Question:

Assume that Company A acquires 70 per cent of Company B for a cash price of $14 million when the share capital and reserves of Company B are:

Share capital	$8 million
Retained earnings	$2 million
	$10 million

1. What amount of goodwill will be shown in the consolidated statement of financial position pursuant to AASB 3 assuming that any non-controlling interest in the acquirer is measured at fair value? (1 marks)

2. What amount of goodwill will be shown in the consolidated statement of financial position pursuant to AASB 3 assuming that any non-controlling interest in the acquirer is measured at the non-controlling interests proportionate share of the acquirees identifiable net assets? (1 marks)

3. Pass the necessary consolidation journal entries and the journal entries to record the non-controlling interest if the non-controlling interest in the acquirer is measured at the non-controlling interests proportionate share of the acquirees identifiable net assets. (4 marks)

4. What are some of the implications of allowing the group to have two options in accounting for goodwill on consolidation? (1 marks)
5. Solution for 1 and 2
6. A)

7. Share capital and retained earns (total purchase consideration is transferred to both companies A and B only

   Goodwill = (non-controlling interest) /(interest of the parent) x purchase consideration

   = 30/70 x 14,000,000 = 6,000,000

   For share capital:

   8,000,000 in full goes to company B while.

   Company A

   8,000,000 x 70% = 5,600,000

   Non-controlling interest

   8,000,000 x 30% = 2,400,000

   For retained earnings:

   Company B gets $2,000,000 in full

   Company A get 2,000,000 x 70% = 1,400,000

   The non-controlling interest: 2,000,000 x 30% = 600,000

   Goodwill:

   Company B gets 6,000,000

   Company A get 6,000,000 x 70% =4,200,000 (rounded up)

   While the non-controlling interest 30%, which is 6,000,000 x 30% = 1,800,000

8. B)

9. Share capital:

   Company A

   8,000,000 x 100% = 8,000,000

   Company B

   8,000,000 x70% = 5,600,000

   Non-controlling interest:

   8,000,000 x 30% = $2,400,000

   Retained earnings:

   Company A

   2,000,000 x 100% = 2,000,000

   Company B:

   2,000,000 70% = 1,400,000

   Non-controlling interest:

   2,000,000 30% = 600,000

   Goodwill goes to Company A, the buyer of B

   Goodwill is now measured by (14,000,000 -5,600,000 1,400,000 = 7,000,000)

   The difference between the purchase consideration (fair value) shares and retained earnings = goodwill

   Non-controlling interest gets a total of

   = 2,400,000 + 600,000

   = 3,000,000

10. Please attempt Part C