Question

Question 6 Swamp Ltd acquired 90% of the shares (cum div.) of Tortoise Ltd on 1 July 2017 for $474 000. At this date, the equity of Tortoise Ltd consisted of: Share capital Asset revaluation surplus Retained earnings $ 250 000 60 000 160 000 At acquisition date all the identifiable assets and liabilities of Tortoise Ltd were recorded at amounts equal to fair value. Tortoise Ltd had recorded goodwill of $10 000 and a dividend payable of $20 000, which was paid in August 2015. At 30 June 2018, the equity of Tortoise Ltd consisted of: Share capital Asset revaluation surplus Retained earnings $ 250 000 80 000 220 000 During the 2018–19 year Tortoise Ltd recorded a profit of $40 000.

Answer 1

Ans.

Tortoise Ltd = 90% - Swamp Ltd and 10% NCI

Consolidation Worksheet Entries at 30 June 2019 (Swamp Ltd uses partial goodwill method)

Acquisition analysis at 1 July 2017.

Fair value of identifiable assets and liabilities of Tortoise Ltd = Equity - Goodwill

= [$ 250,000 + $ 60,000 + $ 160,000 ] - $ 10,000 = $ 460,000

(a) Net consideration transferred = $ 474,000 - ( 90% * $ 20,000)(dividend) = $ 456,000

(b) NCI in Tortoise Ltd = 10% * $ 460,000 = $ 46,000

Total of (a) and (b) = $ 502,000

Goodwill of Swamp Ltd = $ 502,000 - $ 460,000 = $ 42,000

Goodwill recorded – write off = $ 10,000

Unrecorded goodwill – parent only = $ 42,000

a. Business combination valuation entries

Accounts Title & Explaination	Debit	Credit
Business combination valuation reserve	$              10,000.00
Goodwill		$              10,000.00

b. Pre-acquisition entries

Accounts Title & Explaination	Debit	Credit
Retained earnings (1/7/18)	$      144,000.00
Share capital	$      225,000.00
Asset revaluation surplus	$        54,000.00
Goodwill	$ 42,000.00
Business combination valuation reserve		$          9,000.00
Shares in Tortoise Ltd		$      456,000.00

c. NCI Step 1: NCI share of equity at acquisition date

Accounts Title & Explaination	Debit	Credit
Retained earnings (1/7/18)	$              16,000.00
Share capital	$              25,000.00
Asset revaluation surplus	$                 6,000.00
Business combination valuation reserve		$                 1,000.00
NCI		$              46,000.00
[10% of equity of Tortoise Ltd at acquisition date]

d. NCI Step 2: NCI share of changes in equity from 1/7/17 to 30/6/18 (prior period)

Accounts Title & Explaination	Debit	Credit
Retained earnings (1/7/18)	$                 6,000.00
Asset revaluation surplus	$                 2,000.00
NCI		$                 8,000.00

10% of the change in Retained Earnings of $60,000 (i.e. $220,000 - $160,000)

10% of the change in Asset Revaluation Surplus of $20,000 (i.e. $80,000 - $60,000)

e. NCI Step 3: NCI share of changes in equity from 1/7/18 to 30/6/19 (current period)

Accounts Title & Explaination	Debit	Credit
NCI share of Profit	$                 4,000.00
NCI		$                 4,000.00
[ 10% * $ 40,000]