Question
Question 1 P Co obtained control through acquiring ownership interest of 90% in X Co on 1 January 20x3. Shareholders' equity of X Co at
Question 1
P Co obtained control through acquiring ownership interest of 90% in X Co on 1 January 20x3.
Shareholders' equity of X Co at date of acquisition was as follows: | |||||
Share capital | $400,000 | ||||
Retained earnings | 800,000 | ||||
$1,200,000 | |||||
On acquisition date, the fair value of fixed assets of X Co was $950,000 while the book value of fixed assets was $800,000. Fixed assets had a useful life of eight years as at the date of acquisition. The fixed assets were disposed at a price of $250,000 to third parties on 1 January 20x6.
Fair value of non-controlling interests of X Co as at acquisition date was $360,000. The financial statements for the year ended 31 December 20x6 are shown below.
Income Statement and partial Statement of Changes in Equity for year ended 31 December 20x6 | |||||
P Co | X Co | ||||
Profit before tax | 6,200,000 | 1,600,000 | |||
Tax | (1,240,000) | (320,000) | |||
Profit after tax | 4,960,000 | 1,280,000 | |||
Dividends declared | (500,000) | (80,000) | |||
Profit retained | 4,460,000 | 1,200,000 | |||
Retained earnings, 1 Jan 20x6 | 1,100,000 | 600,000 | |||
Retained earnings, 31 Dec 20x6 | 5,560,000 | 1,800,000 | |||
Statement of Financial Position as at 31 December 20x6 | P Co | X Co | |||
Fixed assets, net book value | 4,540,000 | 1,910,000 | |||
Investment in X, at cost | 2,300,000 | ||||
Inventory | 800,000 | 290,000 | |||
Accounts receivable | 300,000 | 210,000 | |||
Cash | 80,000 | 70,000 | |||
Total assets | 8,020,000 | 2,480,000 | |||
Accounts payable | 1,160,000 | 280,000 | |||
Share capital | 1,300,000 | 400,000 | |||
Retained earnings | 5,560,000 | 1,800,000 | |||
Equity and Liabilities | 8,020,000 | 2,480,000 |
Assume a tax rate of 20%. Recognize tax on fair value adjustments.
Required
- Prepare consolidation and equity accounting entries for the year ended 31 December 20x6.
- Perform an analytical check of the balance in Non-controlling Interests as at 31 December 20x6, showing the workings clearly.
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