You are on page 1of 20

Tutorial Week 9 Moodle Questions and Solutions

Chapter 19: Consolidation: other issues


REVIEW QUESTIONS
1.

What is the difference between direct and indirect NCI?


Direct NCI (DNCI) own shares directly in an entity. Indirect NCI are DNCI
shareholders in an entity which is a parent of another entity. These DNCI are
then the INCI in the subsidiary.
Example:
80%
A Ltd

2.

60%
B Ltd

C Ltd

A Ltd 80%
DNCI 20%

A Ltd 48%
DNCI 40%
INCI 12%

Explain the difference in the calculation of the direct and indirect NCI.
Direct NCI receive a share of all equity of the subsidiary while indirect NCI
receive a share of only post-acquisition equity.
In adjusting the NCI for the effects of intragroup transactions, generally there
is no difference between INCI and DNCI. However where dividends are
paid/payable by a subsidiary containing an INCI, adjustments are necessary to
ensure no double counting occurs.

Tutorial Week 9 Moodle Questions and Solutions

PRACTICE QUESTIONS
Note: In Questions 19.1 19.6, at the acquisition date the identifiable assets and
liabilities of the subsidiary are recorded at amounts equal to fair values. In
Questions 19.7 19.16, these have carrying amounts different from fair values.

Question 19.1
CANADA LTD CHINA LTD CHILE LTD
80%
Canada Ltd

75%
China Ltd

Chile Ltd

Canada Ltd 80%


DNCI
20%

Canada Ltd 60%


DNCI
25%
INCI
15%

Pre-acquisition analysis: Canada Ltd China Ltd


At 1 July 2010:
Net fair value of identifiable assets
and liabilities of China Ltd
=
=
Net fair value acquired
=
=
=

($80 000 + $5 000 + $1 000) (equity)


$86 000
80% x $86 000
$68 800
Consideration transferred

1. Pre-acquisition entry Canada Ltd China Ltd


At 30 June 2012:
Retained earnings (1/7/11)
Share capital
Asset revaluation surplus
Shares in China Ltd

Dr
Dr
Dr
Cr

800
64 000
4 000
68 800

2. NCI share of equity of China Ltd at 1/7/10


Retained earnings (1/7/11)
Share capital
Asset revaluation surplus
NCI

Dr
Dr
Dr
Cr

200
16 000
1 000
17 200

3. NCI share of equity of China Ltd: 1/7/10to 30/6/11


Retained earnings (1/7/11)
NCI
(20% ($10 500 - $1 000))

Dr
Cr

1 900
1 900

Tutorial Week 9 Moodle Questions and Solutions

QUESTION 19.1 (contd)


4. NCI share of equity of China Ltd: 1/7/11 to 30/6/12
NCI Share of profit
NCI
(20% x $2 000)

Dr
Cr

400

NCI

Dr
Cr

1 600

Dr
Cr

900

Dividend declared
(20% x $8 000
NCI
NCI Share of profit
(20% x 75% x $6000)

400

1 600

900

Pre-acquisition analysis: China Ltd to Chile Ltd


At 1 July 2010:
Net fair value of identifiable assets
and liabilities of Chile Ltd
= ($60 000 + $4 000) (equity)
= $64 000
(a) Consideration transferred
= $48 000
(b) Non-controlling interest
= 25% x $64 000
= $16 000
Aggregate of (a) and (b)
= $64 000
Goodwill
= zero
5. Pre-acquisition entry China Ltd to Chile Ltd
At 30 June 2010:
Retained earnings (1/7/11)
Share capital
Shares in Chile Ltd

Dr
Dr
Cr

3 000
45 000
48 000

6. DNCI share of equity of Chile Ltd at 1/7/10


Retained earnings (1/7/11)
Share capital
NCI

Dr
Dr
Cr

1 000
15 000
16 000

7. NCI share of equity of Chile Ltd: 1/7/10 to 30/6/11


DNCI share
Retained earnings (1/7/11)
NCI
(25% ($13 000 - $4 000))

Dr
Cr

2 250
2 250

Tutorial Week 9 Moodle Questions and Solutions

QUESTION 19.1 (contd)


INCI share
Retained earnings (1/7/11)
NCI
(15% ($13 000 - $4 000))

Dr
Cr

1 350
1 350

8. NCI share of equity of Chile Ltd: 1/7/11 to 30/6/12


DNCI share
NCI share of profit
NCI
(25% x $1 500)

Dr
Cr

375

NCI share of profit


NCI
(15% x $1 500)

Dr
Cr

225

NCI

Dr
Cr

1 500

Dividend payable
Final dividend declared
(80% x $8 000)

Dr
Cr

6 400

Dividend revenue
Dividend receivable

Dr
Cr

6 400

Dividend payable
Final dividend declared
(75% x $6 000)

Dr
Cr

4 500

Dividend revenue
Dividend receivable

Dr
Cr

4 500

375

INCI share

Dividend declared
(25% x $6 000)

225

1 500

9. Final dividend declared: China Ltd

6 400

6 400

10. Final dividend declared: Chile Ltd

4 500

4 500

Tutorial Week 9 Moodle Questions and Solutions

QUESTION 19.1 (contd)


11. Sale of machinery: China Ltd Chile Ltd
Retained earnings 1/7/11)
Machinery

Dr
Cr

800

Deferred tax asset


Retained earnings (1/7/11)

Dr
Cr

240

Dr
Cr

112

Accumulated depreciation
Depreciation expense
Retained earnings (1/7/11)

Dr
Cr
Cr

120

Income tax expense


Retained earnings (1/7/11)
Deferred tax asset

Dr
Dr
Cr

24
12

Dr
Dr
Cr

5.6
11.2

800

240

12. NCI adjustment


NCI
Retained earnings (1/7/11)
(20% ($800 - $240))

112

13. Depreciation

80
40

36

14. NCI adjustment


Retained earnings (1/7/11)
NCI share of profit
NCI
(20% ($80 - $24) pa)

16.8

15. Inventory transfer: Chile Ltd China Ltd


Sales revenue
Cost of sales
Inventory
Deferred tax asset
Income tax expense

Dr
Cr
Cr

4 000

Dr
Cr

240

Dr
Cr

224

3 200
800

240

16. NCI adjustment


NCI
NCI share of profit
(25% + 15%) ($800 - $240)

224

Tutorial Week 9 Moodle Questions and Solutions

Question 19.5
PAKISTAN LTD PERU LTD PHILIPPINES LTD
75%
Pakistan Ltd

60%
Peru Ltd
Pakistan Ltd 75%
DNCI
25%

Philippines Ltd
Pakistan Ltd 45%
DNCI
40%
INCI
15%

Pre-acquisition analysis: Pakistan Ltd Peru Ltd


At 1 July 2008:
Net fair value of identifiable assets
and liabilities of Peru Ltd
=
=
(a) Consideration transferred
=
(b) Non-controlling interest
=
=
Aggregate of (a) and (b)
=
Goodwill
=

$500 000 + $800 000 + $1 200 000 (equity)


$2 500 000
$1 900 000
25% x $2 500 000
$625 000
$2 525 000
$25 000

1. Pre-acquisition entry Pakistan Ltd Peru Ltd


At 1 July 2013:
Retained earnings (1/7/12)*
Share capital
General reserve
Goodwill
Shares in Peru Ltd
* (75% x $1 200 000)

Dr
Dr
Dr
Dr
Cr

900 000
375 000
600 000
25 000
1 900 000

2. DNCI share of equity of Peru Ltd at 1/7/08


Retained earnings (1/7/12)
Share capital
General reserve
NCI
(25% of balances)

Dr
Dr
Dr
Cr

300 000
125 000
200 000
625 000

3. DNCI share of equity of Peru Ltd: 1/7/08 30/6/12


Retained earnings (1/7/12)
NCI
(25% ($2 300 000 - $1 200 000))

Dr
Cr

275 000
275 000

Tutorial Week 9 Moodle Questions and Solutions

Question 19.5 (contd)


4. DNCI share of equity of Peru Ltd: 1/7/12 30/6/13
NCI share of profit
NCI
(25% x $540 000)

Dr
Cr

135 000

General reserve
Transfer to general reserve
(25% x $50 000)

Dr
Cr

12 500

NCI

Dr
Cr

40 000

Dr
Cr

50 000

Dr
Cr

13 500

Dr
Cr

12 000

Dividend paid
(25% x $160 000)
NCI
Dividend declared
(25% x $200 000)

NCI
NCI share of profit
(25% x 60% x $90 000
Dividend declared by Philippines Ltd,
in current period)
NCI
NCI share of profit
(25% x 60% x $80 000
Dividend paid by Philippines Ltd,
in current period)

135 000

12 500

40 000

50 000

13 500

12 000

Pre-acquisition analysis: Peru Ltd Philippines Ltd


At 1 July 2008:
Net fair value of identifiable assets
and liabilities of Philippines Ltd
(a) Consideration transferred
(b) Non-controlling interest
Aggregate of (a) and (b)
Goodwill

=
=
=
=
=
=

$1 660 000
$1 100 000
40% x $1 660 000
$664 000
$1 764 000
$104 000

Tutorial Week 9 Moodle Questions and Solutions

Question 19.5 (contd)


5. Pre-acquisition entry: Peru Ltd Philippines Ltd
Retained earnings (1/7/12)
Share capital
General reserve
Goodwill
Shares in Philippines Ltd

Dr
Dr
Dr
Dr
Cr

300 000
396 000
300 000
104 000
1 100 000

6. DNCI share of equity of Philippines Ltd at 1/7/08


Retained earnings (1/7/12)
Share capital
General reserve
NCI
(40% of balances)

Dr
Dr
Dr
Cr

200 000
264 000
200 000
664 000

7. NCI share of equity of Philippines Ltd: 1/7/08 30/6/12


Retained earnings (1/7/12)
NCI
(40% ($1 120 000 - $500 000))

Dr
Cr

248 000

Retained earnings (1/7/12)


NCI
(15% ($1 120 000 - $300 000/0.6))

Dr
Cr

93 000

248 000

93 000

8. NCI share of equity of Philippines Ltd: 1/7/12 30/6/13


NCI Share of profit
NCI
(40% x $310 000)

Dr
Cr

124 000

NCI Share of profit


NCI
(15% x $310 000)

Dr
Cr

46 500

General reserve
Transfer to general reserve
(55% x $40 000)

Dr
Cr

22 000

NCI

Dr
Cr

32 000

Dr
Cr

36 000

Dividend paid
(40% x $80 000)
NCI
Dividend declared
(40% x $90 000)

124 000

46 500

22 000

32 000

36 000

Tutorial Week 9 Moodle Questions and Solutions

Question 19.5 (contd)


9. Dividend paid: Peru Ltd
Dividend revenue
Dividend paid
(75% x $160 000)

Dr
Cr

120 000

Dr
Cr

48 000

Dividend payable
Dividend declared
(75% x $200 000)

Dr
Cr

150 000

Dividend revenue
Dividend receivable

Dr
Cr

150 000

Dividend payable
Dividend declared
(60% x $90 000)

Dr
Cr

54 000

Dividend revenue
Dividend receivable

Dr
Cr

54 000

120 000

10. Dividend paid: Philippines Ltd


Dividend revenue
Dividend paid
(60% x $80 000)

48 000

11. Dividend declared: Peru Ltd

150 000

150 000

12. Dividend declared: Philippines Ltd

54 000

54 000

13. Plant and machinery transfer: Peru Ltd Philippines Ltd


Retained earnings (1/7/12)
Deferred tax asset
Plant and machinery

Dr
Dr
Cr

10 500
4 500

Dr
Cr

2 625

15 000

14. NCI adjustment


NCI
Retained earnings (1/7/12)
(25% x $10 500)

2 625

Tutorial Week 9 Moodle Questions and Solutions

Question 19.5 (contd)


