Advanced Financial

Accounting
An IFRS® Standards Approach, 3e

Pearl Tan, Chu Yeong Lim and Ee Wen Kuah

Solutions Manual

Chapter 7
Group Reporting VI: Complex Consolidation Issues

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.1

(1) Elimination and consolidation journal entries

Eliminate Investment in B Ltd

Dr Share capital 300000
Dr Retained earnings 700000
Dr Goodwill 750000
Cr Investment in B 1250000
Cr Non-controlling interests 500000
1750000 1750000

Eliminate Investment in C Ltd

Dr Share capital 250000
Dr Retained earnings 500000
Dr Goodwill 300000
Cr Investment in C 650000
Cr Non-controlling interests 400000
1050000 1050000

Eliminate dividend from B

Dr Dividend income 210000
Dr Non-controlling interests 90000
Cr Dividends declared (B ) 300000

Eliminate dividend from C

Dr Dividend income 300000
Dr Non-controlling interests 200000
Cr Dividends declared (C) 500000

Allocate prior year RE to NCI for B

Dr Retained earnings 240000
Cr NCI 240000

Retained earnings at 1.1.20x4 1500000

Retained earnings at date of acquisition 700000
Change in Retained earnings 800000
NCI's share 30%

Allocate prior year RE to NCI for C

Dr Retained earnings 290000
Cr NCI 290000

Retained earnings at 1.1.20x4 1000000

Retained earnings at date of acquisition 500000
Change in Retained earnings 500000
Total NCI's share 58%
Direct NCI 40%
Indirect NCI 18.00%

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.1

Allocate current year's profit to B 's NCI

Dr NCI (PL) 90000
Cr NCI (BS) 90000

B 's profit after tax 600000

Less dividend income -300000
B 's profit after tax (excl. div) 300000

Direct NCI 30%

Allocate current year's profit to C's NCI

Dr NCI (PL) 2900000
Cr NCI (BS) 2900000

C's profit after tax 5000000

Direct NCI 40%
Indirect NCI 18.00%
Total NCI 58.00%

(2) Calculation of non-controlling interests percentage

D
Direct NCI of D 10%
Indirect NCI (B 's NCI in D) 30%*60%*90% 16.200%
Indirect NCI (C's NCI in D) 40%*90% 36.00%

Total NCI 62.20%

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.2

(1) Calculate the amounts of gross dividend income recorded by each investor co.

Dividend income recorded by P

- from X 40% x 40000 16,000

-from Y 60% x 65000 39,000

Dividend income recorded by Y

from Z 80% x 50000 40,000

(2) Consolidation and equity accounting entries

Goodwill calculation

Investee X Y Z

Investment 500,000 600,000 750,000

Share capital 500,000 350,000 550,000

Other reserves 350,000
Retained earnings 400,000 355,000 330,000
(at acquisition date)
1,250,000 705,000 880,000

Non-controlling interests Y Z

Direct NCI 40% 20%

Indirect NCI 32%
40% 52%

CJE1: Eliminate investment in Y

Dr Share capital 350,000

Dr Retained earnings 355,000
Dr Goodwill 365,000
Cr Investment in Y 600,000
Cr Non-controlling interests 470,000
1,070,000 1,070,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.2

CJE2: Eliminate investment in Z

Dr Share capital 550,000

Dr Retained earnings 330,000
Dr Goodwill 90,000
Cr Investment in Z 750,000
Cr Non-controlling interests 220,000
970,000 970,000

CJE3: Eliminate dividend declared by Y

Dr Dividend income 39,000 (60%*65,000)
Dr Non-controlling interests 26,000 (40%*65,000)
Cr Dividend declared by Y 65,000

CJE4: Eliminate dividend declared by Z

Dr Dividend income 40,000 (80%*50,000)
Dr Non-controlling interests 10,000 (20%*50,000)
Cr Dividend declared by Z 50,000

CJE5:Recognize NCI's share of prior-year post-acq RE in Y

Dr RE 72,800
Cr NCI 72,800

RE at 1.1.20x5 537,000 (600,000-63,000)

RE at acq date -355,000
Change 182,000

NCI's share 40% 72,800

CJE6:Recognize NCI's share of prior-year post-acq RE in Z

Dr RE 119,600
Cr NCI 119,600

RE at 1.1.20x5 560,000 (750,000-190,000)

RE at acq date -330,000
Change 230,000

NCI's share 52% 119,600

CJE7: Recognize NCI's share of current year profit in Y

Dr Income to MI (PL) 35,200 40% *(128,000 - 40,000)
Cr NCI 35,200

CJE8: Recognize NCI's share of current year profit in Z

Dr Income to NCI (PL) 124,800 (52%*240,000)
Cr NCI 124,800

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.2

CJE9: Equity accounted profits in X

Dr Investment in X 80,000 (40%*250,000)
Dr Share of tax of X 20,000 (40%*50,000)
Cr Share of profit in X 100,000

CJE10: Reclassify dividend income to investment account

Dr Dividend income 16,000
Cr Investment in X 16,000

CJE11: Recognise post-acq RE to beginning of year

Dr Investment in X 136,000
Cr RE 136,000

RE at 1.1.20x5 740,000
RE at acquisition date -400,000
Change 340,000

P's share of change 136,000 40%*340,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.3

The acquisition details are as follows:

SA SB
Acquired by P Ltd SA Ltd
Date of acquisition 2 Jan 20x1 2 Jan 20x1
Equity at acquisition
Share capital 200000 100000
Retained profits 100000 80000
300000 180000

Purchase price 316000 204800

Percentage acquired 80% 90%

Step 1: Identify the direct and indirect non-controlling interests in the group structure

Consider the following multi-level group structure:

Parent Ltd
NCI Goodwill in SA
20%
80%

SA Ltd Goodwill in SB
NCI
90%
10% SB Ltd

SA SB
Direct NCI 20% 10%
Indirect NCI (SA's NCI has a share in SB = 20% * 90%) 18%
Total NCI 20% 28%

Another way to arrive at B's total NCI is to take 100% and subtract the
parent's effective interest in B Ltd of 72%. The residual is due to both
direct and indirect NCI in SB of 28%.

Part (2): Elimination of investments

CJE1: Eliminate investment in SA and RE as at the date of acquisition

Dr Share capital 200000

Dr Retained earnings 100000
Dr Goodwill 95000
Cr Investment in A 316000
Cr Non-controlling interests 79000

Acquisition cost is proportionate to fair value; hence NCI's share can be deduced.
Goodwill in SA Co
Fair value of acquisition cost 316000
316000 x (0.2/0.8)
Fair value of non-controlling interests 79000
Fair value of the entity 395000
Less fair value of net identifiable assets 300000
Goodwill 95000
95000 x 0.8

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.3
95000 x 0.8
Parent's goodwill 76000
NCI's goodwill 19000 95000 x 0.2
Total Goodwill 95000

CJE2: Eliminate investment in SB and RE as at the date of acquisition

Dr Share capital 100000

Dr Retained earnings 80000
Dr Goodwill 47556
Cr Investment in B 204800
Cr Non-controlling interests 22756

Acquisition cost is proportionate to fair value.

Goodwill in SB Co
Fair value of acquisition costs 204800
204800 x (0.1/0.9)
Fair value of non-controlling interests 22756
Fair value of the entity 227556
Less fair value of net identifiable assets 180000
Goodwill 47556
47556 x 0.9
Parent's goodwill 42800
NCI's goodwill 4756 47556 x 0.1
Total Goodwill 47556

Part (2): Allocate profits to non-controlliing interests

CJE3: Assign NCI's share of post-acquisition RE for subsidiary SA

Dr Retained earnings 6000
Cr Non-controlling interests 6000 20% x (130000-100000)

CJE4: Assign NCI's share of post-acquisition RE for subsidiary SB

Dr Retained earnings 5600 28% x (100000-80000)

Cr Non-controlling interests 5600

CJE5: Assign NCI's share of current profit after tax for subsidiary SA

Dr Income to NCI (P&L) 8935

Cr NCI (BS) 8935
Dividend income (received by SA from SB)
SA's profit after tax for 20x2 52000 is removed out of profit because income from
Less dividend income from SB -7326 SB is recognised on the basis of MI's indirect
interest in SB's income; also an intra-group
SA's profit after tax before div income 44674 transaction
see CJE8

NCI's share 8935

CJE6: Assign NCI's share of current profit after tax for subsidiary SB

Dr Income to NCI (P&L) 2240

Cr NCI (BS) 2240

SB's profit after tax for 20x2 8000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.3

Direct and indirect MI's share of SB 28%

NCI's share 2240

Part (3): Elimination of dividends

CJE7: Elimination of dividend income by P

Dr Dividend income (P) 23680 (80%*29600)
Dr NCI (BS) 5920 (NCI % x Dividend declared= 20% x 29600)
Cr Dividend declared (SA) 29600

CJE8: Elimination of dividend income by SA

Dr Dividend income (SA) 7326 (90%*8140)
Dr NCI (BS) 814 (NCI % x Dividend declared= 10% x 8140)
Cr Dividend declared (SB) 8140

Note for CJE3: Although NCI has a share of RE of SA that includes past dividend income
from SB, there is no double counting. In CJE 4, NCI of SA has an indirect share of change in SB's
RE which would have been reduced by the past dividends declared by SB.

Analytical check (not required)

CJE1 79000
CJE2 22756
CJE3 6000
CJE4 5600
CJE5 8935
CJE6 2240
CJE7 -5920
CJE8 -814

Total NCI as at 31 Dec 20x2 117796

Shareholders' equity of SA as at 31 Dec 20x2

Share capital 200000
Retained earnings 152400
352400
Less investment in SB (204800)
Adjusted shareholders' equity 147600

Direct NCI of SA' s share of equity 20% 29520

Goodwill attributable to Direct NCI of SA 19000
Direct NCI of SA 48520

Shareholders' equity of SB as at 31 Dec 20x2

Share capital 100000
Retained earnings 99860
199860

Direct NCI of SB's share of equity 10% 19986

Goodwill attributable to direct NCI of SB 4756
Direct NCI of SB 24742

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.3

Indirect NCI's of SB's share of equity 18% 35975

Goodwill of SB attributable to indirect NCI of SB20%*42800 (Note 1) 8560
44535

Total NCI 117796

0

Note 1: Indirect NCI has a share of SA's goodwill in SB.

SA's goodwill of $42800 in SB is calculated in CJE2. This goodwill amount is
based on SA's consideration transferred to acquire 90% interest.
There is no need to pro-rate by 90% as this goodwill amount reflects SA's share only.
Hence, NCI of SA has a 20% interest (not 18% interest) in SA's goodwill in SB.

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 Advanced Financial Accounting Tan, Lim and
Problem 7.4 Kuah

The acquisition details are as follows:

SA SB
Acquired by P Ltd SA Ltd
Date of acquisition 2 Jan 20x1 2 Jan 20x1
Equity at acquisition
Share capital 200000 100000
Retained profits 100000 80000
300000 180000

Purchase price 316000 204800

Percentage acquired 80% 90%

Parent Ltd
NCI Goodwill in SA
20%
80%

SA Ltd Subsidiary of P

90%

SB Ltd Associate of SA

SA Ltd equity accounts SB Ltd

P Ltd consolidates SA with the equity accounted results of SB Ltd

CJE1: Eliminate investment in SA and RE as at the date of acquisition

Dr Share capital 200000
Dr Retained earnings 100000
Dr Goodwill 95000
Cr Investment in SA 316000
Cr Non- controlling interest 79000

Goodwill
Fair value of the acquisition 316000 316000 *(20%/80%)
Fair value of the NCI 79000
Fair value of the entity 395000 316000 *(100%/80%)
Less fair value of net identifiable assets 300000
Goodwill 95000
316000 -( 80% *300000)
P's share of goodwill 76000
NCI's share of goodwill 19000 79000 - (20% *300000)
Total goodwill 95000

CJE2: Assign NCI's share of post-acquisition RE for subsidiary SA

Dr Retained earnings 6000
Cr Non- controlling interest 6000 20% x (130000-100000)

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 Advanced Financial Accounting Tan, Lim and
Problem 7.4 Kuah

CJE3: Assign NCI's share of current profit after tax for subsidiary SA
Dr Income to NCI (P&L) 10375
Cr NCI (BS) 10375
SA's profit after tax for 20x2 52000 Dividend income (received by SA from SB) is
Less dividend income from SB -7326 removed out of profit because income from SB
is recognised on the basis of share of profits
Add share of profit after tax of SB 7200 equity accounted by SA
SA's profit after tax before div income 51874
NCI's share @20% 10375

CJE4: Elimination of dividend income by P

Dr Dividend income (P) 23680 (80%*29600)
Dr NCI (BS) 5920 (NCI % x Dividend declared= 20% x 29600)
Cr Dividend declared (SA) 29600

CJE5: Equity accounting of SB's profits by SA

Dr Investment in SB 7200 (90%*8000)
Dr Share of tax expense of SB 1800 (90%*2000)
Cr Share of profit before tax of SB 9000 (90%*10000)

CJE6: Reclassification of dividend from SB as a reduction of investment

Dr Dividend income (SA) 7326 (90%*8140)
Cr Investment in SB 7326

CJE7: Share of post-acquisition retained earnings of SB

Dr Investment in SB 18000
Cr Opening retained earnings 14400 (80%*18000)
Cr Non-controlling interests 3600 (20%*18000)
Retained earnings of SB as at beginning of current year 100000
Retained earnings of SB as at date of acquisition -80000
Change in retained earnings 20000
SA's share 18000
Allocated to P 14400
Allocated to NCI of SA 3600

Analytical check of NCI (not required):

CJE1 79000
CJE2 6000
CJE3 10375
CJE4 -5920
CJE7 3600

93055

In this analysis, direct NCI of SB does not feature because SB is an associate.

Shareholders' equity of SA as at 31 Dec 20x2
Share capital 200000
Retained earnings 152400
352400
Less investment in SB (204800)
147600

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 Advanced Financial Accounting Tan, Lim and
Problem 7.4 Kuah

Direct NCI of SA' s share of equity 20% 29520

Goodwill attributable to Direct NCI of SA 19000
Direct NCI of SA 48520

Shareholders' equity of SB as at 31 Dec 20x2

Share capital 100000
Retained earnings 99860
199860

Indirect NCI's interest in SB (as equity accounted profits) 18% 35975

Indirect NCI's interest in implicit goodwill in SB Note 1 8560 20%*42800
Total NCI 93055 0

Note 1:
Although SB is an associate, its purchase by SA is at a premium and an implicit goodwill arises
which is shared by the ultimate shareholders of SA.
Implicit goodwill in SB = Purchase price - Share of FV of INA of SB
=204800-(90%*180000)
=42800

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.5

The acquisition details are as follows:

SA SB
Acquired by P Ltd SA Ltd
Date of acquisition 2 Jan 20x1 2 Jan 20x1
Equity at acquisition
Share capital 200000 100000
Retained profits 100000 80000
300000 180000

Purchase price 316000 204800

Percentage acquired 80% 90%

Parent Ltd
NCI
20%
80%

SA Ltd Associate of P

90%

SB Ltd Associate of SA

P Ltd equity accounts SA with the equity accounted results of SB Ltd

Increase in the carrying amount of SB is included in investment in SA

CJE1: Equity accounting of SB's profit as included in investment in SA

Dr Investment in SA 5760 (80%*90%*8000)
Dr Share of tax expense of SB 1440 (80%*90%*2000)
Cr Share of profit before tax of SB 7200 (80%*90*10000)

CJE2: Share of post-acquisition retained earnings of SB

Dr Investment in SA 14400
Cr Opening retained earnings 14400
Retained earnings of SB as at beginning of current year 100000
Retained earnings of SB as at date of acquisition -80000
Change in retained earnings 20000
SA's share (90%) 18000
Allocated to P (80%) 14400
Since we are preparing the financial statements from P's perspective, only P's indirect interest in SB
is taken into account

CJE3: Equity accounting of SA's profits by P

Dr Investment in SA 35739
Dr Share of tax expense of SA 10400 (80%*13000)
Cr Share of profit before tax of SA 46139 (80%*57674)
Profit before tax of SA 65000
Less dividend income from SB -7326
Adjusted profit before tax of SA 57674
Assume one-tier tax system for dividend; no adjustment necessary for tax effects

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.5

CJE4: Reclassification of dividend from SA as a reduction of investment

Dr Dividend income (P's book) 23680 (80%*29600)
Cr Investment in SA 23680

CJE5: Share of post-acquisition retained earnings of SA

Dr Investment in SA 24000
Cr Opening retained earnings 24000 (80%*30000)
Retained earnings of SA as at beginning of current year 130000
Retained earnings of SA as at date of acquisition -100000
Change in retained earnings 30000
P's share 24000

Analytical check (not required):

The final effect on closing retained earnings as follows:

Increase in retained earnings
CJE1 5760
CJE2 14400
CJE3 35739
CJE4 -23680
CJE7 24000
56219

Retained earnings as at 31 Dec 20x2

SA SB
Balance 1 Jan 20x2 130000 100000
Net profit after tax 52000 8000
Dividends declared -29600 -8140

Balance 31 Dec 20x2 152400 99860

Retained earnings as at acquisition date -100000 -80000

Change in retained earnings 52400 19860

P's share 80% 72%

P's share as at 31 Dec 20x2 41920 14299 56219

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.6

Part (1): Consolidation adjustments and equity accounting entries

Fair value of net assets as at date of acquisition 1,480,000

Deferred tax on fair value adjustments -36,000
Fair value of net assets, after deferred tax 1,444,000

Fair value of acquisition cost 4,200,000

Fair value of non-controlling interest 400,000
Fair value of total entity 4,600,000
Less: Fair value of net assets, after deferred tax 1,444,000
Goodwill 3,156,000

P's share of goodwill (4200000-90%(1444000)) 2,900,400

NCI's Share of goodwill (400000-10%(1444000)) 255,600
Total goodwill 3,156,000

CJE1: Elimination of investment and recognition goodwill and fair value adjustment
Dr Share capital (S Co) 1,000,000
Dr Retained earnings (S Co) 300,000
Dr Goodwill 3,156,000
Dr Intangible asset 250,000
Dr Inventory 50,000
Cr Contingent liability 120,000
Cr Deferred tax liability 36,000
Cr Investment in S Co 4,200,000
Cr Non-controlling interests 400,000
4,756,000 4,756,000
CJE2: Recognize past amortization of intangible asset
Dr Opening retained earnings 90,000
Dr Non-controlling interests 10,000
Cr Intangible asset 100,000

CJE2a: Recognize tax effects of CJE2

Dr Deferred tax liability 20,000
Cr Opening retained earnings 18,000
Cr Non-controlling interests 2,000

CJE3: Recognize past increase in cost of sales of undervalued inventory

Dr Opening retained earnings 45,000
Dr Non-controlling interests 5,000
Cr Inventory 50,000

CJE3a: Recognize tax effects of CJE3

Dr Deferred tax liability 10,000
Cr Opening retained earnings 9,000
Cr Non-controlling interests 1,000

CJE4: Adjust expensing off contingent liability to avoid double-counting and to

show that the contingent liability in CJE 1 has been settled
Dr Contingent liability 120,000
Cr Opening RE 108,000
Cr Non-controlling interests 12,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.6
CJE4a: Recognize tax effects of CJE4
Dr Opening retained earnings 21,600
Dr Non-controlling interests 2,400
Cr Deferred tax liability 24,000

CJE5a: Recognize current amortization of recognized intangible asset

Dr Amortization of intangibles (P&L) 50,000
Cr Intangibles or Accumulated Amortization (BS) 50,000

CJE5b: Recognize tax on current amortization of recognized intangible asset

Dr Deferred tax liability 10,000
Cr Tax expense 10,000

CJE6: Adjust unrealized profit from upstream sale included in opening RE

Dr Opening RE 32,400
Dr Non-controlling interests 3,600
Cr Cost of sales 30,000
Cr Inventory 6,000

