Non-Controlling Interest :

On 1 July 2018, Bay Ltd paid $236,400 for 60% of the issued shares of Watch Ltd. At this date,

the equity of Watch Ltd consisted of:

Share capital (200,000 shares) $200,000

General reserve 80,000

Retained earnings 40,000

A comparison of the carrying amounts and fair values of Watch Ltd's assets at the acquisition

date showed the following:

Carrying amount Fair value

Land $ 183,000 $200,000

Plant (cost $150,000) 100,000 120,000

Inventories 65,000 90,000

Accounts receivable 40,000 35,000

Goodwill 4,000

In relation to the accounts, the following information is available:

1. At acquisition date, the plant had a further 5-year life but was sold on 1 January 2020.

2. All the inventories were sold by 30 June 2019.

3. All the accounts receivable were collected by 30 June 2019.

Any valuation reserves arising on consolidation are transferred on realisation of the asset to

retained earnings. The general reserve movement was from pre-acquisition equity. Dividends

are recognised on declaration.

The following transactions occurred between 1 July 2018 and 30 June 2020:

2019

Jan. 1 Watch Ltd sold an item of plant to Bay Ltd for $18,000, which included a profit of $6,000. The remaining

useful life of the plant was 4 years.

Jan. 7 Watch Ltd transferred $20,000 from general reserve to retained earnings.

Feb. 12 Watch Ltd paid an $8,000 dividend.

March 23 Watch Ltd sold inventories to Bay Ltd for $50,000 recording a before-tax profit of $10,000. The tax rate is

30%.

June. 26 Watch Ltd declared a $15,000 dividend.

30 Watch Ltd recorded a profit after tax of $130,000. One-quarter of the inventories sold by Watch Ltd to Bay Ltd

on 23 March 2019 are still on hand with Bay Ltd.

Aug. 15 The $15,000 dividend declared by Watch Ltd was paid.

Sept. 21 The remaining inventories in Bay Ltd sold to it by Watch Ltd were sold outside the group.

2020

Jan. 1 Watch Ltd paid a $16,000 dividend.

June 30 Watch Ltd recorded a profit after tax of $150,000.

Required:

1. Determine the gain on bargain purchase or goodwill as at acquisition date using the

full goodwill method. Assume the fair value of the Non-Controlling Interest on 1 July

2018 was $150,000. (4 marks)

2. Determine the gain on bargain purchase or goodwill as at acquisition date using the

partial goodwill method. (3 marks)

3. Prepare the consolidation journal entries for Bay Ltd using the partial goodwill

method at 30 June 2019. (8 marks)

4. Prepare the consolidation journal entries for Bay Ltd using the partial goodwill

method at 30 June 2020. (20 marks)

Note: Your consolidation journal entries for Required 4 should be prepared in the

following format:

(a) Business combination valuation entries at 30 June 2020

(b) Pre-acquisition entries at 30 June 2020

(c) NCI share of equity at 1 July 2018

(d) NCI share of equity changes from 1 July 2018 to 30 June 2019

(e) NCI share of equity changes from 1 July 2019 to 30 June 2020

(f) Intra-group transaction adjustments required as at 30 June 2020