Topic 3: Consolidation: Non-controlling interests

On 1 July 2016, Peaceful Ltd acquired 80% of the shares of Serene Ltd on an ex div basis for $305,600.

All the identifiable assets and liabilities of Serene Ltd were recorded at amounts equal to their fair values except for:

	Carrying amount	Fair value
	$	$
Inventories	120,000	130,000
Machinery (cost $200,000)	160,000	165,000

At 30 June 2016, Serene Ltd had recorded a dividend payable of $10,000. The inventory on hand at 1 July 2016 was all sold by 30 November 2016. The machinery had a further 5-year life, but was sold on 1 April 2019. At acquisition date, Serene Ltd reported a contingent liability of $15,000 that Peaceful Ltd considered to have a fair value of $7,000. This liability was settled in June 2017 for $10,000. At acquisition date, Serene Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Peaceful Ltd placed a fair value on the asset of $12,000, reflecting expected benefits existing at acquisition date. The asset was considered to have a further 10-year life. On 1 January 2018, the asset met the requirements of AASB 138 Intangible Assets and subsequent expenditure by Serene Ltd on the asset was capitalised.

Peaceful Ltd uses the full goodwill method. At 1 July 2016, the fair value of the non-controlling interest was $75,000.

On 30 June 2019 the trial balances of Peaceful Ltd and Serene Ltd were as follows

	Peaceful Ltd		Serene Ltd
Debit balances	$		$
Shares in Serene Ltd	305,600
Inventories	180,000		60,000
Financial assets	229,000		215,000
Other current assets	10,000		2,000
Deferred tax assets	15,800		8,000
Plant	452,100		303,000
Land	144,200		42,000
Equipment design	-		18,000
Goodwill	20,000		22,000
Cost of sales	120,000		70,000
Other expenses	50,000		10,000
Income tax expense	35,000		40,000
Dividend paid	14,000		6,000
Dividend declared	20,000		4,000
	1,595,700		800,000
Credit balances
Share capital	800,000		330,000
Other components of equity	100,000		80,000
Other reserves	50,000		1,000
Retained earnings (1/7/18)	45,000		16,000
Transfer from other reserves	-		2,000
Sales	200,000		140,000
Other revenue	40,000		25,000
Gains/losses on sale of non-current assets	10,000		5,000
Debentures	70,000		20,000
Deferred tax liability	20,000		12,000
Other current liabilities	38,700		35,000
Dividend payable	10,000		4,000
Accumulated amortisation equipment design	-		4,000
Accumulated impairment losses goodwill	-		16,000
Accumulated depreciation - plant	212,000		110,000
	1,595,700		800,000

Additional information

1. On 1 July 2017, Serene Ltd sold an item of plant to Peaceful Ltd at a profit before tax of $4,000. Peaceful Ltd depreciates this class of plant at a rate of 10% p.a. on cost while Serene Ltd applies a rate of 20% p.a. on cost.
2. At 30 June 2018, Peaceful Ltd had on hand some items of inventory purchased from Serene Ltd in June 2018 at a profit before tax of $500. These were all sold by 30 June 2019.
3. During the financial year ending 30 June 2019, Peaceful Ltd recorded a sales of inventory to Serene Ltd at $12,000, after adding a mark-up of 20% on cost. $3,000 of this inventory remains unsold by 30 June 2019.
4. The other components of equity relate to financial assets. These assets are measured at fair value with movements in fair value being recognised in other comprehensive income.
5. The parent and the subsidiary are considered to be separate cash generating units. Management have analysed the impairment indicators on an annual basis and conducted an impairment test on the subsidiary cash generating unit in the financial year ending 30 June 2018, which resulted in the writing down of goodwill in the records of the subsidiary by $4,000. There have been no other business combinations involving these entities since 1 July 2016.
6. The tax rate is 30%.
7. Extracts from the statement of changes in equity for Serene Ltd were as follows: