question 21.15 full goodwill method, consolidated...

Question 21.15 Full goodwill method, consolidated financial statements On 1 July 2014, Mudlark Ltd acquired 80% of the shares of Peewee Ltd on an ex div basis for $305 600. At this date, all the identifiable assets and liabilities of Peewee Ltd were recorded at amounts equal to fair value except for: Carrying amount Fair value Inventory $120 000 $130 000

Machinery (cost $200 000) 160 000 165 000 At 30 June 2014, Peewee Ltd had recorded a dividend payable of $10 000. The inventory on hand at 1 July 2014 was all sold by 30 November 2014. The machinery had a further 5-year life, but was sold on 1 April 2017. At acquisition date, Peewee Ltd reported a contingent liability of $15 000 that Mudlark Ltd considered to have a fair value of $7000. This liability was settled in June 2015 for $10 000. At acquisition date, Peewee Ltd had not recorded an asset relating to equipment design as the asset was still in the research phase. Mudlark 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 2016, the asset met the requirements of IAS 38 Intangible Assets and subsequent expenditure by Peewee Ltd on the asset was capitalised. Mudlark Ltd uses the full goodwill method. At 1 July 2014, the fair value of the non-controlling interest was $75 000. Additional information (a) On 1 July 2015, Peewee Ltd sold an item of plant to Mudlark Ltd at a profit before tax of

$4000. Mudlark Ltd depreciates this class of plant at a rate of 10% p.a. on cost while Peewee Ltd applies a rate of 20% p.a. on cost.

(b) At 30 June 2016, Mudlark Ltd had on hand some items of inventory purchased from Peewee Ltd in June 2015 at a profit before tax of $500. These were all sold by 30 June 2017.

(c) During the 2016–17 period Mudlark Ltd sold $12 000 inventory to Peewee Ltd at a mark-up of 20% on cost. $3000 of this inventory remains unsold by 30 June 2017.

(d) 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.

(e) 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 2015–16 year, which resulted in the writing down of goodwill in the records of the subsidiary by $4000. There have been no other business combinations involving these entities since 1 July 2014.

(f) The tax rate is 30%. (g) Shareholder approval is not required in relation to dividends. (h) On 30 June 2017 the trial balances of Mudlark Ltd and Peewee Ltd were as follows: Debit balances Mudlark

Ltd Peewee Ltd

Shares in Peewee Ltd $305 600 — Inventory 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

Chapter 22: Consolidation: other issues

© John Wiley and Sons Australia, Ltd 2015 22.1

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 (1/7/16) 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 (i) Extracts from the statement of changes in equity for Peewee Ltd were as follows: 2014–15 2015–16 2016–17 Retained earnings (opening balance) $20 000 $19 000 $16 000

Profit for the year 20 000 20 000 50 000Dividends paid (3 000) (6 000) (6 000)

Dividends declared (15 000) (17 000) (4 000)Transfers to/from other reserves* (3 000) — 2 000

Retained earnings (closing balance) $19 000 $16 000 $58 000Other reserves (opening balance) $30 000 $33 000 $33 000

Transfers to/from retained earnings* 3 000 — (2 000)Bonus issue* — — (30 000)

Other reserves (closing balance) $33 000 $33 000 $1 000Other components of equity (op. bal.) $10 000 $42 000 $72 000

Movements in fair value 32 000 30 000 8 000Other components of equity (cl. bal.) $42 000 $72 000 $80 000

Share capital (opening balance) $300 000 $300 000 $300 000Bonus issue* — — 30 000

Share capital (closing balance) $300 000 $300 000 $330 000* These items were from equity earned prior to 1 July 2014. Required Prepare the consolidated financial statements of Mudlark Ltd at 30 June 2017.



At 1 July 2014: Peewee Ltd: Goodwill $22 000 Accum. impairment losses ($16 000 - $4 000) 12 000 10 000 Net fair value of identifiable assets, liabilities and contingent liabilities of Peewee Ltd = $300 000 + $30 000 + $10 000 + $20 000 + $10 000 (1 – 30%) (BCVR – inventory) + $5 000 (1 – 30%) (BCVR – machine) - $7 000 (1 – 30%) (BCVR – provision) + $12 000 (1 – 30%) (BCVR – equip. design) - $10 000 (goodwill) = $364 000 (a) Consideration transferred = $305 600 (b) Non-controlling interest = $75 000 Aggregate of (a) and (b) = $380 600 Goodwill = $16 600 Goodwill of Peewee Ltd: Fair value of Peewee Ltd = $75 000/20% = $375 000 Net fair value of identifiable assets and liabilities of Peewee Ltd = $364 000 Goodwill of Peewee Ltd = $11 000 Recorded goodwill = $10 000 Unrecorded goodwill = $1 000 Goodwill of Mudlark Ltd: Goodwill acquired = $16 600 Goodwill of Peewee Ltd = $11 000 Goodwill of Mudlark Ltd – control premium = $5 600 CONSOLIDATION WORKSHEET ENTRIES 1. Business combination entries Equipment design Dr 12 000 Deferred tax liability Cr 3 600 Business combination valuation reserve Cr 8 400 Amortisation expense Dr 1 200 Retained earnings (1/7/16) Dr 2 400 Accumulated amortisation Cr 3 600 (1/10 x $12 000 p.a. for 3 years) Deferred tax liability Dr 1 080 Income tax expense Cr 360 Retained earnings (1/7/16) Cr 720