CJE7: Adjust tax on unrealized profit from upstream sale incl. in opening RE
Dr Tax expense 6,000
Dr Deferred Tax Asset 1,200
Cr Opening RE 6,480
Cr Non-controlling interests 720

CJE8: Adjust unrealized profit from downstream sale in 20x3

Dr Sales 600,000
Cr Cost of Sales 555,000
Cr Inventory 45,000

CJE9: Adjust tax on unrealized profit from downstream sale in 20x3

Dr Deferred Tax Asset 9,000
Cr Tax expense 9,000

CJE10: Allocate current profit after tax to Non-controlling interests

Dr Income to Non-controlling interests 13,200
Cr Non-controlling interests 13,200
Net profit after tax (S) 160,000
Add realized profit from 20x2 30,000
Less tax on realized profit from 20x2 -6,000
Less amortization of intangible asset -50,000
Add tax on amortization of intangible asset 10,000
Less dividend income received from B Co -12,000 Note 1
Adjusted profit after tax 132,000
NCI's share @10% 13,200
Note 1: Removed out of S's profit as it is an intra-group transaction

CJE 11: Eliminate dividend income against dividend declared

Dr Dividend income 108,000
Dr Non-controlling interests 12,000
Cr Dividend declared by S 120,000
CJE12: Recognize NCI's share of post-acq RE to 1 Jan 20x3
Dr Opening RE 20,000
Cr Non-controlling interests 20,000
RE at 1 Jan 20x3 500,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.6
RE at acquisition date 300,000
Change in RE 200,000

CJE13: Elimination of investment in B and recognition of goodwill and fair value adjustment
Dr Share capital (B Co) 50,000
Dr Retained earnings (B Co) 10,000
Dr Goodwill 604,000
Dr Deferred tax asset 1,000
Cr Inventory 5,000
Cr Investment in B Co 400,000
Cr Non-controlling interests 260,000
665,000 665,000

CJE14: Adjust for over-statement of past COS from sale of overvalued inventory
Dr Inventory 5,000
Cr Opening retained earnings (54%*5K) 2,700
Cr Non-controlling interests (46%*5K) 2,300

CJE15: Adjust for tax on over-statement of past COS

Dr Opening retained earnings 540
Dr Non-controlling interests 460
Cr Deferred tax asset 1,000

CJE16: Allocate current profit after tax to Non-controlling interests

Dr Income to Non-controlling interests 11,040
Cr Non-controlling interests 11,040
Net profit after tax (B Co) 24,000
NCI's share of B Co 11,040 (46%*24K)
P S's NCI
Direct NCI share 40% 10%
Indirect NCI share 6.00% 90%
10% x
Total NCI 46.00% S B's NCI

60% 40%

B
CJE17: Eliminate dividend income against dividend declared
Dr Dividend income 12,000
Dr Non-controlling interests 8,000
Cr Dividend declared by B 20,000

CJE18: Recognize NCI's share of post-acq RE to 1 Jan 20x3

Dr Opening RE 6,900
Cr Non-controlling interests 6,900
RE at 1 Jan 20x3 25,000
RE at acquisition date 10,000
Change in RE 15,000

EA1: Recognize share of post-acq RE of A

Dr Investment in A 24,000
Cr Opening RE 24,000
RE of A as at 1 Jan 20x3 180,000
RE of A as at date of acquisition 120,000
Change in RE 60,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.6

Share of A's change in RE 24,000

EA2: Adjusment for unrealized profit in beginning fixed assets

Dr Opening RE 12,800
Cr Investment in A 12,800
Profit on transfer of fixed assets 40,000
Tax on unrealized profit -8,000
Unrealized profit after-tax 32,000
P's share of unrealized profit after-tax 12,800

EA3: Adjustment for depreciation on unrealized profit in begg FA

Dr Investment in A 1,600
Cr Opening RE 1,600

Past "over-depreciation" on overstated FA 5,000 (40K/4*0.5)

Less tax on over-depreciation -1,000
Correction of after-tax over-depreciation 4,000
P's share of correction 1,600

EA4: Adjustment for past depreciation (after-tax) on under-valued FA

Dr Opening RE 2,560 (40K/5*40%*80%)
Cr Investment in A 2,560

EA5: Reclassify dividend income as a reduction of investment

Dr Dividend income 40,000
Cr Investment in A 40,000 (100K*40%)

EA6: Recognize share of current profit after tax of A

Dr Investment in A 64,640
Cr Share of profit of A 64,640

Alternatively:
Dr Investment in A 64,640
Dr Share of tax of A 16,160
Cr Share of profit of A 80,800

Profit before tax of A 200,000

Less depreciation on undervalued fixed asset (FV adj) -8,000
Add correction of current "over-depreciation" on FA 10,000 (40K/4)
Adjusted profit before tax of A 202,000
Share of adjusted profit before tax of A 80,800

Tax expense of A 40,000

Less tax on depreciation on undervalued fixed asset -1,600
Add tax effects of correction of "over-depreciation" 2,000
Adjusted tax of A 40,400
Share of adjusted tax of A 16,160

Part (2): Analytical check of Non-controlling interests of S Co

Using the steps in Illustration 7.1, the solution shows both the direct interests in S Co
and S Co's NCI indirect interests in B Co
Direct NCI
in S Co
CJE1: NCI at acquisition date 400,000
CJE2: Share of past amortization -10,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.6
CJE2a: Share of tax of past amortization 2,000
CJE3:Share of past COS adj on under-val inventory -5,000
CJE3a: Share of tax of past COS 1,000
CJE4:Share of claims expense adjustment 12,000
CJE4a: Share of tax of past claims expense adjustment -2,400
CJE6: Share of adj of unrealized profit in begg inventory -3,600
CJE7: Share of adj of tax effects of CJE6 720
CJE10: Share of adjusted current profit after tax 13,200
CJE11: Dividends paid to NCI -12,000
CJE12: NCI's share of post-acq RE 20,000

NCI as at 31 Dec 20x3 415,920

Analytical check of Non-controlling interests of B Co (direct NCI is not asked in this question)

Direct NCI Indirect NCI

(B Co's NCI) (S Co's NCI)
CJE13: NCI at acquisition date 260,000 260,000
CJE14:Share of past COS adjustment on over-valued inventory 2,300 2,000 300
CJE15: Share of tax on past COS -460 -400 -60
CJE16: Share of adjusted current profit after tax 11,040 9,600 1,440
CJE17: Dividends paid to NCI -8,000 -8,000
CJE18: NCI's share of post-acq RE 6,900 6000 900
NCI as at 31 Dec 20x3 271,780 269,200 2,580

NCI's share of B Co as at 31 Dec 20x3

Direct NCI's share = 40%* 79K 31,600
NCI's share of goodwill = 260000- (0.4 * 56,000) 237,600
269,200

S Co's NCI total interest 418,500

Analytical check S Co

Book value of net assets as at 31 Dec 20x3 1,540,000

Less investment in B Co -400,000
Unrealized profit included in net assets of S Co (after-tax) -4,800
Adjusted book value of net assets 1,135,200
Unamortized balance of intangible asset, after-tax 80,000
Adjusted net assets at 31 Dec 20x3 1,215,200

S Co's NCI's share of adjusted net assets 121,520

S Co's NCI's share of goodwill 255,600
NCI's share of S Co as at 31 Dec 20x3 377,120
Indirect NCI's interest in B Co
Shareholders' equity of B Co as at 31 December 20x3 79,000
Inidrect NCI's share 4,740

Indirect NCI's share of goodwill in B Co

Total goodwill in B Co 604,000
Goodwill attributable to B Co's direct NCI -237,600
S' goodwill in B Co 366,400
S' NCI share of goodwill @ 10% 36,640
S Co's NCI balance (including indirect NCI in B Co) 418,500

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.6

0
Part (3): Analytical check on the investment in A Co as at 31 December 20x3

Book value of shareholders' equity of A 440,000

Adjustment for undepreciated balance of over-stated FA Note 1 -20,000
Fair value adjustment (undepreciated balance of fixed asset), after-tax Note 2 19,200
439,200
P's share of A's identifiable net assets 175,680

Implicit goodwill in investment in A:

Investment in A 600,000
Less Share of FV of net assets of A at acq 144,000
Adjust share of deferred tax on FV under-valued FA -3,200
Goodwill in A implicit in the investment in A 459,200
Investment in A, equity method 634,880

Investment in A, at cost 600,000

EA1: Share of post-acq RE 24,000
EA2: Adjustment for profit on transferred FA in beginning RE -12,800
EA3: Adjustment for "over-depreciation" on FA in beginning RE 1,600
EA4: Adjustment for past depreciation on under-valued FA -2,560
EA5: Dividend received -40,000
EA6: Share of current profit after tax 64,640
Investment in A as at 31 Dec 2005 634,880

Note 1: (40K-5K-10K)*0.8
Note 2: (40K/5*3)*0.80

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.7

Part (1): Consolidation and equity accounting entries for 20x5

CJE1: Elimination of investment in Y Co

Dr Share capital 800,000
Dr Retained earnings 900,000
Dr Inventory 100,000
Dr Goodwill 820,000
Cr Deferred tax liability 20,000
Cr Investment in Y Co 2,200,000
Cr Non-controlling interests 400,000
2,620,000 2,620,000
CJE2: Sale of under-valued inventory
Dr Opening RE 90,000
Dr Non-controlling interests 10,000
Cr Inventory 100,000

CJE2a: Tax effects of CJE2

Dr Deferred tax liability 20,000
Cr Opening RE 18,000
Cr Non-controlling interests 2,000

CJE3: Allocate share of post-acq RE to NCI

Dr Opening RE 30,000
Cr NCI (BS) 30,000
RE at 1 Jan 20X5 1,200,000
RE at date of acquisition 900,000
Change in RE 300,000
NCI's share 30,000

For convenience, CJE3a is incorporated in CJE7

CJE3a: Adjustment for NCI's share of unrealized profit in beginning RE (sale from Y to W)
Dr Non-controlling interests 1,037 (10% of CJE7) 10%*60000*80%*80%*30%
Cr Opening RE 1,037

CJE4: Eliminate dividends declared by Y Co

Dr Dividend income 270,000
Dr Non-controlling interests 30,000
Cr Dividend declared 300,000

CJE5: Allocate share of current income to NCI

Dr Income to NCI 137,664
Cr NCI (BS) 137,664
NPAT of Y Co 1,440,000
Add realized profit from sale to W (NCI's share of CJE9) 8,640 Note 1
Less dividend income from W -72,000
Adjusted NPAT 1,376,640
Note 1: 60000*60%*80%*30%

CJE6: Eliminate intercompany payable and receivable

Dr Intercompany payable 100,000
Cr Intercompany receivable 100,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.7

CJE7: Elimination of investment in W Co

Dr Share capital 500,000
Dr Retained earnings 340,000
Dr Goodwill 300,800
Dr Deferred tax asset 2,000
Cr Inventory 10,000
Cr Investment in W Co 800,000
Cr Non-controlling interests 332,800 40%*(500000+340000+2000-10000)
1,142,800 1,142,800
Gain on bargain purchase attributable to NCI (32,800) (300000-40%*(500000+340000+2000-10000)
Goodwill attributable to Y Co 300,800 (800000-60%*(500000+340000+2000-10000))
Net goodwill 268,000

IFRS 3 requires gain on bargain purchase to be recognized in the income statement and the gain to be
attributable to the acquirer. Basis of Conclusion BC 376 stipulates that a gain taken to income
and goodwill cannot be recognized on the same business combination.

