$0.00075