Depreciation expense Dr 750 Gain on sale of machinery Dr 2 250 Income tax expense Cr 900 Retained earnings (1/7/16) Dr 1 400 Transfer from business combination valuation reserve Cr 3 500 (Depreciation is 1/5 x $5 000 p.a.) Accumulated impairment losses – goodwill Dr 12 000 Goodwill Cr 12 000 Goodwill Dr 1 000 Business combination valuation reserve Cr 1 000 2. Pre-acquisition entries At 1 July 2014: Retained earnings (1/7/14) Dr 16 000 Share capital Dr 240 000 Other reserves (1/7/14) Dr 24 000 Other components of equity (1/7/14) Dr 8 000 Business combination valuation reserve Dr 12 000 Goodwill Dr 5 600 Shares in Peewee Ltd Cr 305 600 At 30 June 2017: Retained earnings (1/7/16) Dr 15 280 Share capital Dr 240 000 Other reserves (1/7/16) Dr 26 400 Other components of equity (1/7/16) Dr 8 000 Business combination valuation reserve Dr 10 320 Goodwill Dr 5 600 Shares in Peewee Ltd Cr 305 600 RE: 80%[$20 000 + $7 000 (BCVR – inv) - $4 900 (BCVR –prov) - $3 000 (transfer to other reserves)] Other reserves: 80% ($30 000 + $3 000) BCVR: 80%($3 500 + $8 400 + $1 000) Share capital Dr 24 000 Other reserves: bonus issue Cr 24 000 (Bonus issue: 80% x $30 000) Transfer from other reserves [RE] Dr 1 600 Transfer to retained earnings [OR] Cr 1 600 (80% x $2 000)



Transfer from business combination valuation reserve Dr 2 800 Business combination valuation reserve Cr 2 800 (80% x $3500) 3. NCI share of equity at acquisition date 1/7/14 Retained earnings (1/7/16) Dr 4 000 Share capital Dr 60 000 Other reserves (1/7/09) Dr 6 000 Other components of equity (1/7/16) Dr 2 000 Business combination valuation reserve * Dr 3 000 NCI Cr 75 000 (20% of balances) * 20% x ($7 000 inv + $3 500 mach - $4 900 liab. + $8 400 eq design + $1000 g’will) 4. NCI share of changes in equity from 1/7/14 to 30/6/16 Other reserves (1/7/16) Dr 600 Other components of equity (1/7/16) Dr 12 400 Retained earnings (1/7/16) Cr 1 416 Business combination valuation reserve Cr 420 NCI Cr 11 164 RE: 20% [$16 000 - $20 000 - $1 400 – ($2 400 - $720)] BCVR: 20% ($7 000 - $4 900) Other reserves: 20% ($33 000 - $30 000) Other components: 20% ($72 000 - $10 000) 5. NCI share of changes in equity from 1/7/16 to 30/6/17 NCI share of profit Dr 9 412 NCI Cr 9 412 (20% [$50 000 – ($1 200 - $360) – ($750 + $2 250 - $900)] NCI Dr 1 200 Dividend paid Cr 1 200 (20% x $6 000) NCI Dr 800 Dividend declared Cr 800 (20% x $4 000) Transfer from other reserves [RE] Dr 400 Transfer to retained earnings [OR] Cr 400 (20% x $2 000) Share capital Dr 6 000 Other reserves: bonus issue Cr 6 000 (20% x $30 000)



Movements in fair value [OCE] Dr 1 600 NCI Cr 1 600 (20% x $8 000) Transfer from business combination valuation reserve Dr 700 Business combination valuation reserve Cr 700 (20% x $3 500) 6. Dividend paid Dividend revenue Dr 4 800 Dividend paid Cr 4 800 (80% x $6 000) 7. Dividend declared Dividend revenue Dr 3 200 Dividend declared Cr 3 200 (80% x $4 000) Dividend payable Dr 3 200 Dividend receivable Cr 3 200 8. Sale of plant: Peewee Ltd to Mudlark Ltd Retained earnings (1/7/16) Dr 2 800 Deferred tax asset Dr 1 200 Plant Cr 4 000 9. NCI effect NCI Dr 560 Retained earnings (1/7/16) Cr 560 (20% x $2 800 10. Depreciation Accumulated depreciation Dr 800 Retained earnings (1/7/16) Cr 400 Depreciation expense Cr 400 (10% x $4 000 p.a.) Income tax expense Dr 120 Retained earnings (1/7/16) Dr 120 Deferred tax asset Cr 240 11. NCI effect NCI share of profit Dr 56 Retained earnings (1/7/16) Dr 56 NCI Cr 112