To avoid this inconsistency, we recognize NCI as a share of identifiable net assets and ignore the gain on
bargain purchase.

CJE8: Allocation of post-acquisition RE to total NCI of W Co

Dr Retained earnings 27,600
Cr Non-controlling interests 27,600
Retained earnings at 1 Jan 20X5 400,000
Retained earnings at date of acquisition -340,000
Change in retained earnings 60,000
Direct NCI 40.00%
Indirect NCI 6.00%
Total NCI 46.00%

CJE9: Adjustment of excess cost of sales on over-valued inventory

Dr Inventory 10,000
Cr Cost of Sales 10,000

CJE10: Adjustment for tax on excess cost of sales on over-valued inventory

Dr Tax expense 2,000
Cr Deferred tax asset 2,000

CJE11:Allocation of current profit after tax to total NCI of W Co

Dr Income to non-controlling interests 111,320
Cr Non-controlling interests 111,320
Net profit after tax 234,000
Adjust excess cost of sales on over-valued inventory 10,000
Less tax expense on excess cost of sales -2,000
Adjusted net profit after tax 242,000
Total NCI 46.00%

CJE12: Elimination of dividends declared by W Co

Dr Dividend income 72,000
Dr Non-controlling interests 48,000
Cr Dividend declared 120,000

EA1: Recognize share of post-acq RE of Z

Dr Investment in Z 90,000
Cr Opening RE 90,000
RE of Z as at 1 Jan 20X5 700,000
RE of Z as at date of acquisition 400,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.7

Change in RE 300,000
Adjusted change in RE 300,000
Share of Z's change in RE 90,000

EA2: Adjustment for unrealized profit in beginning RE (after-tax)

Dr Opening RE 10,368 90%*11520
Dr Non-controlling interests 1,152 10%*11520
Cr Investment in Z 11,520 60000*80%*80%*30%

EA3: Reclassify dividend income as a reduction of investment

Dr Dividend income 30,000
Cr Investment in Z 30,000

EA4: Recognize share of current profit after tax of Z

Dr Investment in Z 129,600
Cr Share of profit of Z 129,600

Alternatively:
Dr Investment in Z 129,600
Dr Share of tax of Z 24,900
Cr Share of profit of Z 154,500
NPBT 500,000
Add realized profit 36,000 60000*60%
Less unrealized profit -28,000
Add realization through depreciation 7,000
Adjusted NPBT of Z 515,000

Tax expense of Z 80,000

Add tax on realized profit 7,200
Less tax on unrealized profit and depreciation -4,200
Adjusted tax expense of Z 83,000
Depreciation before transfer 36,000
Depreciation after transfer 43,000
Annual over-depreciation to be corrected (20X4&20X5) -7,000

Part (2): Analytical check on Non-controlling interests as at 31 Dec 20x5

Non-controlling interests in Y Co Y Co's NCI

CJE1: NCI at date of acquisition 400,000
CJE2: Adjustment for sale of under-valued inventory -10,000
CJE2a: Adjustment for tax on sale of under-valued inventory 2,000
CJE3: Share of post-acq RE 30,000
CJE7 (or CJE3a):Adjustment for unrealized profit in sale to W -1,152
CJE4: Dividends received -30,000
CJE5: Allocate share of current income to NCI 137,664
NCI balance as at 31 Dec 20X5 528,512

Non-controlling interests in W Co Total NCI Direct NCI Indirect NCI

CJE7: Non-controlling interests as at date of acquisition 332,800 332,800
CJE8:Allocation of post-acquisition RE to NCI 27,600 24,000 3,600
CJE11:Allocation of current profit after tax to total NCI of W 111,320 96,800 14,520
CJE12:Elimination of dividends declared by W Co -48,000 -48,000
Balance in non-controlling interests of W Co 423,720 405,600 18,120

Total NCI = NCI of Y + NCI of W 952,232 405,600 546,632

Analytical check of Non-controlling interests in Y Co:

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.7

Book value of net assets of Y Co as at 31 Dec 20X5 3,140,000

Less investment in W Co -800,000
Less unrealized profit in transfer to W =-60000*20%*80%*30% -2,880
Adjusted net assets as at 31 Dec 20X5 2,337,120
NCI's share of net assets 233,712
NCI's share of goodwill Note 1 222,000
NCI balance as at 31 Dec 20X5 455,712
Note 1: (400000-10%*(800000+900000+100000-20000)

Analytical check of non-controlling interests in W Co

Book value of W Co as at 31 Dec 20X5 1,014,000
Unamortized balance of fair value adjustment 0
Adjusted book value of W Co 1,014,000
Direct NCI of W Co's share of adjusted book value 405,600
Gain on bargain purchase (300000-40%*(500000+340000+2000-10000) 0 Ignored
Direct NCI balance as at 31 Dec 20x5 405,600

Indirect NCI's share of W Co

Share of book value of W Co as at 31 Dec 20x5 6%*1014000 60,840
Share of goodwill in W Co
Goodwill in W Co 300,800
Gain on bargain purchase 0
Y Co's goodwill in W Co 300,800
Attributable to Y Co's NCI 30,080
90,920
546,632 0

Part (3): Analytical check on the balance of the investment in associate

Analytical check of Investment in Z:

Book value of shareholders' equity of Z 1,220,000
Less unrealized profit at end 20X5 (undepreciated profit) after-tax -16,800
Less unrealized profit in inventory at end of year =-60000*20%*80% -9,600
Unimpaired balance of intangible asset, after-tax 240,000
1,433,600
P's share of Z's identifiable net assets 430,080
Implicit goodwill in investment in Z:
Investment in Z 800,000
BV of net assets of Z at acq 600,000
Unrecognized intangible 300,000
Deferred tax on unrecognized intangible -60,000
FV of net assets of Z at acq 840,000
Less Share of FV of net assets of Z at acq 252,000
Goodwill in Z implicit in the investment in Z 548,000
978,080

Investment in Z, at cost 800,000

EA1: Share of post-acq RE 90,000
EA2: Adjustment of unrealized profit in beginning RE -11,520
EA3: Dividend received -30,000
EA4: :Share of current profit after tax 129,600
Investment in Z as at 31 Dec 20X5 978,080

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.7

Part (4): Consolidation Worksheets for the year ended 31 December 20x5

Income Statement for year ended 31 December 20X5

P Co Y Co W Co Dr Cr Total
Profit before tax 4,200,000 1,800,000 300,000 270,000 6,092,500
30,000 154,500
72,000 10,000

Tax -840,000 -360,000 -66,000 24,900 -1,292,900

2,000
Profit after tax 3,360,000 1,440,000 234,000 4,799,600

Dividends declared -400,000 -300,000 -120,000 300,000 -400,000

120,000

Profit retained 2,960,000 1,140,000 114,000 4,399,600

Income to NCI 137,664 -248,984

111,320

Retained earnings, 1 Jan 20X5 1,200,000 1,200,000 400,000 900,000 90,000 1,510,032
90,000
30,000 18,000
10,368
340,000
27,600
Retained earnings, 31 Dec 20X5 4,160,000 2,340,000 514,000 2,045,852 692,500 5,660,648

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.7

SFP as at 31 Dec 20X5 P Co Y Co W Co Dr Cr Total

Fixed assets, net book value 2,800,000 2,060,000 3,500,000 8,360,000

Goodwill 820,000 1,120,800

300,800
Investment in Y Co, at cost 2,200,000 2,200,000

Investment in Z Co, at cost 800,000 90,000 30,000 978,080

129,600 11,520
Investment in W Co, at cost 800,000 800,000 0

Deferred tax 2,000 0

2,000

Inventory 760,000 500,000 100,000 100,000 100,000 1,360,000

10,000
10,000

Intercompany receivable 100,000 100,000 0

Accounts receivable 600,000 500,000 250,000 1,350,000

Cash 45,000 100,000 30,000 175,000

7,205,000 4,060,000 3,880,000 1,452,400 3,253,520 13,343,880

P Co Y Co W Co Dr Cr Total

Accounts payable 1,745,000 920,000 2,866,000 5,531,000

Intercompany payable 100,000 100,000 0

Deferred tax liability 20,000 20,000 0

Share capital 1,200,000 800,000 500,000 800,000 1,200,000

500,000

Retained earnings 4,160,000 2,340,000 514,000 2,045,852 692,500 5,660,648

Non-controlling interests 10,000 400,000 952,232

(Y's NCI and W's NCI) 30,000 30,000
1,152
48,000 137,664
332,800
27,600
111,320
2,000
7,205,000 4,060,000 3,880,000 3,555,004 1,753,884 13,343,880

5,007,404 5,007,404

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.8

CJE1: Elimination of investment in Y Co and W Co as of 1 July 20x3

Dr Share capital (Y Co) 1,000,000
Dr Share capital (W Co) 800,000
Dr Retained earnings (Y Co) 600,000
Dr Retained earnings (W Co) 750,000
Dr Revaluation reserves (W Co) 400,000
Dr Inventory (Y Co) 100,000
Dr Goodwill (Note 1) 460,000
Cr Deferred tax liability (Y Co) 20,000
Cr Investment in Y Co 2,000,000
Cr Investment in W Co 1,500,000
Cr Non-controlling interests in Y 200,000 Note 3
Cr Non-controlling interests in W 390,000 Note 4
4,110,000 4,110,000

Goodwill in sub-group of Y Co

Fair value of consideration transferred 2,000,000

Fair value of non-controlling interests of Y 200,000
Fair value of non-controlling interests of W 390,000 Refer Note 4
2,590,000
Less fair value of Y's consolidated identifiable net assets 2,130,000 (see workings above)
Goodwill 460,000

Fair value of identifiable net assets of consolidated net assets of Y Co (with W Co)
Book value of net assets of Y Co 1,600,000
Investment in W Co (1,500,000) Note 2
Book value of net assets of W Co 1,950,000
Book value of consolidated net assets 2,050,000 Note 5
Under-valued inventory 100,000
Deferred tax liability (20,000)
FV of identifiable net assets of sub-group at 1 July 20x3 2,130,000

Note 2: Removed to avoid double counting.

