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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

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.

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