12. Profit in opening inventory Retained earnings (1/7/16) Dr 350 Income tax expense Dr 150 Cost of sales Cr 500 13 NCI effect NCI share of profit Dr 70 Retained earnings (1/7/16) Cr 70 14. Sales of inventory: current period Mudlark Ltd to Peewee Ltd Sales Dr 12 000 Cost of sales Cr 11 500 Inventory Cr 500 Deferred tax asset Dr 150 Income tax expense Cr 150



QUESTION 21.15 (cont’d) Financial Statements

Mudlark Ltd

Peewee Ltd

Group NCI Parent Dr Cr

Sales revenue 200 000 140 000 14 12 000 328 000 Other revenue 40 000 25 000 6

7 4 800 3 200

57 000

240 000 165 000 385 000 Cost of sales 120 000 70 000 500

11 50012 14

178 000

Other expenses 50 000 10 000 1 1

1 200 750

400 10 61 550

170 000 80 000 239 550 Trading profit 70 000 85 000 145 450 Gains on non-current assets

10 000 5 000 1 2 250 12 750

Profit before tax

80 000 90 000 158 200

Tax expense 35 000 40 000 10 12

120 150

360 900 150

1 1

14

73 860

Profit 45 000 50 000 84 340 5 11 13

9 412 56 70

74 802

Ret. earnings (1/7/16)

45 000 16 000 1 1 2 8

10 12

2 400 1 400

15 280 2 800

120 350

720 400

1 10

39 770 3 11

4 000 56

1 416 560

70

4 9

13

37 760

Transfer from BCVR

0 0 2 2 800 3 500 1 700 5 700 0

Transfer from other reserves

0 2 000 2 1 600 400 5 400 0

90 000 68 000 125 210 112 562Dividend paid 14 000 6 000 4 800 6 15 200 1 200 5 14 000Div. declared 20 000 4 000 3 200 7 20 800 800 5 20 000

34 000 10 000 36 000 34 000Ret. earnings

(30/6/17) 56 000 58 000 89 210 78 562

Share capital 800 000 330 000 2 2

240 000 24 000

866 000 3 60 000 6 000

800 000

BCVR 0 0 2 10 320 8 400 1 000 2 800

1 1 2

1 880 3 3 000 420 700

4 5

0

856 000 388 000 957 090 878 562Other reserves

(1/7/16) 35 000 33 000 2 26 400 41 600 3

4 6 000

600 35 000

Transfer to/from RE

15 000 (2 000) 1 600 2 14 600 400 5 15 000

Bonus issue 0 (30 000) 24 000 2 (6 000) 6 000 0Other reserves

(30/6/17) 50 000 1 000 50 200 50 000



OCE (1/7/16) 90 000 72 000 2 8 000 154 000 3 4

2 000 12 400

139 600

Movements 10 000 8 000 18 000 5 1 600 16 400OCE (30/6/17) 100 000 80 000 172 000 156 000Total equity:

parent 1 084 562

Total equity: NCI

5 5 9

1 200 800 560

75 000 11 164

9 412 1 600

112

3 4 5 5

11

94 728

Total equity 1006000 469 000 1179290 108 854 108 854 1 179 290

Dividend payable

10 000 4 000 7 3 200 10 800

Other current 38 700 35 000 73 700 Deferred tax

liabilities 20 000 12 000 1 1 080 3 600 1 34 520

Debentures 70 000 20 000 90 000 Total liabilities 138 700 71 000 209 020

Total equity and liabilities

1144700 540 000 1388310

Shares in

Peewee Ltd 305 600 0 305 600 2 0

Plant 452 100 303 000 4 000 8 751 100 Accumulated depreciation

(212 000)(110 000) 10 800 (321 200)

Equipment design

0 18 000 1 12 000 30 000

Accumulated amortisation

0 (4 000) 3 600 1 (7 600)

Land 144 200 42 000 186 200 Deferred tax

assets 15 800 8 000 8

14 1 200

150 240 10 24 910

Inventory 180 000 60 000 500 14 239 500 Financial assets 229 000 215 000 444 000

Receivables 10 000 2 000 3 200 7 8 800 Goodwill 20 000 22 000 1

2 1 000 5 600

12 000 1 36 600

Accumulated impairment

losses

0 (16 000) 1 12 000 (4 000)

Total assets 1144700 540 000 396 970 396 970 1388310



MUDLARK LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the financial year ended 30 June 2017 Revenue: Sales $328 000 Other 57 000 Total revenue 385 000 Expenses: Cost of sales 178 000 Other 61 550 239 550 Profit from trading 145 450 Gains from sale of non-current assets 12 750 Profit before tax 158 200 Income tax expense 73 860 Profit for the period $84 340 Other comprehensive income: Movements in fair value of financial assets 18 000 Comprehensive income for the period $102 340 Profit for the period attributable to: Parent entity interest $74 802 Non-controlling interest $9 538 Comprehensive income for the period attributable to: Parent interest $91 202 Non-controlling interest $11 138