Note 3: NCI of Y has a fair value of $200,000 as at 1 July 20x3. The fair value comprises of NCI's
share of net identifiable assets and goodwill
Y's NCI's share
Total 10%
Book value of net assets of Y Co as at 1 July 20x3 1,600,000
Under-valuation of inventory, after tax 80,000
Less investment in W, to avoid double counting (1,500,000)
180,000 18,000
Book value (also fair value) of net assets of W Co 1,950,000
Y Co's share of net assets of W Co as at 1 July 20x3 1,560,000 156,000
Y's NCI's goodwill (residual) 26,000
Fair value of Y's NCI as at 1 July 20x3 200,000

Note 4: Fair value of W Co's non-controlling interests as at 1 July 20x3 is $375,000. The fair value is
analyzed as follows.
Total NCI's share
20%
W Co's shareholder's equity as at 1 July 20x3 1,950,000 390,000
Share capital 800,000
Retained earnings 750,000
Revaluation reserves 400,000
1,950,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.8

W Co's undervaluation of identifiable net assets 0 0

NCI's gain on bargain purchase Explanatory note -15,000
Removal of gain on bargain purchase 15,000

NCI of W Co 390,000

IFRS 3 Basis of Conclusions (BC376) does not permit a gain on bargain purchase and goodwill to be
recognized on the same business combination.

Since P recognizes goodwill on the acquisition of the sub-group, the gain will not be recognized by NCI.
The goodwill attributable to NCI in this scenario will be zero.

Fair value of NCI is adjusted to reflect only the proportion of identifiable net assets as at 1 July 20x3.

Note 5: To further check this residual, we can also work out the consolidated net assets as at
1 July 20x3 by reconstructing the consolidation worksheets as at this date.

CJE1B and CJE2B are for explanatory purposes only and not required to answer this question.
First of all, we re-enact the consolidation entries for Y Co and W Co as at 1 July 20x3:

CJE1B Elimination of investment in W Co as of 1 January 20x2

Dr Share capital 800,000
Dr Retained earnings 500,000
Dr Revaluation reserves 400,000
Dr Goodwill 150,000 (Ignored as of 1 July 20x3)
Cr Investment in W Co 1,500,000
Cr Non-controlling interests in W Co 350,000

CJE2B: Allocation of post-acquisition retained earnings of W Co from 1 Jan 20x2 to 1 July 20x3
Dr Non-controlling interests 50,000
Cr Retained earnings 50,000
Retained earnings, 1 July 20x3 750,000
Retained earnings, 1 Jan 20x2 500,000
Change in post-acquisition retained earnings 250,000
Total NCI share of post-acquisition retained earnings
W Co's NCI 20.0%

Optional: we complete the consolidation worksheet for Y Co and W Co as at 1 July 20x3 as follows:

Statement of Financial Position Y Co W Co Dr Cr Group

as at 1 July 20x3

Share capital 1,000,000 800,000 800,000 1,000,000

Retained earnings 600,000 750,000 500,000 800,000
50,000

Revaluation reserves 400,000 400,000 0

Non-controlling interests 350,000 400,000

50,000
1,600,000 1,950,000 2,200,000

Goodwill (Note 4) 150,000 150,000

Investment in Z 1,500,000 1,500,000
Other net assets (Note 5) 100,000 1,950,000 2,050,000

1,600,000 1,950,000 1,900,000 1,900,000 2,200,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.8

Note 4: The goodwill on acquisition of W Co as at 1 January 20x2 is ignored when

calculating the goodwill on acquisition of Y Co as at 1 July 20x3.

Note 5: Consolidated net assets (other than goodwill) of $2,050,000 is the same as worked
out in the workings in Note 1 above.

CJE2: Sale of under-valued inventory of Y Co

Dr Opening RE 90,000
Dr Non-controlling interests 10,000
Cr Inventory 100,000

CJE3: Tax effects of CJE2

Dr Deferred tax liability 20,000
Cr Opening RE 18,000
Cr Non-controlling interests 2,000

CJE4: Adjustment for unrealized profit on beginning inventory

Dr Opening RE 36,000 90%*80%*50000
Dr Non-controlling interests 4,000 10%*80%*50000
Cr Cost of sales 35,000 70%*50000
Cr Inventory 5,000 10%*50000

CJE5: Adjustment for tax on unrealized profit

Dr Tax expense 7,000 20%*35000
Dr Deferred tax asset 1,000 20%*5000
Cr Opening RE 7,200 20%*36000
Cr Non-controlling interests 800 20%*4000

CJE6: Adjustment of unrealized profit from P Co to Y Co

Dr Sales 200,000
Dr Inventory 20,000 40%*50000
Cr Cost of sales 220,000
Since the loss on sale was not indicative of an impairment loss, the loss is "artificial" and should be
reversed out.

CJE7: Tax effects on CJE6

Dr Tax expense 4,000 20%*20000
Cr Deferred tax liability 4,000

CJE8: Allocate share of post-acquisition RE of Y Co to NCI of Y Co

Dr Opening RE 30,000
Cr NCI (BS) 30,000
RE at 1 Jan 20x5 900,000
RE at 1 July 20x3 600,000
Change in RE 300,000
NCI's share 30,000

CJE9: Eliminate dividends declared by Y Co

Dr Dividend income 90,000
Dr Non-controlling interests 10,000
Cr Dividend declared 100,000

CJE10: Allocate share of current income of Y Co to NCI of Y Co

Dr Income to NCI 90,800
Cr NCI (BS) 90,800
NPAT of Y Co 960,000
Add back realized profit 35,000
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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.8

Less tax on realized profit of upstream gain (7,000)

Less dividend received from W Co (80,000)
Adjusted NPAT 908,000

CJE11: Allocation of post-acquisition RE to total NCI of W Co

Dr Retained earnings 42,000 28%*150000
Cr Non-controlling interests 42,000
Retained earnings at 1 Jan 20x5 900,000
Retained earnings at 1 July 20x3 750,000
Change in retained earnings 150,000
Direct NCI 20% 30,000
Indirect NCI 8.00% 12,000
Total NCI 28.00% 42,000

CJE12: Allocation of current profit after tax to total NCI of W Co

Dr Income to NCI 107,520
Cr Non-controlling Interests 107,520
Net profit after tax of W Co 384,000
Direct NCI 20% 76,800
Indirect NCI 8% 30,720
Total NCI 28% 107,520

CJE13: Elimination of dividends declared by W Co

Dr Dividend income 80,000
Dr Non-controlling interests 20,000
Cr Dividend declared 100,000

CJE14: Allocation of post-acq revaluation reserves to total NCI of W

Dr Revaluation reserves 28,000
Cr Non-controlling interests 28,000
Revaluation reserves at 31 Dec 20x5 500,000
Revaluation reserves at 1 July 20x3 400,000
Change in revaluation reserves 100,000
Direct NCI 20% 20,000
Indirect NCI 8% 8,000
Total NCI 28% 28,000

CJE15: Eliminate intercompany payable and receivable

Dr Intercompany payable 250,000
Cr Intercompany receivable 250,000

EA1: Recognize share of post-acq RE of Z

Dr Investment in Z 30,000
Cr Opening RE 30,000
RE of Z as at 1 Jan 20x5 600,000
RE of Z as at date of acquisition 500,000
Change in RE 100,000

EA2: Recognize past amortization of intangible asset, after-tax

Dr Opening RE 14,400 30%*80%*300000/5
Cr Investment in Z 14,400

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.8

Alternatively EA1 and EA2 can be combined: Recognize share of post-acq RE of Z

Dr Investment in Z 15,600
Cr Opening RE 15,600
RE of Z as at 1 Jan 20x5 600,000
RE of Z as at date of acquisition 500,000
Change in RE 100,000
Less past amortization of intangible asset, after-tax (48,000)
Adjusted change in RE 52,000
Share of Z's change in RE 15,600

EA3: Reclassify dividend income as a reduction of investment

Dr Dividend income 24,000
Cr Investment in Z 24,000

EA4: Recognize share of current profit after tax of Z

Dr Investment in Z 53,400
Cr Share of profit of Z 53,400

Alternatively:
Dr Investment in Z 53,400
Dr Share of tax of Z 24,600
Cr Share of profit of Z 78,000

NPBT 600,000
Less unrealized profit on transfer of fixed assets (350,000)
Add back excess depreciation 70,000
Less amortization of intangible asset (60,000)
Adjusted NPBT of Z 260,000

Tax expense of Z 150,000

Less on unrealized profit on transfer of fixed assets (70,000)
Add tax on excess depreciation 14,000
Less tax on amortization of intangible asset (12,000)
Adjusted tax expense of Z 82,000

Part (2): Consolidation worksheets for the year ended 31 December 20x5

Income Statement for year ended 31 December 20x5

P Co Y Co W Co Dr Cr
Profit before tax 2,400,000 1,200,000 480,000 90,000 20,000 4,019,000
24,000 78,000
80,000 35,000