15. Depreciation
Accumulated depreciation
Retained earnings (1/7/12)
Depreciation expense

Dr
Cr
Cr

9 000

Income tax expense


Retained earnings (1/7/12)
Deferred tax asset

Dr
Dr
Cr

900
1 800

Dr
Dr
Cr

525
1 050

6 000
3 000

2 700

16. NCI adjustment


NCI share of profit *
Retained earnings (1/7/12)
NCI
(* 25% x $2 100)

1 575

17. Transfer of non-current assets to inventory in prior period: Philippines Ltd


Pakistan Ltd
Cost of sales
Income tax expense
Retained earnings (1/7/12)

Dr
Cr
Cr

3 000

Dr
Cr

1 155

900
2 100

18. NCI adjustment


Retained earnings (1/7/12)
NCI share of profit
(55% x $2 100)

1 155

10

Tutorial Week 9 Moodle Questions and Solutions

Question 19.5 (contd)


Financial
Statements
Sales revenue
Other revenue

Pakistan
Ltd
2 850 000
420 000

Total revenue
Cost of sales
Other expenses
Total expenses
Profit before tax
Tax expense
Profit

3 270 000
1 410 000
200 000
1 610 000
1 660 000
580 000
1 080 000

Peru
Philippines
Ltd
Ltd
1 100 000
880 000
200 000
60 000 9
10
11
12
1 300 000
940 000
520 000
380 000 17
80 000
110 000
600 000
490 000
700 000
450 000
160 000
140 000 15
540 000
310 000

Retained earnings
(1/7/12)

4 070 000

2 300 000

1 120 000 1
5
13
15

5 150 000

2 840 000

1 430 000

Adjustments
Dr
Cr

3 000
3 000

900 000
300 000
10 500
1 800

NCI

Parent

Dr

Cr

135 000
124 000
46 500
525
300 000
275 000
200 000
248 000
93 000
1 050
1 155

13 500
12 000
1 155

4
4
18

1 278 630

2 625

14

5 170 220

4 830 000
308 000

120 000
48 000
150 000
54 000

900

Group

900

6 000
2 100

5 138 000
2 313 000
15 387 000
2 700 000
2 438 000
17 880 000
1 558 000

15 6 285 800
17

7 843 800

4
8
8
16
2
3
6
7
7
16
18

6 448 850

11

Tutorial Week 9 Moodle Questions and Solutions

Dividend paid

400 000

160 000

80 000

Dividend
declared
Transfer to
general reserve

400 000

200 000

90 000

100 000

50 000

40 000

190 000

900 000
4 250 000

310 000
2 430 000

210 000
1 220 000

1 148 000
6 695 800

Retained earnings
(30/6/13)

48 000
120 000
150 000
54 000

10
9
11
12

472 000
486 000

40 000
32 000
50 000
36 000
12 500
22 000

4
8
4
8
4
8

400 000
400 000
155 500
955 500
5 493 350

12

Tutorial Week 9 Moodle Questions and Solutions

PAKISTAN LTD
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2013
Revenue:
Sales revenue
Other revenue

$4 830 000
308 000
5 138 000

Expenses:
Cost of sales
Other expenses

2 313 000
387 000
2 700 000
2 438 000
880 000
$1 558 000
$1 558 000

Profit before income tax


Income tax expense
Profit for the period
Comprehensive Income for the period
Attributable to:
Parent interest
Non-controlling interest

$1 278 630
279 370
$1 558 000

PAKISTAN LTD
Consolidated Statement of Changes in Equity (extract)
for the year ended 30 June 2013
Consolidated

Parent

Comprehensive income for the period

$1 558 000

$1 278 630

Retained earnings at 1 July 2012


Profit for the period
Dividend paid
Dividend declared
Transfer to general reserve
Retained earnings at 30 June 2013

$6 285 800
1 558 000
(472 000)
(486 000)
(190 000)
$6 695 800

$5 170 220
1 278 630
(400 000)
(400 000)
(155 500)
$5 493 350

13

Tutorial Week 9 Moodle Questions and Solutions

Question 19.8
VANUATU LTD VIETNAM LTD BRUNEI LTD
80%
Vanuatu Ltd

75%
Vietnam Ltd
Vanuatu Ltd 80%
DNCI
20%

Brunei Ltd
Vanuatu Ltd 60%
DNCI
25%
INCI
15%

Acquisition analysis: Vanuatu Ltd Vietnam Ltd


At 1 July 2012:
Net fair value of identifiable assets
and liabilities of Vietnam Ltd
=