MUDLARK LTD Consolidated Statement of Changes in Equity

for the financial year ended 30 June 2017 Group Parent Comprehensive income for the period $102 340 $91 202 Retained earnings: Balance at 1 July 2016 $39 770 $37 760 Profit for the period 84 340 74 802 Transfer from BCVR 700 0 Transfer from other reserves 400 0 Dividend paid (15 200) (14 000) Dividend declared (20 800) (20 000) Balance at 30 June 2017 $89 210 $78 562 Other reserves: Balance at 1 July 2016 $41 600 $35 000 Transfers to/from retained earnings 14 600 15 000 Bonus issue of shares (6 000) ____0 Balance at 30 June 2017 $50 200 $50 000 Business combination valuation reserve Balance at 1 July 2016 $2 550 0 Balance at 30 June 2017 $1 880 0 Other components of equity: Balance at 1 July 2016 $154 000 $139 600 Gains/Losses 18 000 $16 400 Balance at 30 June 2017 $172 000 $156 000



MUDLARK LTD Consolidated Statement of Financial Position

as at 30 June 2017 Current Assets Inventories $239 500 Receivables 8 800 Financial assets 444 000 692 300 Non-current Assets Property, plant and equipment Plant 751 100 Accumulated depreciation (321 200) Equipment design 30 000 Accumulated amortisation (7 600) Land 186 200 Tax assets: Deferred tax asset 24 910 Goodwill 36 600 Accumulated impairment losses (4 000) Total Non-current Assets 696 010 Total Assets $1 388 310 Equity and liabilities Equity attributable to equity holders of the parent Share capital $800 000 Reserves: Other reserves 50 000 Other components of equity 156 000 Retained earnings 78 562 Parent Entity Interest 1 084 562 Non-controlling Interest 94 728 Total Equity 1 179 290 Current Liabilities Payables: Dividend payable 10 800 Other 73 700 Total Current Liabilities 84 500 Non-current Liabilities Interest-bearing liabilities: Debentures 90 000 Tax liabilities: Deferred tax liability 34 520 Total Non-current Liabilities 124 520 Total Liabilities 209 020 Total Equity and Liabilities $1 388 310



Question 22.5 Consolidation worksheet, consolidated statement of profit or loss and other comprehensive income Pakistan Ltd acquired 75% of the shares of Peru Ltd on 1 July 2013 for $1 900 000. The identifiable assets and liabilities of Peru Ltd at fair value on the acquisition date were represented by:

Share capital General reserve Retained earnings

$

$

500 000800 000

1 200 0002 500 000

On the same date, Peru Ltd acquired 60% of Philippines Ltd for $1 100 000. The identifiable assets and liabilities of Philippines Ltd at the acquisition date at fair value were represented by:

Share capital General reserve Retained earnings

$

$

660 000500 000

500 0001 660 000

The financial information provided by the three companies for the year ended 30 June 2018 is

shown below. The following additional information was obtained:

(a) All transfers to general reserve were from post-acquisition profits. (b) Included in the plant and machinery of Philippines Ltd was a machine sold by Peru Ltd on

30 June 2015 for $75 000. The asset had originally cost $130 000 and it had been written down to $60 000. Philippines Ltd had depreciated the machine on a straight-line basis over 5 years, with no residual value.

(c) Philippines Ltd had transferred one of its motor vehicles (carrying amount of $15 000) to Pakistan Ltd on 31 March 2017 for $12 000. Pakistan Ltd regarded this vehicle as part of its inventory. The vehicle was sold by Pakistan Ltd on 31 July 2017 for $17 000.

(d) The tax rate is 30%. Pakistan Ltd Peru Ltd Philippines Ltd Sales revenue

Other revenue Total revenues Cost of sales Other expenses Total expenses Profit before income tax Income tax expense Profit Retained earnings (1/7/17) Total available for appropriation Dividend paid Dividend declared Transfer to general reserve Retained earnings (30/6/18)

$

$

2 850 000 420 0003 270 0001 410 000 200 0001 610 0001 660 000 580 0001 080 0004 070 0005 150 000

400 000400 000

100 000 900 0004 250 000

$

$

1 100 000 200 0001 300 000

520 000 80 000 600 000

700 000 160 000

540 0002 300 0002 840 000

160 000200 000

50 000 410 0002 430 000

$

$

880 000 60 000 940 000

380 000 110 000 490 000

450 000 140 000

310 0001 120 0001 430 000

80 00090 000

40 000 210 0001 220 000

Required Prepare the consolidated statement of profit or loss and other comprehensive income and statement of changes in equity (not including movements in the general reserve and share capital) for the group for the year ended 30 June 2018.