Tax (480,000) (240,000) (96,000) 4,000 (851,600)

24,600
7,000

Profit after tax 1,920,000 960,000 384,000 3,167,400

Income to NCI 90,800 (198,320)

107,520
Profit retained 2,969,080
Retained earnings, 1 Jan 1,450,000 900,000 900,000 600,000 15,600 1,742,800
90,000 18,000
30,000 7,200
36,000
750,000
42,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.8

Dividends declared (500,000) (100,000) (100,000) 100,000 (500,000)

100,000
Retained earnings, 31 Dec 2,870,000 1,760,000 1,184,000 1,975,920 373,800 4,211,880

Statement of Financial Position as at 31 Dec 20x5

P Co Y Co W Co Dr Cr Total

Fixed assets, net book value 3,000,000 2,120,000 1,900,000 7,020,000

Goodwill 460,000 460,000

Investment in Y Co, at cost 2,000,000 2,000,000 0

Investment in Z Co, at cost 1,200,000 15,600 24,000 1,245,000

53,400
Investment in W Co, at cost 1,500,000 1,500,000 0

Deferred tax asset 1,000 1,000

Inventory 960,000 500,000 500,000 100,000 100,000 1,975,000

20,000 5000
Intercompany receivable 250,000 250,000 0

Accounts receivable 500,000 450,000 350,000 1,300,000

Cash 120,000 50,000 100,000 270,000

7,780,000 4,870,000 2,850,000 650,000 3,879,000 12,271,000

P Co Y Co W Co Dr Cr Total
Accounts payable 2,660,000 2,110,000 366,000 5,136,000

Intercompany payable 250,000 250,000 0

Deferred tax liability 20,000 4,000 4,000

20,000

Share capital 2,000,000 1,000,000 800,000 1,000,000 2,000,000

800,000

Retained earnings 2,870,000 1,760,000 1,184,000 1,975,920 373,800 4,211,880

Revaluation reserves 500,000 28,000 72,000

400,000

Non-controlling interests 10,000 200,000 847,120

10,000 30,000
4,000 800
20,000 90,800
390,000
107,520
28,000
2,000
42,000
7,780,000 4,870,000 2,850,000 4,517,920 1,288,920 12,271,000
5,167,920 5,167,920

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.8

Part (3): Analytical checks

Total Non-controlling interests as at 31 December 20x5

Total NCI of Direct
NCI Y Co and NCI of W
indirect
NCI of W Co
CJE1: Y Co's NCI as at 1 July 20x3 200,000 200,000
CJE1: W Co's NCI as at 1 July 20x3 390,000 390,000
CJE2: Sale of under-valued inventory of Y Co (10,000) (10,000)
CJE3: Tax effects of CJE2 2,000 2,000
CJE4: Adjustment for unrealized profit on beginning inventory (4,000) (4,000)
CJE5: Adjustment for tax on unrealized profit 800 800
CJE8: Allocate share of post-acquisition RE of Y Co to NCI of Y Co 30,000 30,000
CJE9: Eliminate dividends declared by Y Co (10,000) (10,000)
CJE10: Allocate share of current income of Y Co to NCI of Y Co 90,800 90,800
CJE11: Allocation of post-acquisition RE to total NCI of W Co 42,000 12,000 30,000
CJE12: Allocation of current profit after tax to total NCI of W Co 107,520 30,720 76,800
CJE13: Elimination of dividends declared by W Co (20,000) (20,000)
CJE14: Allocation of post-acq revaluation reserves to total NCI of W 28,000 8,000 20,000

847,120 350,320 496,800

Analytical check on non-controlling interests of Y Co (and indirect NCI of W Co)

Y Co's shareholders' equity as at 31 December 20x5 2,760,000

Less investment in W Co (1,500,000)
Less unrealized profit remaining as at 31 December 20x5
Note 1 (4,000)
Adjusted shareholders' equity as at 31 December 20x5 1,256,000
NCI's share of adjusted equity of Y Co as at 31 December 20x5 125,600
Note 1 10%*80%*50000
W Co's shareholders' equity as at 31 December 20x5 2,484,000
Indirect NCI's share of W Co 198,720

324,320

NCI of Y Co's share of goodwill as at 31 Dec 20x5 26,000 CJE1

NCI of Y Co 350,320 -

Analytical check of direct NCI of W Co

W Co's shareholders' equity as at 31 December 20x5 2,484,000

W Co's direct NCI share of equity as at 31 December 20x5 496,800
Goodwill attributable to W Co's NCI -
Direct NCI of W Co as at 31 December 20x5 496,800 -

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.8

Analytical check of Investment in Z

Book value of shareholders' equity of Z 1,370,000
Less unrealized profit as at end of 20x5 (224,000)
Unamortized balance of intangible asset, after-tax 144,000
1,290,000
P's share of Z's identifiable net assets 387,000
Implicit goodwill in investment in Z:
Investment in Z 1,200,000
BV of net assets of Z at acq 900,000
Unrecognized intangible, after-tax 240,000
FV of net assets of Z at acq 1,140,000
Less Share of FV of net assets of Z at acq 342,000
Goodwill in Z implicit in the investment in Z 858,000
1,245,000

Investment in Z, at cost 1,200,000

EA1: Share of post-acq RE 15,600
EA2:Dividend received (24,000)
EA3:Share of current profit after tax 53,400
Investment in Z as at 31 Dec 20x5 1,245,000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.9

Transfer of fixed assets

Transfer price 250,000
Original cost 240,000
Accumulated depreciation -40,000
Net book value -200,000
Profit on transfer 50,000

Useful life at date of transfer 10

Undepreciated balance as at 31.12.20x0 90%

20x0 PBT Tax % ownership Direct investor

S 800,000 160,000 70% P
A 300,000 60,000 40% P
B 650,000 130,000 90% S

20x1 PBT Tax

S 900,000 180,000
A 250,000 50,000
B 500,000 100,000

(a) S sells to A
Equity accounting entries as at 31 December 20x0:
Dr Investment in A 81,600
Cr Share of profit of A 81,600

Alternatively:
Dr Investment in A 81,600
Dr Share of tax of A 20,400
Cr Share of profit of A 102,000

Profit before tax of A 300,000

Unrealized profit at year-end -45,000 50000*9/10
Adjusted profit before tax of A 255,000
P's share of adjusted profit 102,000 40%*255000

Tax expense of A 60,000

Tax on unrealized profit -9,000 20%*45000
Adjusted tax expense of A 51,000
P's share of adjusted tax 20,400 40%*51000

Consolidation adjustment as at 31 Dec 20x0:

Dr Income to non-controlling interests 187,680
Cr Non-controlling interests 187,680

Profit after tax of S 640,000

Less unrealized profit arising from
transfer from S to A (after-tax) -14,400 50000*9/10*40%*80%

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.9

Adjusted profit after tax of S 625,600

Non-controlling interests at 30% 187,680 30%*625600

Equity accounting entries as at 31 December 20x1:

EA1: Reinstatement of previous year's adjustment to opening balance
Dr Opening retained earnings 10,080 14400*70%
Dr Non-controlling interests 4,320 14400*30%
Cr Investment in A 14,400

EA2: Share of profit after tax for 20x1

Dr Investment in A 81,600
Cr Share of profit of A 81,600

Dr Investment in A 81,600
Dr Share of tax of A 20,400
Cr Share of profit of A 102,000

Profit before tax of A 250,000

Add back realised profit 5,000 Depreciation:50k/10
Adjusted profit before tax of A 255,000
P's share of adjusted profit 102,000 40%*255000

Tax expense of A 50,000

Tax on unrealized profit 1,000 Tax on depreciation
Adjusted tax expense of A 51,000
P's share of adjusted tax 20,400 40%*51000

Consolidation adjustment as at 31 Dec 20x1:

CJE1: Allocation of current income to non-controlling interests
Dr Income to non-controlling interests 216,480
Cr Non-controlling interests 216,480

Profit after tax of S 720,000

Add realization through depreciation
of fixed assets (after-tax) 1,600 5000*80%*40%

Adjusted profit after tax of S 721,600

Non-controlling interests 216,480 30%*721600

(b) B sells to P

Since B is owned directly and indirectly by non-controlling interests, total non-

controlling interests will bear their portion of the adjustment.
Direct non-controlling interests of B 10%
Indirect non-controlling interests of B 27%
Total non-controlling interests of B 37%

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.9

Total non-controlling interests of B is also the complement of P's indirect interests

in B 70%*90% 63%

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.9

Consolidation adjustments (20x0):

CJE1: Elimination of profit on sale
Dr Profit on sale 50,000
Cr Fixed assets 10,000
Cr Accumulated depreciation 40,000

CJE2: Adjustment for tax effects

Dr Deferred tax asset 10,000
Cr Tax expense 10,000

CJE3: Correction of excess depreciation

Dr Accumulated depreciation 5,000
Cr Depreciation 5,000

CJE4: Tax effects of correction of excess depreciation

Dr Tax expense 1,000
Cr Deferred tax liability 1,000

CJE5: Allocation of income to NCI

Dr Income to non-controlling interests 179,080 37%*484000
Cr Non-controlling interests 179,080
Allocation of current profit after tax to non-controlling interests.
Profit after tax of B 520,000
Unrealized profit (after-tax) -36,000 50000*9/10*80%
Adjusted profit after tax of B 484,000
Total non-controlling interests 37%

Consolidation adjustments (20x1):

CJE1: Reinstatement of previous year's adjustment
Dr Opening retained earnings 31,500 63%*50000
Dr Non-controlling interests 18,500 37%*50000
Cr Fixed assets 10,000
Cr Accumulated depreciation 40,000

CJE2: Reinstatement of tax on profit adjustment

Dr Deferred tax asset 10,000
Cr Opening retained earnings 6,300
Cr Non-controlling interests 3,700

CJE3: Current and past depreciation

Dr Accumulated depreciation 10,000
Cr Depreciation 5,000
Cr Opening retained earnings 3,150 63%*5000
Cr Non-controlling interests 1,850 37%*5000

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.9

CJE4: Tax on current and past depreciation

Dr Opening retained earnings 630 63%*1000
Dr Non-controlling interests 370 37%*1000
Dr Tax expense 1,000
Cr Deferred tax asset 2,000

CJE5: Allocation of current income to NCI

Dr Income to non-controlling interests 149,480 37%*404000
Cr Non-controlling interests 149,480
Allocation of current profit after tax to non-controlling interests.
Profit after tax of B 400,000
Realisation through excess depreciation 4,000 5000*80%
Adjusted profit after tax of B 404,000
Total non-controlling interests 37%

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 Advanced Financial Accounting Tan, Lim and Kuah
Problem 7.10

(1) In separate financial statements of P:

1 July 20x0 Dr Investment in S 5,000,000

Cr Cash 5,000,000
Purchase of first block.

