Question

P acquired 75% of the shares in S on 1 January 2007 when S had retained earnings of $15,000. The market price of S's shares just before the date of acquisition was $1.60. P values non-controlling interest at fair value. Goodwill is not impaired. The statements of financial position of P and S at 31 December 20X7 were: 60,000 50,000 Property, plant and equipment Shares in S 68,000_ 128,000 50,000 52.000 35,000 180,000 85,000 100,000 50,000 70,000 25,000 170,000 75,000 10.000 10.000 180,000 85,000 Current assets Share capital $1 shares Current liabilities

Prepare cosolidated fin. statement

Answer 1

Before proceeding to the Consolidated Financial Statements, let's make some working notes for the purpose of consolidation.

• Note-1 : Retained Earnings of the group as at year end

  	P (Amount in $)	S (Amount in $)
  Retained Earnings (as on 31st December, 2007)	70000	25000
  Less: Retained Earnings Pre-acquisition		15000
  		10000
  Group share of S (10000*75%)	7500
  Group Retained Earnings	77500

• Note-2 : Non-controlling Interest (NCI) at the year end

  	Amount (in $)
  Share in Net assets of S (75000*25%)	18750
  Share in Goodwill (Note-3)	3750
  Total NCI	22500

• Note-3 : Calculation of Goodwill

  	Group (Amount in $)	NCI (Amount in $)
  Consideration transferred [(50000*25%) * $1.60]	68000	20000
  Net assets of S at acquisition (50000 + 15000), distributed between the group and NCI [65000*75% and 65000*25%]	(48750)	(16250)
  Goodwill	19250	3750

  
  

Now, based on the given data and above working notes, consolidated financial statements of Group are prepared as follows :

Consolidated Financial Statement

Particulars Amount (in $) ASSETS Property, Plant and Equipment (60000+50000) 110000 Goodwill (Note-3) [19250+3750] 23000 Current Assets (52000+35000) 87000 Total Assets 220000 EQUITY AND LIABILITIES Share Capital - $1 Shares 100000 Retained Earnings (Note-1) 77500 Non-controlling Interest (Note-2) 22500 Current Liabilities (10000+10000) 20000 Total Equity and Liabliities 220000