75% 60% Pakistan Ltd Peru Ltd Philippines Ltd Pakistan Ltd 75% Pakistan Ltd 45% DNCI 25% DNCI 40% INCI 15% Pre-acquisition analysis: Pakistan Ltd – Peru Ltd At 1 July 2013: Net fair value of identifiable assets and liabilities of Peru Ltd = $500 000 + $800 000 + $1 200 000 (equity) = $2 500 000

(a) Consideration transferred = $1 900 000 (b) Non-controlling interest = 25% x $2 500 000

= $625 000 Aggregate of (a) and (b) = $2 525 000 Goodwill = $25 000

1. Pre-acquisition entry Pakistan Ltd – Peru Ltd At 30 June 2018: Retained earnings (1/7/17)* Dr 900 000 Share capital Dr 375 000 General reserve Dr 600 000 Goodwill Dr 25 000 Shares in Peru Ltd Cr 1 900 000 * (75% x $1 200 000) 2. DNCI share of equity of Peru Ltd at 1/7/13 Retained earnings (1/7/17) Dr 300 000 Share capital Dr 125 000 General reserve Dr 200 000 NCI Cr 625 000 (25% of balances) 3. DNCI share of equity of Peru Ltd: 1/7/13 – 30/6/17 Retained earnings (1/7/17) Dr 275 000 NCI Cr 275 000 (25% ($2 300 000 - $1 200 000))



4. DNCI share of equity of Peru Ltd: 1/7/17 – 30/6/18 NCI share of profit Dr 135 000 NCI Cr 135 000 (25% x $540 000) General reserve Dr 12 500 Transfer to general reserve Cr 12 500 (25% x $50 000) NCI Dr 40 000 Dividend paid Cr 40 000 (25% x $160 000) NCI Dr 50 000 Dividend declared Cr 50 000 (25% x $200 000) NCI Dr 13 500 NCI share of profit Cr 13 500 (25% x 60% x $90 000 – Dividend declared by Philippines Ltd, in current period) NCI Dr 12 000 NCI share of profit Cr 12 000 (25% x 60% x $80 000 – Dividend paid by Philippines Ltd, in current period)

Pre-acquisition analysis: Peru Ltd – Philippines Ltd At 1 July 2013: Net fair value of identifiable assets and liabilities of Philippines Ltd = $1 660 000

(a) Consideration transferred = $1 100 000 (b) Non-controlling interest = 40% x $1 660 000

= $664 000 Aggregate of (a) and (b) = $1 764 000 Goodwill = $104 000 5. Pre-acquisition entry: Peru Ltd – Philippines Ltd Retained earnings (1/7/17) Dr 300 000 Share capital Dr 396 000 General reserve Dr 300 000 Goodwill Dr 104 000 Shares in Philippines Ltd Cr 1 100 000



6. DNCI share of equity of Philippines Ltd at 1/7/13 Retained earnings (1/7/17) Dr 200 000 Share capital Dr 264 000 General reserve Dr 200 000 NCI Cr 664 000 (40% of balances) 7. NCI share of equity of Philippines Ltd: 1/7/13 – 30/6/17 Retained earnings (1/7/17) Dr 248 000 NCI Cr 248 000 (40% ($1 120 000 - $500 000)) Retained earnings (1/7/17) Dr 93 000 NCI Cr 93 000 (15% ($1 120 000 - $300 000/0.6)) 8. NCI share of equity of Philippines Ltd: 1/7/17 – 30/6/18 NCI Share of profit Dr 124 000 NCI Cr 124 000 (40% x $310 000) NCI Share of profit Dr 46 500 NCI Cr 46 500 (15% x $310 000) General reserve Dr 22 000 Transfer to general reserve Cr 22 000 (55% x $40 000) NCI Dr 32 000 Dividend paid Cr 32 000 (40% x $80 000) NCI Dr 36 000 Dividend declared Cr 36 000 (40% x $90 000) 9. Dividend paid: Peru Ltd Dividend revenue Dr 120 000 Dividend paid Cr 120 000 (75% x $160 000) 10. Dividend paid: Philippines Ltd Dividend revenue Dr 48 000 Dividend paid Cr 48 000 (60% x $80 000)



11. Dividend declared: Peru Ltd Dividend payable Dr 150 000 Dividend declared Cr 150 000 (75% x $200 000) Dividend revenue Dr 150 000 Dividend receivable Cr 150 000 12. Dividend declared: Philippines Ltd Dividend payable Dr 54 000 Dividend declared Cr 54 000 (60% x $90 000) Dividend revenue Dr 54 000 Dividend receivable Cr 54 000 13. Plant and machinery transfer: Peru Ltd – Philippines Ltd Retained earnings (1/7/17) Dr 10 500 Deferred tax asset Dr 4 500 Plant and machinery Cr 15 000 14. NCI adjustment NCI Dr 2 625 Retained earnings (1/7/17) Cr 2 625 (25% x $10 500)