31 Dec 20x0 Dr Investment in S 7,000,000

Cr Cash 7,000,000
Purchase of second block.

IAS 27 Separate Financial Statements does not require the remeasurement of previously held interests
in the separate financial statements. Hence, remeasurement gains will be recognized only in the
consolidated financial statements.

(2) In consolidated financial statements

EA1: Equity accounting of S profits 1 July to 31 Dec 20x0

Dr Investment in S 720,000 30%*2400000
Dr Share of tax 180,000 30%*600000
Cr Share of profit before tax 900,000 30%*3000000

EA2: Reclassification of dividend income

Dr Dividend income 120,000 30%*400000
Cr Investment in S 120,000

EA3: Remeasurement loss on previously held interests

Dr Remeasurement loss 350,000
Cr Investment in S 350,000

Fair value of previously held interests 5,250,000 30%*17500000

Carrying amount of previously held interests 5,600,000 5000000+720000-120000
Remeasurement loss -350,000

CJE1: Elimination of investment in S at 31 Dec 20x0

Dr Share capital 10,000,000
Dr Retained earniings 5,000,000
Dr Goodwill 2,500,000
Cr Investment 12,250,000 5250000+7000000
Cr Non-controlling interests 5,250,000
17,500,000 17,500,000
Goodwill = Fair value of consideration transferred + Acquisition-date fair value
of previously-held interests + Fair value of NCI - Fair value of identifiable net
assets of acquiree
=7000000+5250000+5250000-15000000
=2500000

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 Advanced Financial Accounting Tan, Lim and Kuah
P 7.11
Problem 7.11

Scenario: P Co increases ownership interest in X Co from 60% to 75%

No gain or loss of control:

1. New goodwill 2a. P&L: Re-measurement 2b. P&L: Profit / (loss)

gain or loss on sale of investment
No change to the original amount NIL, as there is no change in NIL
of goodwill as at original control.
acquisition date, 1 January 2010.

3a. Equity effects: Profit or loss arising from changes 3b. Equity effects: Changes in
in ownership non-controlling interests
Incremental purchase price (15% interest) 4,500,000 NCI is reduced by 2,812,500
(7,500,000 x 15%/40%)
Incremental (15%) interests’ share of
equity as at 1 July 2011 - 2,812,500
(7,500,000 x 15%/40%)
-----------------
Loss on
purchase (equity) 1,687,500

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 Advanced Financial Accounting Tan, Lim and Kuah
P 7.12

Problem 7.12

Scenario: P Co decreases ownership interest in X Co from 95% to 70%

No gain or loss of control:

1. New goodwill 2a. P&L: Re-measurement 2b. P&L: Profit / (loss)

gain or loss on sale of investment
No change to the original amount of NIL, as there is no change in NIL, the gain on sale is
goodwill as at original acquisition control. taken directly to equity.
date, 1 December 2010.

3a. Equity effects: Profit or loss arising from changes 3b. Equity effects: Changes in
in ownership non-controlling interests
Sales proceeds of 25% interest 12,800,000 NCI is increased by 7,184,210.50
(27,300,000 x 25%/95%)
25% interests’ share of equity
as at 31 Dec 2011 - 7,184,210.50
(27,300,000 x 25%/95%)
------------------
Gain (equity) 5,615,789.50

Group Separate legal entity

Sales proceeds 12,800,000 12,800,000
Investment (7,184,211)** (7,631,578) 29,000,000 x 25/95*
Gain on sale 5,615,789 5,168,422
Difference 447,367***

* Share of original cost

** Share of original cost + post-acquisition changes in equity
*** Difference is the change in post-acquisition losses that have been consolidated

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 Advanced Financial Accounting Tan, Lim and Kuah
P 7.13

Problem 7.13

Scenario: P Co increases ownership interest in X Co from 40% to 60%

Gain of control:

1. New goodwill 2a. P&L: Re-measurement gain 2b. P&L on sale of

or loss investment
FV of consideration FV of previously NIL
transferred for 20% acquired interests (40%) 6,500,000
interests 4,100,000
Original cost of
FV of previously acquired previously acquired
interests (40%) 6,500,000 interests (40%) - 5,200,000

FV of NCI (40%) 6,500,000 P’s share (40%) of

post-acquisition change
FV of identifiable in equity from 1 Jan 09
net assets - 15,000,000 to 1 April 2011 - 900,000
-----------------
DTL on FV-BV Re-measurement gain 400,000
[(15m – 13m) x 20%] 400,000
-----------------
Goodwill 2,500,000

3a. Equity effects: Profit or loss 3b. Equity effects: Changes in non-controlling
arising from changes in ownership interests
NIL NCI is increased by 6,500,000 (based on FV of NCI)

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 Advanced Financial Accounting Tan, Lim and Kuah
P7.14
Problem 7.14

Scenario: P Co decreases ownership interest in X Co from 80% to 50%

Loss of control:

1. New goodwill 2a. P&L: Re-measurement gain 2b. P&L: Profit / (loss) on sale
or loss of investment
NIL (De-recognized) FV of retained Sales proceeds
interests (50%) 11,800,000 (30% interest) 9,000,000

Original cost of Original cost of

investment (50%) - 10,000,000 investment (30%)
(16m – 10m) - 6,000,000
50% interests’ share of
post-acquisition change 30% interests’ share of
in equity from 1 Jan 09 to post-acquisition change
1 Sept 2011 (2.3m in equity from 1 Jan 09 to
x 50%/80%) - 1,437,500 to 1 Sept 2011 (2.3m
----------------- x 30%/80%) - 862,500
Re-measurement gain 362,500 -----------------
Profit on sale 2,137,500

3a. Equity effects: Profit or loss 3b. Equity effects: Changes in non-controlling
arising from changes in ownership interests
NIL NIL (De-recognized)

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 Advanced Financial Accounting Tan, Lim and Kuah
P7.15

CJE1: Elimination of investment in X Co and Y Co

Dr Share capital (X Co) 1,200,000
Dr Share capital (Y Co) 350,000
Dr Retained earnings (X Co) 700,000
Dr Retained earnings (Y Co) 600,000
Dr Revaluation reserve ( Y Co) 95,000
Dr Deferred tax asset 12,000
Dr Goodwill 3,992,800
Cr Provision for claim 60,000
Cr Investment in X Co 5,000,000 (4375000/70%*80%)
Cr Investment in Y Co 900,000
Cr Non-controlling interests in X Co 626,300
Cr Non-controlling interests in Y Co 363,500
6,949,800 6,949,800

Goodwill in sub-group
Fair value of INA of subgroup at 1 Jan 20x1
Share capital (X Co) 1,200,000
Retained earnings (X Co) 700,000
Book value of X Co 1,900,000
Less X Co's investment in Y Co (900,000)
Under-valued provision for claims (60,000)
Deferred tax asset 12,000
Fair value of INA of X Co 952,000

Share capital (Y Co) 350,000

Retained earnings (Y Co) 600,000
Revaluation reserve (Y Co) 95,000
Fair value of INA of Y Co 1,045,000

X Co's consolidated equity or net assets 1,997,000

Fair value of consideration transferred 5,000,000

Fair value of non-controlling interests (X Co) 626,300
Fair value of non-controlling interests (Y Co) 363,500
Less fair value of INA of subgroup (1,997,000) (see workings above)
Goodwill 3,992,800
Original Divested
P Co's share of goodwill 80% 10%
Fair value of consideration transferred 5,000,000 625,000 10/80*5000000

Less share of fair value of INA of sub-group

Share of X Co's FV of INA 761,600 95,200
Share of Y Co's FV of INA 585,200 1,346,800 73,150
Goodwill 3,653,200 456,650 10/80*3653200

Total 20%
X Co's shareholders' equity as at 1 January 20x1 1,900,000
Less investment in X Co (900,000)
Share of undervalued provision for claim, after-tax (48,000)
X Co's share of Y Co's shareholders'equity as at 1 January 20x1 731,500

X Co's consolidated equity as at 1 January 20x1 1,683,500 336,700

X Co's NCI's goodwill 289,600
X Co's NCI 626,300

Total 30%
Y Co's shareholder's equity as at 1 January 20x1 1,045,000 313,500
Share capital 350,000
Retained earnings 600,000
Revaluation reserves 95,000
1,045,000

Y Co's undervaluation of identifiable net assets 0

Goodwill 50,000

NCI of Y Co 363,500

Total Goodwill 3,992,800 0

CJE2: Effects of the decrease in investment in X Co and Y Co

Dr Investment 625,000
Dr ORE (Gain on sale in legal entity reversed) 375,000
Cr Capital Reserve (Gain on Divestment) 297,560
Cr Non-controlling interests 702,440
1,000,000 1,000,000
P's share of equity of the sub-group as at 31 Dec 20x2
P's share of post-acquisition RE of X Co 436,000 80%*(1245000-700000)
P's share of post-acquisition RE of Y Co 168,000 80%*70%*(900000-600000)

P's share of past expensing of claims of X Co 25,600 80%*80%*(200000-160000)

P's share of unrealized profit of Y Co (10,080) 80%*70%*80%*75%*30000

P's share of sub-group's post-acquisition RE 619,520

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 Advanced Financial Accounting Tan, Lim and Kuah
P7.15

10% of initial investment in X Co 625,000

10% of P's share of post-acq change in equity 77,440 10/80*619520
10% of equity in X Co transferred to NCI 702,440

Workings: Parent's PL Group equity

Sales proceeds 1,000,000 1,000,000
Investment in S Co (625,000) (702,440)
Loss 375,000 297,560

