1) Prepare the following consolidation and equity accounting entries for Purple Co. and its subseries and Associate for the year ended 31 December 20X5.
1) Prepare the following consolidation and equity accounting entries for Purple Co. and its subseries and Associate for the year ended 31 December 20X5.
CJE1: Elimination of investment in Yellow Co.;
Dr. share capital (Yellow Co.) | $ 3,120,000 |
Dr. Retained Earnings (Yellow Co.) | $ 3,510,000 |
Dr. Goodwill | $ 1,560,000 |
Cr. Investment In (Yellow Co.) | $ 8,580,000 |
Cr. Non-Controlling Interest (NCI) | $ 1,610,000 |
CJE2: Adjustment of sale of Yellow Co.’s under-valued inventory;
Dr. Cost of goods sold | $ 70,200 |
Cr. Inventory | $ 70,200 |
CJE3: Tax effects of CJE2;
Dr. Deferred Tax Asset | $ 14,040 |
Cr. Income tax expense | $ 14,040 |
CJE4: Allocation of Yellow Co.’s post-acquisition RE to Yellow Co.’s NCI;
Dr. Retained Earnings (Yellow Co.) | $ 5,616,000 |
Cr. Non-Controlling Interest (NCI) | $ 1,684,800 ( 30% of $ 5,616,000) |
Cr. Group Retained Earning | $ 3931200 ( 70% of $ 5,616,000) |
CJE5: Adjustment for NCI’s share of unrealized profit in the beginning RE (sale from Yellow Co. to
Red Co.);
Cr. Retained Earnings (Yellow Co.) | $ 21,060 |
Dr. Non-Controlling Interest (NCI) | $ 21,060 ( 30% of $ 70,200) |
CJE6: Elimination of dividend declared by Yellow Co.;
Dr. Dividend Income (Purple Co.) | $ 819,900 (70% of $ 1,170,000) |
Cr. Investment In Yellow Co.) | $ 819,900 |
CJE7: Allocation of Yellow Co.’s current year profit (after tax) to NCI of Yellow Co.;
Dr. Profit or loss | $ 5,616,000 |
Cr. Non-Controlling Interest (NCI) | $ 1,684,800 (30%) |
Cr. Group Retained Earning | $ 3931200 ( 70%) |
CJE8: Elimination of investment in Green Co.;
Dr. share capital (Green Co.) | $ 1,950,000 |
Dr. Retained Earnings (Green Co.) | $ 1,326,000 |
Dr. Goodwill | $ 1,170,000 (purchase price – Fv of net assets) |
Cr. Investment In (Green Co.) | $ 3,120,000 |
Cr. Non-Controlling Interest (NCI) | $ 560,000 (10% of Net Assets) |
CJE9: Allocation of Green Co.’s post-acquisition RE to total NCI of Green Co.;
Dr. Retained Earnings (Green Co.) | $ 678,600 |
Cr. Non-Controlling Interest (NCI) | $ 67,860 ( 10% of $ $ 678,600) |
Cr. Group Retained Earning | $ 610,740 ( 90% of $ 678,600) |
CJE10: Adjustment of excess cost of sales on Green Co.’s over-valued inventory;
Cr. Retained Earnings Green Co | $ 39,000 |
Dr. Non-Controlling Interest (NCI) | $ 39,000 |
CJE11: Tax effects of CJE10;
Dr. Deferred tax expense | $ 7,800 |
Cr. Deferred tax liability | $ 7,800 (20% of $ 39,000) |
CJE12: Elimination of dividend declared by Green Co.;
Dr. Dividend income (yellow Co.) | $ 421,000 (90% of 468, 000) |
Cr. Investment in Green CO. | $ 421,000 |
CJE13: Allocation of Green Co.’s current year profit (after tax) to total NCI of Green Co.;
Dr. Profit or loss | $ 912,600 |
Cr. Non-Controlling Interest (NCI) | $ 912,600 (10%) |
Cr. Group Retained Earning | $ 821,340 (90%) |
EA1: Recognition of share of post-acquisition RE of Red Co.;
Dr. investment in Red Co. | $ 725,400 (30% of pst-acquisition RE) |
Cr. Group retained earnings | $ 725,400 |
EA2: Adjustment for unrealized profit (after tax) in the beginning RE of Red Co.;
Cr. Retained Earnings Red Co | $ 56,100 |
Dr. Non-Controlling Interest (NCI) | $ 56,100 adjustment for unrealized profits |
EA3: Reclassification of dividend income as a reduction of investment in Red Co.;
Dr. Dividend income | $ 117,000 (30% of 390,000) |
Cr. Investment in Red Co. | $ 117,000 |
EA4: Recognition of share of current year profit (after tax) of Red Co.
Cr. Investment in Red Co. | $ 491,000 |
Dr. Group retaining earnings | $ 491,000 |
2) Perform an Analytical Check of the year end balances of:
a) Non-controlling interests
Yellow Co.
