QUESTION 3

The following financial information of Sub Ltd and Parent Ltd has been extracted from their respective financial records for the year ended 31 March 2022:

	Parent Ltd	Sub Ltd
Sales	$1 531 000	$780 000
Less: Cost of goods sold	648 000	324 000
Gross profit	883 000	456 000
Dividend income	16 000	-
Consulting fee income	-	17 000
Less: Expenses	703 000	358 000
Profit before taxation	196 000	115 000
Less: Income tax expense	78 400	39 200
Profit after taxation	117 600	75 800
Retained profits opening	590 000	290 000
Less: Dividends declared	50 000	20 000
Balance Sheet items:
Retained profits closing	657 600	345 800
Share capital	370 000	180 000
Asset revaluation surplus	152 000	90 000
Dividend payable	39 000	14 000
Consulting fee payable	17 000	-
Various non-current liabilities	404 000	190 200
Total equity and liabilities	$1 639 600	$820 000
Dividend receivable	11 200	-
Inventory	82 000	36 000
Consulting fee receivable	-	17 000
Various assets	1 246 400	767 000
Investment in Sub Ltd	300 000	-
Total assets	$1 639 600	$820 000

Required: (Answer the question in the format attached below)

On 1 April 2004, Parent Ltd acquired 80% of the equity of Sub Ltd and paid a cash sum of $300 000 for the acquisition. The identifiable net assets were considered to be fairly valued at the date of acquisition.

At the date of acquisition, the equity of Sub Ltd comprised the following:

Share capital $180 000

Retained earnings 60 000

Asset revaluation surplus 80 000

Additional information:

(i) During March 2022, Sub Ltd had made sales to Parent Ltd of $9 000. The inventory sold

had cost Sub Ltd $6 500. Inventory of Parent Ltd, held at 31 March 2022, did not include this

purchase from Sub Ltd.

(ii) During March 2021, Parent Ltd had made sales to Sub Ltd amounting to $7 000. The

inventory sold had cost Parent Ltd $5 000. Inventory of Sub Ltd, held at 31 March 2021,

included the inventory purchased from Parent Ltd.

(iii) During the year ended 31 March 2022, Sub Ltd provided consulting services to Parent

Ltd. The consulting fee invoice of $17 000 had not been paid by Parent Ltd at year end.

(iv) Parent Ltd measures the non-controlling interest (NCI) at the NCIs proportionate share of the Sub Ltds identifiable net assets.

(v) The goodwill, recognised on consolidation, was impaired by $1 000 in 2008, by $890 in 2014, and by $700 in the year ended 31 March 2022.

Required:

(a) Prepare the Group Statement of Financial Position (SFP) as at 31 March 2022.

You are required to provide all your workings, i.e., the notional journal entries required by NZ IFRS 3 Business Combinations and NZ IFRS 10 Consolidated Financial Statements to consolidate the financial statements of Parent Ltd and Sub Ltd for the year ended 31 March 2022, and your completed consolidation worksheet.

(b) Prove your SFP Group Goodwill amount [as per (a) above] by preparing an acquisition analysis and adjusting for impairment.

(c) Prepare the notional journal entry to recognise the NCI, but assume in (c) that Parent Ltd measures the NCI at fair value.

(d) Explain why you did not include the Parent Ltds asset Investment in Sub Ltd in your

Group SFP.

(vi) Intergroup sales and purchases of inventory: (vii) Other intergroup transactions : \begin{tabular}{|l|l|} \hline (b) Prove your SFP Group Goodwill amount [as per (a) above] by preparing an \\ acquisition analysis and adjusting for impairment. \\ \hline Acquisition analysis: & \\ \hline & \\ \hline & \\ \hline & \\ \hline Adjustment for GW impairment: & \\ \hline Goodwill in the Group SFP & $ \\ \hline \end{tabular} (c) Prepare the notional journal entry to recognise the NCI, but assume Parent Ltd measures the NCI at fair value. \begin{tabular}{|l|l|l|l} \hline & \$ Dr & & $Cr \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline \end{tabular} (vi) Intergroup sales and purchases of inventory: (vii) Other intergroup transactions : \begin{tabular}{|l|l|} \hline (b) Prove your SFP Group Goodwill amount [as per (a) above] by preparing an \\ acquisition analysis and adjusting for impairment. \\ \hline Acquisition analysis: & \\ \hline & \\ \hline & \\ \hline & \\ \hline Adjustment for GW impairment: & \\ \hline Goodwill in the Group SFP & $ \\ \hline \end{tabular} (c) Prepare the notional journal entry to recognise the NCI, but assume Parent Ltd measures the NCI at fair value. \begin{tabular}{|l|l|l|l} \hline & \$ Dr & & $Cr \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline \end{tabular}