Question

1. In the preparation of consolidated financial statements, the measurement of a non-controlling interest in the shareholders’ equity of a subsidiary at the reporting date may be affected by:

a management fees charged to the subsidiary by the parent entity.
b unrealised profits arising from sales of inventories in the previous period by the subsidiary to another subsidiary in the same group.
c.consolidation adjustments made against the retained earnings of the subsidiary at the end of the previous period
d.none of the above

2)Buddy Limited acquired 80% of the Share capital and Reserves of Gear Limited for $20,000. Share capital was $10,000 and Reserves amounted to $5,000. All assets and liabilities were recorded at fair value except plant which was recorded at $1,000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The amount of goodwill acquired by Buddy Limited in this business combination was:

3)Mario Limited paid $215,000 for 65% of Luigi Limited. At the date of acquisition Luigi Limited had share capital of $200,000, retained earnings of $100,000 and a general reserve of $20,000. All of Luigi Limited’s assets and liabilities were recorded at fair value. The fair value of identifiable net assets acquired by Mario Limited amounted to:

5)Ulla Limited acquired 85% of the share capital and reserves of Dulla Limited for $170,000. Share capital was $100,000 and reserves amounted to $62,000. All assets and liabilities were recorded at fair value except equipment which was recorded at $30,000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The NCI share of equity at the date of acquisition was:

6)Bill Limited holds a 80% interest in Bob Limited. Bill Limited sells inventory to Bob Limited during the year for $15,000. The inventory originally cost $8,000. At the end of the year 40% of the inventory is still on hand. The tax rate is 30%. The NCI adjustment required in relation to this transaction is a debit of:

Answer 1

Ans 1:

In preparation of consolidated financial statements, the measurement of non controlling (NCI) interest will be affected by:

Unrealised Profits arising on sales of inventories in previous period by subsidiary to another subsidiary in the same group

Reason: Profit of the subsidiary will be reduced to the extent of unrealised profit of the subsidiary. Therefore less share of profits to be distributed to NCI, therefore it will be affected.

Ans 2 Total Net Assets Fair Value of Net Assets 15,000 (10,000+5,000) 16,000 (15,000+1,000) Cost of Acquisition Non controlling interest Less Fair Value at the date of acquisitionn 20,000 3.200 value of NCI will be 20% of 14,000 16,000 As partial goodwill method is used, 23,200 Goodwill 7,200 (22,800-14,000)

Ans 3 Share Capital Retained earnings General Reserve Total Net assets 200,000 100,000 20,000 320,000 As all the assets and liabilities were recorded at fair value, The fair value of identifiable net assets would be S 320,000

Ans 5 NCI share of equity would be % of share of NCI into the total fair value of Net Assets Total Fair Value of Net Assets Share Capital Reserves Fair value adjustment Total Net assets 100,000 62,000 30,000 192,000 NCI share of equity (15% of total net assets) 28,800