Question 2

Parent Ltd acquired equity in Sub Ltd on 1 April 2009. At that date, the identifiable net assets were considered to be fairly valued and the equity of Sub Ltd comprised:

Share capital	$700 000
Asset revaluation surplus	45 000
Retained earnings	278 000
	$1 023 000

Parent Ltd has requested your help in the preparation of their consolidated financial statements for the financial year ended 31 March 2019 and has provided you with the following information:

• During March 2018 Sub Ltd made sales to Parent Ltd of $8 000 and recognised a profit of $4 200. Parent Ltd sold this purchase of inventory to Robert Ltd during May 2018.

• During March 2019 Sub Ltd made sales to Parent Ltd of $ 8 500. The inventory sold has cost Sub Ltd $5 400. At 31 March 2019, the inventory Parent Ltd had on hand included this purchase from Sub Ltd.

• Parent Ltd borrowed $60 000 from Sub Ltd during November 2017. Interest of $1 200 is outstanding on this loan as at 31 March 2019. The total interest for the financial year ended 31 March 2019 was $1 500.

• In 2011 the total goodwill of Sub Ltd was considered by the directors to be impaired by $ 15 000 and impaired again in 2016 by $ 72 600. The directors of Parent Ltd believe that the total goodwill has been further impaired by $63 000 during this financial year ended 31 March 2019.

• During March 2018 Parent Ltd made sales to Sub Ltd of $3 200 and recognised a profit of $1 600. Sub Ltd sold this inventory to Alex Ltd on 31 March 2018.

• During March 2019 Parent Ltd made sales to Sub Ltd of $4 860. The inventory sold has cost Parent Ltd $2 000. The inventory of Sub Ltd at 31 March 2019 included this purchase.

• At 31 March 2019 Sub Ltd declared a final dividend of $120 000 and Parent Ltd declared a final dividend of $75 000. Both these dividends were paid during April 2019.

• Parent Ltd rents a small office to Sub Ltd at a cost of $26 000 per annum. At 31 March 2019, Sub Ltd still owed Parent Ltd $5 000 of rental for the year ended 31 March 2019.

Question 2 continued:

Required:

Assume Parent Ltd acquired 100% of the equity in Sub Ltd for $1 500 000 on

1 April 2009. Complete the consolidation worksheet, in the answer booklet, for Parent Ltd for the financial year ended 31 March 2019 in accordance with NZ IFRS 10 Consolidated Financial Statements and NZ IFRS 3 Business Combinations.

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As at the date of acquisition: At book value: At fair value: Land and building $2 080 000 $3 000 000 Land 2 500 000 4 200 000 Equipment 1 998 000 2 200 000 Other assets 3 900 000 3 900 000 Liabilities (1 958 000) (1 958 000) Intangible assets 890 000 8 520 000 12 232 000 Contingent liabilities (340 000) Net assets $8 520 000 $11 892 000 Notional Jounral Entries Share Capital Dr 8,000,000 Retained Earnings Dr 520,000 6,816,000 To Investment in Sub Ltd (80%) To Non Controlling Interest (20%) 1,704,000 (Shares capital and retained earnings trfd.) Land and Building Dr 920,000 Land Dr 1700,000 Equipment Dr 202,000 Intangible Assets Dr 890,000 Goodwill Dr (Balancing Figure) 5,108,000 To Liability 340,000 To Investment in Sub Ltd (13600,000-6816,000) 6,784,000 To Non Controlling Interest (3400,000-1704,000) 1696,000 (Assets recorded at the fair value, liabilities recognised and balance of good will recognised under full Goodwill method) Considerarion at Fair Value (13,600,000*100/80) 17,000,000 Less: FV of INA acquired 11,892,000 Goodwill 5,108,000 Question 2 Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Income statement/dividend items: S $ S Dr S Cr S Income 2 450 000 2 400 000 (includes all types of income) Less expenses 1 633 000 1 600 000 (including COGS) Profit before tax 817 000 800 000 Less income tax expense 280 780 261 000 Profit after tax 536 220 539 000 Retained earnings - opening bal 580 000 300 000 Less: dividends declared 200 000 180 000 Balance Sheet items: Retained earnings - closing bal 916 220 659 000 Asset revaluation surplus 134 900 70 000 Share capital 600 000 700 000 Total equity $1 651 120 $1 429 000 Question 2 continued on next page... Question 2 continued: The Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2019 Parent Ltd Sub Ltd Notional Journal Entries Group Balance Sheet items continued: S $ S Dr SCH S Bank overdraft 2 300 Dividend payable 75 000 120 000 Loan payable to Sub Ltd 60 000 Interest payable to Sub Ltd 1 200 2 352 380 598 900 Various liabilities Rent payable to Parent Ltd 5 000 Total liabilities 2 490 880 723 900 Total equity and liabilities $4 142 000 $2 152 900 Cash 6 700 Inventory 174 000 140 000 Interest receivable from Parent Ltd 1 200 Loan receivable from Parent Ltd 60 000 Dividend income receivable 120 000 Rent receivable from Sub Ltd 5 000 Various assets 638 000 945 000 PPE (net) 1 705 000 1 000 000 Investment in Sub Ltd 1 500 000 Goodwill Total assets $4 142 000 $2 152 900