(a) Consideration transferred


(b) Non-controlling interest
Aggregate of (a) and (b)
Goodwill

=
=
=
=
=
=
=

($32 000 + $3 200 + $6 400 + $4 800) (equity)


+ $2 000 (1 30%) (ARS - land)
+ $3 000 (1 30%) (BCVR - inventory)
$ 49 900
$44 760 (80% x $3 200) (div. receivable)
$42 200
20% x $49 900
$9 980
$52 180
$ 2 280

1. Business combination valuation entries


The land is revalued in the records of Vietnam Ltd.
Cost of sales
Income tax expense
Transfer from business combination
valuation reserve

Dr
Dr

Inventory
Deferred tax liability
Business combination valuation reserve

Dr
Cr
Cr

1 500
450

Cr

1 050
1 500
450
1 050

14

Tutorial Week 9 Moodle Questions and Solutions

Question 19.8 (contd)


2. Pre-acquisition entry: Vanuatu Ltd Vietnam Ltd
Retained earnings (1/7/12)
Share capital
General reserve
Asset revaluation surplus *
Business combination valuation reserve
Goodwill
Shares in Vietnam Ltd
* 80%($6 400 + $1 400)
Transfer from business combination
valuation reserve
Business combination valuation reserve

Dr
Dr
Dr
Dr
Dr
Dr
Cr

3 840
25 600
2 560
6 240
1 680
2 280

Dr
Cr

840

Dr
Dr
Dr
Dr
Dr
Cr

960
6 400
640
1 560
420

42 200

840

3. NCI share of equity in Vietnam Ltd at 1/7/12


Retained earnings (1/7/12)
Share capital
General reserve
Asset revaluation surplus
Business combination valuation reserve
NCI
(20% of balances)

9 980

4. NCI share of equity in Vietnam Ltd: 1/7/12 30/6/13


NCI share of profit
NCI
(20% x [$7 680 ($1 500 - $450)])
Transfer from business combination
valuation reserve
Business combination valuation reserve
(20% x $1 050)
NCI
NCI share of profit
(20% x 75% x $2 000, being
dividend revenue from Brunei Ltd)
NCI
Dividend declared
(20% x $1 600)

Dr
Cr

1 326

Dr
Cr

210

Dr
Cr

300

Dr
Cr

1 326

210

300

320
320

15

Tutorial Week 9 Moodle Questions and Solutions

Question 19.8 (contd)


Acquisition analysis: Vietnam Ltd Brunei Ltd
At 1 July 2012:
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
Income tax expense
Transfer from business combination
valuation reserve

Dr
Cr

4 000
1 200

Cr

2 800

6. Pre-acquisition entry: Vietnam Ltd Brunei Ltd


The entry at 30 June 2013 is:
Retained earnings (1/7/12)
Business combination valuation reserve
Share capital
Goodwill
Shares in Brunei Ltd

Cr
Dr
Dr
Dr
Cr

Transfer from business combination


valuation reserve
Business combination valuation reserve

Dr
Cr

2 400
2 100
15 000
600
15 300

2 100
2 100

7. 25% DNCI share of equity in Brunei Ltd at 1/7/12


Share capital
Business combination valuation reserve
Retained earnings (1/7/12)
NCI

Dr
Dr
Cr
Cr

5 000
700
800
4 900

16

Tutorial Week 9 Moodle Questions and Solutions

Question 19.8 (contd)


8. NCI share of equity in Brunei Ltd: 1/7/12 30/6/13
NCI share of profit
NCI
(25% x [$8 220 ($4 000 - $1 200)])

Dr
Cr

1 355

NCI share of profit


NCI
(15% ($8 220 ($4 000 - $1 200)))