NCI=30%
Green Co.
NCI= 10%
Total NCI
b) Investment in Associate
Investment= $ 3,120,000
Post-acquisition Re= $ 491,000
Profit of share= $ 491,000
Dividend= $ 390,000
c) Consolidated Retained Earnings
Purple Co.
Red co. post-acquisition and profit
3) Prepare the consolidation worksheets for Purple Co., Yellow Co. and Green Co. for the year ended 31 December 20x5.
Consolidated Income Statement for the Year Ended 31 December 20X5
Particulars | Purple Co. | Yellow Co. | Green Co. | Red Co. | Adjustments | Consolidated |
Revenue | $16,380,000 | $7,020,000 | $1,170,000 | $1,950,000 | ||
Less: Tax (20%) | ($3,276,000) | ($1,404,000) | ($257,400) | ($312,000) | ||
Profit After Tax | $13,104,000 | $5,616,000 | $912,600 | $1,638,000 | ||
Less: Dividends Declared | ($1,560,000) | ($1,170,000) | ($468,000) | ($390,000) | ||
Retained Earnings (End) | $11,544,000 | $4,446,000 | $444,600 | $1,248,000 | ||
Add Adjustments | ||||||
Share of Post-acquisition RE | $865,800 | $865,800 | ||||
NCI Allocation | ($1,684,800) | ($1,684,800) | ||||
Total Profit (Consolidated) | $13,725,000 |
Consolidated Balance Sheet as of 31 December 20X5
Particulars | Purple Co. | Yellow Co. | Green Co. | Adjustments | Consolidated |
Fixed Assets (Net Book Value) | $10,920,000 | $8,034,000 | $13,650,000 | $32,604,000 | |
Investment in Red Co. | $3,868,800 | $3,868,800 | |||
Inventory | $2,964,000 | $1,950,000 | $390,000 | $5,304,000 | |
Accounts Receivable | $2,340,000 | $2,340,000 | $975,000 | $5,655,000 | |
Cash | $175,500 | $390,000 | $117,000 | $682,500 | |
Total Assets | $28,099,500 | $15,834,000 | $15,132,000 | $52,368,500 | |
Accounts Payable | $7,195,500 | $3,588,000 | $11,177,400 | $21,960,900 | |
Share Capital | $4,680,000 | $3,120,000 | $1,950,000 | $9,750,000 | |
Retained Earnings (Consolidated) | $16,224,000 | $9,126,000 | $2,004,600 | Adjusted: $4,540,740 (CJE) | $31,895,340 |
NCI in Yellow Co. | $1,333,800 | $1,333,800 | |||
NCI in Green Co. | $44,460 | $44,460 | |||
Total Liabilities & Equity | $52,368,500 |
Part II (30 marks)
1)
Dividend Income
Cr. Cash = 1,750,000
Cr. Dividend income = 1,750,000
Gain on revaluation = fair value – adjusted carrying amount
Dr. Investment in company B=10,000,000
Cr. Cash = 10,000,000
Consideration in total = cash paid 65% +fair value of existing 35%
Dr. Investment in company B=65,000,000
Cr. Cash = 65,000,000
Goodwill = Total consideration – Fair value of identifiable net assets
Initial investment
Dr. Investment in company B= 20,000,000
Cr. Cash = 1,750,000
Dr. identifiable Net Assets =80,000,000
Dr. Goodwill = 20,000,000
Cr. Investment in company B =
2)
(a)Retained investments
Acquisition of 80% interest = 36,000,000
Fair value at 30% interest = 10,000,000
(b) Sale of the 50% interest in Smile Company
Net assets = Retained Earnings of 30th june 2024 + Revaluation Reserves of 30th june 2024
Pet company share of 80%= Net Assets* 80%
Carrying amount of 50% interest
Carrying amount of 50% interest
Gain on Disposal = Consideration Received – Carrying amount of 50% interest
Carrying amount of 30% interest
Carrying amount of 30% interest
Gain on remeasurement = fair value of retained 30% – Carrying amount of retained 30%
3)
Consideration Transferred=160,000
Fair Value of Previously Held Interest=50,000
Fair Value of NCI =30,000
Fair Value of Net Assets
On 1 January 2024, P Ltd gained control over 80% of Z Ltd through acquisition of the remaining 50% share. In accordance with IFRS 10, the newly acquired 50% interest must be treated as a business combination under IFRS 3. Goodwill will now be the sum of consideration transferred for a 50% interest valued at $160,000, fair value of the 30% interest already held amounting to $50,000, and the fair value of the non-controlling interest of $30,000, minus the fair value of Z Ltd's identifiable net assets of $200,000. Goodwill amounts to $40,000, which will be accounted for by P Ltd as an intangible asset.'