Topic 3: Consolidation: Non-controlling interests Pepsi Ltd acquired 80% of the shares of Soda Ltd on 1 July 2015 for $115 000. At this date the equity of Soda Ltd consisted of: $ Share capital (100,000 shares) 80,000 Retained earnings 29,600 General reserve 2,400 All the identifiable assets and liabilities of Soda Ltd were recorded at amounts equal to their fair values except for: Carrying amount Fair value $ $ Inventories 25,000 28,000 Plant (cost $65,000) 52,000 56,000 Land 40,000 45,000 The plant was expected to have a further useful life of 10 years. The land was sold on 1 January 2018. The inventory was all sold by 30 June 2016. Pepsi Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2015 was $28,000. At 1 July 2015, Soda Ltd had unrecorded (internally generated) customer lists that had a fair value of $18,000. These customer lists had an indefinite life. Financial information provided by the two companies at 30 June 2018 was: Pepsi Ltd Soda Ltd $ $ Sales 252,800 176,000 Debenture interest 4,000 - Management and consultation fees 4,000 - Dividends 9,600 - Total revenue 270,400 176,000 Cost of sales 104,000 68,000 Manufacturing expenses 82,000 53,000 Depreciation on plant 12,000 12,000 Administrative expenses 12,000 6,400 Financial expenses 8,800 4,000 Other expenses 11,200 9,600 Total expenses 230,000 153,000 Profit from trading 40,400 23,000 Gains on sale of non-current assets 10,000 5,000 Profit before income tax 50,400 28,000 Income tax expense 20,000 13,600 Profit for the year 30,400 14,400 Retained earnings 1 July 2017 40,000 36,000 70,400 50,400 Dividend paid 8,000 8,000 Dividend declared 8,000 4,000 16,000 12,000 Retained earnings 30 June 2018 54,400 38,400 Share capital 240,000 80,000 General reserve 37,600 8,000 Other components of equity 10,400 8,000 Debentures 160,000 80,000 Current tax liability 20,000 13,600 Dividend payable 8,000 4,000 Deferred tax liabilities 12,000 5,600 Other current liabilities 60,000 9,600 Total equity and liabilities 602,400 247,200 Shares in Soda Ltd 115,000 - Debentures in Soda Ltd 80,000 - Plant 96,000 81,600 Accumulated depreciation - plant (52,000) (44,000) Intangibles 60,800 44,000 Accumulated amortisation - intangibles (32,000) (20,000) Deferred tax assets 58,600 24,000 Financial assets 40,000 48,000 Land 120,000 45,600 Inventories 72,000 44,000 Receivables 44,000 24,000 Total assets 602,400 247,200 Additional information Soda Ltd had inventory on hand at 30 June 2017 that included inventory at cost of $8,000 that had been sold to Soda Ltd by Pepsi Ltd. This inventory had cost Pepsi Ltd $6,000. It was all sold by Soda Ltd by 30 June 2018. During the 201718 year, Soda Ltd sold inventory to Pepsi Ltd for $48,000. At 30 June 2018, Pepsi Ltd still had some of this inventory on hand. This inventory had been sold to Pepsi Ltd by Soda Ltd at a profit of $4,000. On 1 January 2017, Soda Ltd sold plant to Pepsi Ltd for $16,000. This had a carrying amount in Soda Ltd at time of sale of $12,000. Plant of this class is depreciated at 20% p.a. Management and consultation fees derived by Pepsi Ltd are all from Soda Ltd and represent charges for administration of $1,760 and charges for technical services for the manufacturing section of $2,240. All debentures issued by Soda Ltd are held by Pepsi Ltd and interests are accounted for appropriately by both companies. Other components of equity relate to movements in the fair values of financial assets held by the entities. Gains and losses on these financial assets are recognised in other comprehensive income. The balance of the other components of equity account at 1 July 2017 was $8,000 (Pepsi Ltd) and $6,400 (Soda Ltd). Required: 1. Prepare an acquisition analysis. 2. Prepare the consolidation worksheet entries for the year ended 30 June 2018. Note: you are not required to prepare the consolidation worksheet and the consolidated financial statements. Question 1 Max. marks allocated Acquisition analysis 4 Consolidation worksheet entries 39 Total 43