Dr
Cr

813

Transfer from BCVR


Business combination valuation reserve
(25% x $2 800)
NCI
Dividend paid
(25% x $1 000)
NCI
Dividend declared
(25% x $1 000)
9. Dividend paid
Brunei Ltd: 75% x $1 000

1 355

813

Dr
Cr

700
700

Dr
Cr

250

Dr
Cr

250

Dr
Cr

750

250

250

$750

Dividend revenue
Dividend paid

750

10. Dividend declared


Vietnam Ltd: 80% x $1 600
Brunei Ltd: 75% x $1 000

=
=

$1 280
$ 750
$2 030

Dividend payable
Dividend declared

Dr
Cr

2 030

Dividend revenue
Dividend receivable

Dr
Cr

2 030

2030

2 030

11. Intragroup sales: Vietnam Ltd Vanuatu Ltd


Sales revenue
Cost of sales
Inventory

Dr
Cr
Cr

43 200

Deferred tax asset


Income tax expense

Dr
Cr

405

41 850
1 350

405
17

Tutorial Week 9 Moodle Questions and Solutions

Question 19.8 (contd)


12. NCI adjustment
NCI
NCI share of profit
(20% x ($1 350 - $405)

Dr
Cr

189
189

13. Intragroup sales: Brunei Ltd Vietnam Ltd


Sales

37 800

Cost of sales
Inventory

Dr
Cr
Cr

Deferred tax asset


Income tax expense

Dr
Cr

338

Dr
Cr

315

36 675
1 125

338

14. NCI adjustment


NCI
NCI share of profit
((25% + 15%) ($1 125 - $338))

315

18

Tutorial Week 9 Moodle Questions and Solutions

Financial
Statements
Sales revenue

Vanuatu
Ltd
108 000

Vietnam
Ltd
72 000

Brunei
Ltd
54 000

72 000

61 200

40 500

Dividend revenue

36 000
9 000
27 000
1 280

10 800
2 700
8 100
1 500

13 500
2 880
10 620
-

Income tax expense

28 280
8 480

9 600
1 920

10 620
2 400

Profit

19 800

7 680

8 220

6 400

4 800

(3 200)

3 840

2 400

6 560

2
6

840
2 100

1 050
2 800

1
5

910

26 200
4 000
4 000

12 480
1 600

5 020
1 000
1 000

8 000
18 200

1 600
10 880

2 000
3 020

Cost of sales

D&A expenses

Retained earnings
(1/7/12)
Transfer from BCVR

Dividend paid
Dividend declared

Retained earnings
(30/6/13)

11
13
1
5

9
10

Adjustments
Dr
Cr
43 200
37 800
1 500
41 850
4 000
36 675

Group

NCI
Dr

Parent
Cr

153 000
11
13

100 675
52 325
14 580
37 745
--

750
2 030
450
1 200
405
338

1
5
11
13

37 745
10 407

27 338

750
2 030

9
10

34 808
4 250
4 570
8 820
25 988

4
8
8
3

1 326
1 335
813
960

4
8

210
700

300
189
315
800

4
12
14
7

24 668

6 400
0

250
320
250

8
4
8

31 068
4 000
4 000
8 000
23 068

19

Tutorial Week 9 Moodle Questions and Solutions

VANUATU LTD
Statement of Profit or Loss and Other Comprehensive Income
for the financial year ended 30 June 2013
Sales revenue
Expenses:
Cost of sales
Other

$153 000
100 675
14 580
115 255
37 745
10 407
$27 338
$27 338

Profit before income tax


Income tax expense
Profit for the period
Comprehensive Income for the period
Attributable to:
Parent interest
Non-controlling interest

$24 668
$2 670

VANUATU LTD
Consolidated Statement of Changes in Equity (extract)
for the year ended 30 June 2013
Consolidated

Parent

Comprehensive income for the period

$27 338

$24 668

Retained earnings at 1 July 2012


Profit for the period
Transfer from business combination valuation reserve
Dividend paid
Dividend declared
Retained earnings at 30 June 2013

$6 560
27 338
910
(4 250)
(4 570)
$25 988

$6 400
24 668
0
(4 000)
(4 000)
$23 068

20