Question 1

On 1 January 2009, Hornet plc acquired 30% of equity shares of Alton plc for $ 2 M. The fair value of net assets of Alton at this date was $6. Alton earned a profit of $ 2 M for year ended 31/12/2009 and paid $ 1 dividend. On 1 January 2010, Hornet acquired an additional 60% in Alton for a further cash payment of $ 6 M. The fair value of identifiable net assets of Alton at 1 January 2010 was $ 8M. The full goodwill method is used.

Use the above to answer the following

Solve the question in details as we took in class and then answer the questions

1.What is the carrying value for the investment in associate (Alton) on 31 December 2009?

2.What is the FV of the previously held 30% interest in Alton on 1 January 2010?

3.What is the gain/loss on re-measuring the previously held 30% interest in Alton on 1 January 2010?

4.What is the goodwill recognized on the date Hornet gained control over Alton?

Question 2

Hornet plc acquired 60% of the equity share capital of Alton on 1 January 2009 for a cash consideration of $ 4.5 M. The fair value of net assets of Alton at this date was $6 and full goodwill method is used. During 2009 until 31 December 2009 Alton made a net income of $2. On 1 January 2010, Hornet acquired an additional 30% of equity of Alton for $ 2M. On 1 January 2010, identifiable net assets of Alton were included in the consolidated statement of financial position at $ 8M.

Use the above to answer the following

1.What is the goodwill recognized on 1 January 2009?

2.What is the worksheet journal entry to record the effect of the 30% additional purchase of shares on 1 January 2010?

3.What is the value of goodwill following the purchase of the additional 30% shares on 1 January 2010?

4.What is the amount of gain or loss recognized following the purchase of the additional 30% shares on 1 January 2010 and why?

Question 3

Pare plc acquired 75% of the shares of Banan plc for $ 90,000 cash on 1 January 2010. At that date, the fair value of net assets of Banan plc was $80,000. Banan plc had a profit of $60,000 for the year ends 31 December 2010. Assume that Pare sells its entire 75%% stake in Banan plc for 130,000 on 31 December 2010.

1.What is the worksheet Journal Entry for the group that should be recorded upon the sale of the entire 75% stake in Banan on 31 December 2010?

2.What is the journal Entry that the Parent Company Pare should record upon the sale of the entire 75% stake in Banan on 31 December 2010?