On 1 July 2017, A Ltd acquired 80% of the shares issued by B Ltd for $85 000. At this date, the shareholders? equity of B Ltd consisted of share capital of $80 000 and retained earnings of $20 000. All identifiable assets were recorded at amounts equal to fair value except for plant for which the fair value was $4000 greater than the carrying amount. The plant had a further 4-year life. Goodwill is calculated on a partial basis.

On 1 July 2018, A Ltd sold a quarter of its shareholding in B Ltd for $48 000 cash. The financial statements of A Ltd and B Ltd at this date prior to the sale were as follows:

A Ltd

B Ltd

Share capital

$

100 000

$

80 000

General reserve

20 000

10 000

Retained earnings

100 000

70 000

Liabilities

20 000

12 000

240 000

172 000

Shares in B Ltd

$

85 000

Other assets

155 000

172 000

240 000

172 000

Required

Prepare the consolidation worksheet entries at 1 July 2018 after the sale of shares by A Ltd, assuming that the sale did not result in A Ltd losing control of B Ltd.

ACCT5521 Advanced Corporate Financial Accounting Week 4 Exercises Consolidation: Changes in Ownership Interest Without/With Loss of Control Question 1 Leo et al. (2015) Practice Question 22.13 On 1 July 2017, A Ltd acquired 80% of the shares issued by B Ltd for $85 000. At this date, the shareholders' equity of B Ltd consisted of share capital of $80 000 and retained earnings of $20 000. All identifiable assets were recorded at amounts equal to fair value except for plant for which the fair value was $4000 greater than the carrying amount. The plant had a further 4-year life. Goodwill is calculated on a partial basis. On 1 July 2018, A Ltd sold a quarter of its shareholding in B Ltd for $48 000 cash. The financial statements of A Ltd and B Ltd at this date prior to the sale were as follows: A Ltd B Ltd Share capital $ 100 000 $ 80 000 General reserve 20 000 10 000 Retained earnings 100 000 70 000 Liabilities 20 000 12 000 240 000 172 000 Shares in B Ltd $ 85 000 Other assets 155 000 172 000 240 000 172 000 Required Prepare the consolidation worksheet entries at 1 July 2018 after the sale of shares by A Ltd, assuming that the sale did not result in A Ltd losing control of B Ltd. Question 2 Leo et al. (2015) Practice Question 22.14 X Ltd acquired 80% of the issued shares of Y Ltd for $700 000 on 1 July 2017 when the equity of Y Ltd consisted of $400 000 capital and $300 000 retained earnings. At this date the carrying amounts of Y Ltd's identifiable assets and liabilities were not different from fair value except for plant for which the fair value was $10 000 greater than carrying amount. The plant had a further 5-year life. On 30 June 2018, X Ltd sold all its interest in Y Ltd for $1 200 000 when the financial statements of Y Ltd showed: Sales revenue Expenses Profit Retained earnings (1/7/18) Retained earnings (30/6/19) Share capital Total equity Net assets $ 900 000 775 000 125 000 500 000 625 000 400 000 $ 1 025 000 $ 1 025 000 Required Prepare the consolidation worksheet entries for X Ltd at 30 June 2019. Question 3 Comprehensive Consolidation Question Part 1 On 1 July 20x0, A Ltd formed Z Ltd and acquired 75% of the shares of B Ltd for $125 000 while B Ltd acquired 60% of C Ltd for $80 000. The equity of the acquired companies at 1 July 20x0 was: Share capital Retained earnings Z Ltd $50 000 B Ltd $100 000 50 000 C Ltd $80 000 40 000 (a) At 1 July 20x0, all the identifiable assets and liabilities of B Ltd and C Ltd were recorded at fair value except for inventories of C Ltd which were understated by $10 000 and land of B Ltd which was understated by $15 000. The inventories were sold by 30 June 20x1 and the land was still retained by B Ltd at 30 June 20x4. (b) Part 2 On June 30 20x2 A Ltd sold its interests in Z Ltd for $100 000 when the financial statements of Z Ltd showed: Sales revenue Expenses Profit Retained earnings (1/7/x1) Retained earnings (30/6/x2) Share capital Total equity Net assets $300 000 275 000 25 000 15 000 40 000 50 000 $90 000 $90 000 (c) Part 3 (d) On 1 July 20x3, A Ltd acquired all the shares of X Ltd for $325 000 when X Ltd's reported equity was $200 000 share capital and $90 000 retained earnings. All the identifiable assets and liabilities of X Ltd were recorded at fair value except for some plant and machinery which was understated by $20 000 (reported cost was $60 000 with accumulated depreciation of $25 000). This plant and machinery was considered by A Ltd to have a four year life. (e) Part 4 (a) During 20x3/20x4 C Ltd provided management services to A Ltd and B Ltd at a total fee of $6 000. (b) During the current year, X Ltd sold a quantity of inventory to C Ltd for $8 000. The original cost of these items to X Ltd was $5 000. One-third of this inventory was still on hand at the end of the year. (c) On 31 December 20x3, A Ltd sold C Ltd office furniture for $3 000. This furniture originally cost A Ltd $3 000 and was written down to $2 100 when sold. C Ltd depreciates furniture at the rate of 10% p.a. on cost. (d) On 31 March 20x4, B Ltd transferred an item of plant with a carrying amount 2 $10 000 to X Ltd for $15 000. X Ltd treated this item as inventory. The item was still on hand at the end of the year. B Ltd applied a 20% depreciation rate to this type of plant. Required - Part 1 Prepare the BCVR, pre-acquisition and NCI entries for A Ltd's interests in B Ltd and Z Ltd and B Ltd's interests in C Ltd as at July 1 20x1. Required - Part 2 Prepare the consolidation worksheet entries for A Ltd's sale of Z Ltd as at 30 June 20x2. Required - Part 3 Prepare the BCVR and pre-acquisition entries for A Ltd's interests in X Ltd July 1 20x3. Required - Part 4 Combining the information provided above with the selected financial detail for A Ltd, B Ltd, C Ltd and X Ltd for the year ended 30 June 20x4 below, prepare the consolidation entries for the A Ltd group as at 30 June 20x4. Proceeds from sale of furn. A Ltd B Ltd C Ltd X Ltd $ $ $ $ 58 000 10 000 3 000 Proceeds from sale of plant Other income WDV of furn. sold 15 000 157 000 90 000 2 100 WDV of plant sold 10 000 Profit after tax 73 000 60 000 25 000 49 000 Retained earnings (1/7/x3) 24 000 70 000 60 000 90 000 Interim dividend paid 10 000 15 000 3 000 10 000 Final dividend declared 16 000 8 000 4 000 20 000 26 000 23 000 7 000 30 000 250 000 100 000 80 000 200 000 Div. receivable 26 000 2 400 0 0 Dividend payable 16 000 8 000 4 000 20 000 Share capital Shares in B 125 000 Shares in C Shares in X 80 000 325 000 3 Timeline: BCVR A forms Z A sells Z A buys X A controls B B controls C 1/7/x0 30/6/x1 1/7/x1 30/6/x2 30/6/x3 1/7/x3 30/6/x4 Intra-group A Ltd B Ltd C Ltd X Ltd 4 Z 100% A 100% X 75% DNCI B 25% INCI 15% 60% DNCI 40% C 5