15. Depreciation Accumulated depreciation Dr 9 000 Retained earnings (1/7/17) Cr 6 000 Depreciation expense Cr 3 000 Income tax expense Dr 900 Retained earnings (1/7/17) Dr 1 800 Deferred tax asset Cr 2 700 16. NCI adjustment NCI share of profit * Dr 525 Retained earnings (1/7/17) Dr 1 050 NCI Cr 1 575 (* 25% x $2 100)



17. Transfer of non-current assets to inventory in prior period: Philippines Ltd – Pakistan Ltd Cost of sales Dr 3 000 Income tax expense Cr 900 Retained earnings (1/7/17) Cr 2 100 18. NCI adjustment Retained earnings (1/7/17) Dr 1 155 NCI share of profit Cr 1 155 (55% x $2 100)



Question 22.5 (cont’d) Financial Statements

Pakistan Ltd

Peru Ltd

Philippines Ltd

Adjustments Group NCI Parent Dr Cr Dr Cr

Sales revenue 2 850 000 1 100 000 880 000 4 830 000 Other revenue 420 000 200 000 60 000 9

10 11 12

120 000 48 000

150 000 54 000

308 000

Total revenue 3 270 000 1 300 000 940 000 5 138 000 Cost of sales 1 410 000 520 000 380 000 17 3 000 2 313 000 Other expenses 200 000 80 000 110 000 3 000 15 387 000 Total expenses 1 610 000 600 000 490 000 2 700 000 Profit before tax 1 660 000 700 000 450 000 2 438 000 Tax expense 580 000 160 000 140 000 15 900 900 17 880 000 Profit 1 080 000 540 000 310 000 1 558 000 4

8 8

16

135 000 124 000

46 500 525

13 500 12 000

1 155

4 4

18

1 278 630

Retained earnings (1/7/17)

4 070 000 2 300 000 1 120 000 1 5

13 15

900 000 300 000

10 500 1 800

6 000 2 100

15 17

6 285 800 2 3 6 7 7

16 18

300 000 275 000 200 000 248 000

93 000 1 050 1 155

2 625 14 5 170 220

5 150 000 2 840 000 1 430 000 7 843 800 6 448 850 Dividend paid 400 000 160 000 80 000 48 000

120 00010 9

472 000 40 000 32 000

4 8

400 000



Dividend declared 400 000 200 000 90 000 150 000 54 000

11 12

486 000 50 000 36 000

4 8

400 000

Transfer to general reserve

100 000 50 000 40 000 190 000 12 500 22 000

4 8

155 500

900 000 310 000 210 000 1 148 000 955 500 Retained earnings (30/6/18)

4 250 000 2 430 000 1 220 000 6 695 800 5 493 350



PAKISTAN LTD Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the year ended 30 June 2018

Revenue: Sales revenue $4 830 000 Other revenue 308 000 5 138 000 Expenses: Cost of sales 2 313 000 Other expenses 387 000 2 700 000 Profit before income tax 2 438 000 Income tax expense 880 000 Profit for the period $1 558 000 Comprehensive Income for the period $1 558 000 Attributable to: Parent interest $1 278 630 Non-controlling interest 279 370 $1 558 000

PAKISTAN LTD Consolidated Statement of Changes in Equity (extract)

for the year ended 30 June 2018 Consolidated Parent Comprehensive income for the period $1 558 000 $1 278 630 Retained earnings at 1 July 2017 $6 285 800 $5 170 220 Profit for the period 1 558 000 1 278 630 Dividend paid (472 000) (400 000) Dividend declared (486 000) (400 000) Transfer to general reserve (190 000) (155 500) Retained earnings at 30 June 2018 $6 695 800 $5 493 350



Question 22.8 Consolidation worksheet, consolidated statement of profit or loss and other comprehensive income and statement of changes in equity On 1 July 2017, Vanuatu Ltd acquired 80% of the shares in Vietnam Ltd (cum div.) for $44 760. At this date, Vietnam Ltd had not recorded any goodwill and all its identifiable net assets were recorded at fair value except for land and inventory.

Carrying amount

Fair value

Land Inventory

$ 8 00012 000

$ 10 000 15 000

Half of this inventory still remained on hand at 30 June 2018. Immediately after the acquisition date, Vietnam Ltd revalued the land to fair value. The land was still on hand at 30 June 2018.

At 1 July 2017, Vietnam Ltd acquired 75% of the shares in Brunei Ltd for $15 300. Brunei Ltd had not recorded any goodwill and all its identifiable assets and liabilities were recorded at fair value except for the following:

Carrying

amount Fair value

Inventory $ 10 000 $ 14 000

All the inventory was sold by 30 June 2018. When assets are sold or fully consumed, any related valuation surpluses are transferred to retained earnings.

