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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

  1. Prepare consolidation and equity accounting entries for the year ended 31 December 20x6.

  1. Perform an analytical check of the balance in Non-controlling Interests as at 31 December 20x6, showing the workings clearly.

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