At the acquisition date, the financial statements of the three companies showed the following:

Vanuatu

Ltd Vietnam

Ltd Brunei Ltd

Share capital General reserve Asset revaluation surplus Retained earnings Dividend payable

$ 80 00020 00016 000

6 40012 000

$ 32 0003 2006 4004 8003 200

$ 20 000 — —

(3 200 —

)

The following information was provided for the year ended 30 June 2018: Vanuatu Ltd Vietnam

Ltd Brunei Ltd

Sales revenue Cost of sales Gross profit Less: Distribution and administrative expenses Plus: Interim dividend revenue Profit before income tax Income tax expense Profit Retained earnings (1/7/17)

$ 108 000 72 000

36 000

9 00027 000

1 28028 280

8 48019 800

6 400 26 200

$ 72 00061 20010 800

2 7008 100

1 5009 600

1 9207 680

4 80012 480

$

54 000 40 500 13 500

2 880 10 620 —

10 620 2 400

8 220 (3 200 5 020

)



Less: Dividend paid Dividend declared Retained earnings (30/6/18)

$

4 000 4 000 8 000 18 200 $

— 1 600 1 60010 880

$

1 000 1 000 2 000 3 020

Additional information (a) Dividends declared for the year ended 30 June 2017 were duly paid. (b) Intragroup purchases (at cost plus 331/3%) were:

Vanuatu Ltd from Vietnam Ltd — $43 200; Vietnam Ltd from Brunei Ltd — $37 800.

(c) Intragroup purchases valued at cost to the purchasing company were included in inventory at 30 June 2018, as follows: Vanuatu Ltd — $5400; Vietnam Ltd — $4500.

(d) The tax rate is 30%. Required A. Prepare the consolidation worksheet entries for the preparation of the consolidated

financial statements of Vanuatu Ltd at 30 June 2018. B. Prepare the consolidated statement of profit or loss and other comprehensive income

and statement of changes in equity (not including movements in share capital and other reserves) at 30 June 2018.

80% 75% Vanuatu Ltd Vietnam Ltd Brunei Ltd Vanuatu Ltd 80% Vanuatu Ltd 60% DNCI 20% DNCI 25% INCI 15% Acquisition analysis: Vanuatu Ltd – Vietnam Ltd At 1 July 2017: Net fair value of identifiable assets and liabilities of Vietnam Ltd = ($32 000 + $3 200 + $6 400 + $4 800) (equity) + $2 000 (1 – 30%) (ARS - land) + $3 000 (1 – 30%) (BCVR - inventory) = $ 49 900 (a) Consideration transferred = $44 760 – (80% x $3 200) (div. receivable) = $42 200 (b) Non-controlling interest = 20% x $49 900 = $9 980 Aggregate of (a) and (b) = $52 180 Goodwill = $ 2 280



1. Business combination valuation entries The land is revalued in the records of Vietnam Ltd. Cost of sales Dr 1 500 Income tax expense Dr 450 Transfer from business combination valuation reserve Cr 1 050 Inventory Dr 1 500 Deferred tax liability Cr 450 Business combination valuation reserve Cr 1 050 2. Pre-acquisition entry: Vanuatu Ltd – Vietnam Ltd Retained earnings (1/7/17) Dr 3 840 Share capital Dr 25 600 General reserve Dr 2 560 Asset revaluation surplus * Dr 6 240 Business combination valuation reserve Dr 1 680 Goodwill Dr 2 280 Shares in Vietnam Ltd Cr 42 200 * 80%($6 400 + $1 400) Transfer from business combination valuation reserve Dr 840 Business combination valuation reserve Cr 840 3. NCI share of equity in Vietnam Ltd at 1/7/17 Retained earnings (1/7/17) Dr 960 Share capital Dr 6 400 General reserve Dr 640 Asset revaluation surplus Dr 1 560 Business combination valuation reserve Dr 420 NCI Cr 9 980 (20% of balances) 4. NCI share of equity in Vietnam Ltd: 1/7/17 – 30/6/18 NCI share of profit Dr 1 326 NCI Cr 1 326 (20% x [$7 680 – ($1 500 - $450)]) Transfer from business combination valuation reserve Dr 210 Business combination valuation reserve Cr 210 (20% x $1 050) NCI Dr 300 NCI share of profit Cr 300 (20% x 75% x $2 000, being dividend revenue from Brunei Ltd) NCI Dr 320 Dividend declared Cr 320 (20% x $1 600)



Acquisition analysis: Vietnam Ltd – Brunei Ltd At 1 July 2017: Net fair value of identifiable assets and liabilities of Brunei Ltd: = ($20 000 - $3 200) (equity) + $4 000 (1 – 30%) (BCVR - inventory) = $19 600 (a) Consideration transferred = $15 300 (b) Non-controlling interest = 25% x $19 600 = $4 900 Aggregate of (a) and (b) = $20 200 Goodwill = $600 5. Business combination valuation entries Cost of sales Dr 4 000 Income tax expense Cr 1 200 Transfer from business combination valuation reserve Cr 2 800 6. Pre-acquisition entry: Vietnam Ltd – Brunei Ltd The entry at 30 June 2018 is: Retained earnings (1/7/17) Cr 2 400 Business combination valuation reserve Dr 2 100 Share capital Dr 15 000 Goodwill Dr 600 Shares in Brunei Ltd Cr 15 300 Transfer from business combination valuation reserve Dr 2 100 Business combination valuation reserve Cr 2 100 7. 25% DNCI share of equity in Brunei Ltd at 1/7/17 Share capital Dr 5 000 Business combination valuation reserve Dr 700 Retained earnings (1/7/17) Cr 800 NCI Cr 4 900



8. NCI share of equity in Brunei Ltd: 1/7/17 – 30/6/18 NCI share of profit Dr 1 355 NCI Cr 1 355 (25% x [$8 220 – ($4 000 - $1 200)]) NCI share of profit Dr 813 NCI Cr 813 (15% ($8 220 – ($4 000 - $1 200))) Transfer from BCVR Dr 700 Business combination valuation reserve Cr 700 (25% x $2 800) NCI Dr 250 Dividend paid Cr 250 (25% x $1 000) NCI Dr 250 Dividend declared Cr 250 (25% x $1 000) 9. Dividend paid Brunei Ltd: 75% x $1 000 = $750 Dividend revenue Dr 750 Dividend paid Cr 750 10. Dividend declared Vietnam Ltd: 80% x $1 600 = $1 280 Brunei Ltd: 75% x $1 000 = $ 750 $2 030 Dividend payable Dr 2 030 Dividend declared Cr 2030 Dividend revenue Dr 2 030 Dividend receivable Cr 2 030 11. Intragroup sales: Vietnam Ltd – Vanuatu Ltd Sales revenue Dr 43 200 Cost of sales Cr 41 850 Inventory Cr 1 350 Deferred tax asset Dr 405 Income tax expense Cr 405 12. NCI adjustment NCI Dr 189 NCI share of profit Cr 189 (20% x ($1 350 - $405)



13. Intragroup sales: Brunei Ltd – Vietnam Ltd Sales Dr 37 800 Cost of sales Cr 36 675 Inventory Cr 1 125 Deferred tax asset Dr 338 Income tax expense Cr 338 14. NCI adjustment NCI Dr 315 NCI share of profit Cr 315 ((25% + 15%) ($1 125 - $338))



Financial Statements

Vanuatu Ltd

Vietnam Ltd

Brunei Ltd

Adjustments Group NCI Parent Dr Cr Dr Cr

Sales revenue 108 000 72 000 54 000 11 13

43 200 37 800

153 000

Cost of sales 72 000 61 200 40 500 1 5

1 500 4 000

41 850 36 675

11 13

100 675

36 000 10 800 13 500 52 325 D&A expenses 9 000 2 700 2 880 14 580 27 000 8 100 10 620 37 745 Dividend revenue 1 280 1 500 - 9

10 750

2 030 --

28 280 9 600 10 620 37 745 Income tax expense 8 480 1 920 2 400 450

1 200 405 338

1 5

11 13

10 407

Profit 19 800 7 680 8 220 27 338 4 8 8

1 326 1 335

813

300 189 315

4 12 14

24 668

Retained earnings (1/7/17)

6 400 4 800 (3 200) 2 3 840 2 400 6 6 560 3 960 800 7 6 400

Transfer from BCVR - - - 2 6

840 2 100

1 050 2 800

1 5

910 4 8

210 700

0

26 200 12 480 5 020 34 808 31 068 Dividend paid 4 000 - 1 000 750 9 4 250 250 8 4 000 Dividend declared 4 000 1 600 1 000 2 030 10 4 570 320

2504 8

4 000

8 000 1 600 2 000 8 820 8 000 Retained earnings (30/6/18)

18 200 10 880 3 020 25 988 23 068

Question 22.8 (cont’d)

VANUATU LTD

Statement of Profit or Loss and Other Comprehensive Income for the financial year ended 30 June 2018

Sales revenue $153 000 Expenses: Cost of sales 100 675 Other 14 580 115 255 Profit before income tax 37 745 Income tax expense 10 407 Profit for the period $27 338 Comprehensive Income for the period $27 338 Attributable to: Parent interest $24 668 Non-controlling interest $2 670

VANUATU LTD Consolidated Statement of Changes in Equity (extract)

for the year ended 30 June 2018 Consolidated Parent Comprehensive income for the period $27 338 $24 668 Retained earnings at 1 July 2017 $6 560 $6 400 Profit for the period 27 338 24 668 Transfer from business combination valuation reserve 910 0 Dividend paid (4 250) (4 000) Dividend declared (4 570) (4 000) Retained earnings at 30 June 2018 $25 988 $23 068

question 21.15 full goodwill method, consolidated...

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