Analytical check of NCI on 31 Dec 20x2 (after re-allocation of 10% to NCI)

CJE1: Elimination of investment in X Co and Y Co 989,800
CJE2: Effects of the decrease in investment in X Co and Y Co 702,440
CJE3: Settlement of undervalued provision for claims 8,000
CJE4: Tax effects of CJE3 (1,600)
CJE5: Allocate share of post-acq RE of X Co to NCI of X Co 109,000
CJE8: Adjustment for upstream sale of inventory from Y Co to P Co (9,900)
CJE9: Tax effects on CJE8 1,980
CJE10: Allocation of post-acquisition RE to total NCI of Y Co 132,000
1,931,720

Book value of net assets of X Co on 31 Dec 20x2 2,445,000 1200000+1245000

Less Provision for claims, after tax (16,000) 80%*(220000-200000)
Less investment in Y Co (900,000)
1,529,000
NCI's share of X Co (30%) 458,700 30%*1529000

Book value of net assets of Y Co on 31 Dec 20x2 1,345,000 350000+900000+95000

Less unrealized profit on 31 Dec 20x2 (Y to P) (18,000) 75%*80%*30000
1,327,000
NCI's share of Y Co (30%+(30%*70%)) 676,770 51%*1327000

NCI's goodwill at acquisition 339,600 289600+50000

P Co's goodwill transferred to NCI 456,650 10/80*3653200
796,250
NCI balance as at 31 Dec 20x2 1,931,720 0

CJE3: Settlement of undervalued provision for claims

Dr Provision for claims 40,000
Cr Opening RE 32,000
Cr Non-controlling interests 8,000

CJE4: Tax effects of CJE3

Dr Opening RE 6,400
Dr Non-controlling interests 1,600
Cr Deferred tax asset 8,000

CJE5: Allocate share of post-acq RE of X Co to NCI of X Co

Dr Opening RE 109,000
Cr NCI (BS) 109,000
RE at 1 Jan 20x3 (date of divestment of 10%) 1,245,000
RE at date of acquisition 700,000
Change in RE 545,000
NCI's share 20% 109,000 20%*545000

CJE6: Eliminate dividends declared by X Co

Dr Dividend income 161,000
Dr Non-controlling interests 69,000 30%*230000
Cr Dividend declared 230,000

CJE7: Allocate share of current income of X Co to NCI of X Co

Dr Income to NCI 499,860 30%*1666200
Cr NCI (BS) 499,860
NPAT of X Co 1,760,000
Less dividend received from Y Co (93,800)
Adjusted NPAT 1,666,200

CJE8: Adjustment for upstream sale of inventory from Y Co to P Co

Dr Opening RE 12,600 30000*75%*56%
Dr Non-controlling interests 9,900 30000*75%*44%
Cr Cost of sales (P's PL) 19,500 30000*65%
Cr Inventory 3,000 30000*10%
Direct NCI 30% 6,750
Indirect NCI (before divestment) 14% 3,150
Total NCI 44% 9,900

CJE9: Tax effects on CJE8

Dr Tax expense 3,900
Dr Deferred tax asset 600
Cr Opening RE 2,520
Cr Non-controlling interests 1,980
Direct NCI 30% 1,350
Indirect NCI (before divestment) 14% 630
Total NCI 44% 1,980

CJE10: Allocation of post-acquisition RE to total NCI of Y Co

Dr Opening RE 132,000
Cr Non-controlling interests 132,000
Retained earnings at 1 Jan 20x3 (divestment of 10%) 900,000
Retained earnings at 1 Jan 20x1 600,000

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Change in retained earnings 300,000

Direct NCI 30% 90,000
Indirect NCI (before divestment) 14% 42,000
Total NCI 44% 132,000

CJE11: Allocation of current profit after tax to total NCI of Y Co

Dr Income to NCI 313,956
Cr Non-controlling Interests 313,956
Net profit after tax of Y Co 600,000
Add realized profit from upstream sale of inventory, after tax 15,600 65%*80%*30000
Adjusted NPAT 615,600
Direct NCI 30% 184,680
Indirect NCI (after divestment of 10%) 21% 129,276
Total NCI 51% 313,956

CJE12: Elimination of dividends declared by Y Co

Dr Dividend income 93,800 70%*134000
Dr Non-controlling interests 40,200 30%*134000
Cr Dividend declared 134,000

CJE13: Allocation of post-acq revaluation reserves to total NCI of Y Co

Dr Share of Revaluation reserves to NCI 12,750
Cr Non-controlling interests 12,750
Revaluation reserves at 31 Dec 20x3 120,000
Revaluation reserves at 1 Jan 20x3 (same as 1 Jan 20x1) 95,000
Change in revaluation reserves 25,000
Direct NCI 30% 7,500
Indirect NCI 21% 5,250
Total NCI 51% 12,750

CJE14: Eliminate intercompany payable and receivable

Dr Intercompany payable 100,000
Cr Intercompany receivable 100,000

EA1: Recognize share of post-acq RE of Z

Dr Investment in Z 61,500
Cr Opening RE 61,500
RE of Z as at 1 Jan 20x3 550,000
RE of Z as at date of acquisition 345,000
Change in RE 205,000
Share of P's change in RE 61,500

EA2: Reclassify dividend income as a reduction of investment

Dr Dividend income 21,000
Cr Investment in Z 21,000

EA3: Amortisation of undervalued intangible

Dr Opening RE 9,600 100000/5*2*80%*30%
Cr Investment in Z 9,600

EA4: Adjustment for unrealised profit in transfer of equipment

Dr Opening RE 9,000
Cr Investment in Z 9,000 40000*7.5/8*80%*30%

EA5: Recognize share of current profit after tax of Z

Dr Investment in Z 206,976
Cr Share of profit of Z 206,976

Workings:
NPBT 856,000
Less amortisation of FV-BV of intangible (20,000) 120000/5
Add back realised profit on depreciation of fixed assets 5,000 40000/8
Adjusted NPBT of Z 841,000
Share of adjusted NPBT of Z 252,300

Tax expense of Z 154,080

Less tax on amortisation of FV-BV of intangible (4,000)
Add tax on realization through depreciation 1,000
Adjusted tax expense of Z 151,080
Share of adjusted tax expense of Z 45,324

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Income Statement and partial Statement of Changes in Equity for year ended 31 December 20x3
P Co X Co Z Co Y Co Consolidated
Profit before tax 3,200,000 2,200,000 856,000 750,000 6,100,676 Note 1
Tax (640,000) (440,000) (154,080) (150,000) (1,233,900) Note 2
Profit after tax 2,560,000 1,760,000 701,920 600,000 4,866,776
Income to NCI (813,816) Note 3
Dividends declared (500,000) (230,000) (70,000) (134,000) (500,000)
Profit retained 2,060,000 1,530,000 631,920 466,000 3,552,960
Retained earnings, 1 Jan 20x3 2,560,000 1,245,000 550,000 900,000 2,847,420 Note 4
Retained earnings, 31 Dec 20x3 4,620,000 2,775,000 1,181,920 1,366,000 6,400,380 AC

Statement of Financial Position as at 31 December 20x3 P Co X Co Z Co Y Co Consolidated

Goodwill 3,992,800 CJE1
Fixed assets, net book value 2,190,000 1,345,900 880,000 1,345,000 4,880,900
Investment in X Co 4,375,000
Investment in Z Co 1,500,000 1,728,876 AC
Investment in Y Co 900,000
Inventory 430,000 532,000 250,000 660,000 1,619,000 Note 5
Intercompany receivable 100,000
Other net assets 920,000 1,967,000 1,800,000 1,632,000 4,523,600 Note 6
Cash 145,900 50,000 40,000 10,000 205,900
9,560,900 4,894,900 2,970,000 3,647,000 16,951,076

Accounts payable 3,240,900 919,900 888,080 1,811,000 5,971,800

Provision for claims 20,000
Intercompany payable 100,000
Share capital 1,600,000 1,200,000 900,000 350,000 1,600,000
Retained earnings 4,620,000 2,775,000 1,181,920 1,366,000 6,400,380
Revaluation reserves 120,000 12,250
Capital reserve 297,560
Non-controlling interests 2,649,086 AC
9,560,900 4,894,900 2,970,000 3,647,000 16,951,076

Note 1: Combined P and subsidiaries 6,150,000 -

Add realized profit from transfer 19,500 65%*30000
Less dividend income from X Co (161,000)
from Y Co (93,800)
from Z Co (21,000)
Add share of profit of associate 206,976
Consolidated profit before tax 6,100,676

Note 2: Combined P and subsidiaries (1,230,000)

Add tax on realized profit from transfer (3,900) 20%*19500
Consolidated tax expense (1,233,900)

Note 3: Income to NCI of X 499,860

Income to NCI of Y 313,956
Income to NCI 813,816

Note 4: P's RE at 1 Jan 20x3 2,560,000

P's share of X's post-acquisition RE 381,500 70%*(1245000-700000)
P's share of Y's post-acquisition RE 147,000 70%*70%*(900000-600000)
P's share of Z's post-acquisition RE 61,500 30%*(550000-345000)

P''s share of past expensing of claims 22,400 70%*80%*40000

P's share of past amortization of intangible assets (9,600) 30%*80%*100000*2/5

P's share of unrealized profit in inventory, 1 Jan (8,820) 49%*75%*80%*30000

P's share of unrealized profit in fixed assets, 1 Jan (9,000) 30%*80%*40000*7.5/8

Gain on sale taken to capital reserve, 1 Jan (297,560) Plug CJE2

Consolidated RE at 1 Jan 20x3 2,847,420 -

Note 5: Reduced by unrealized profit in ending inventory 3,000

Note 6: Increased by deferred tax asset on unrealised profit 600

and deferred tax asset on provision for claims 4,000

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Analytical check of Non-controlling interests

Total Non-controlling interests as at 31 December 20x3
NCI of X Co
and indirect Direct NCI
Total NCI NCI of Y Co of Y Co
CJE1: Elimination of investment in X Co and Y Co 989,800 626,300 363,500
CJE2: Effects of the decrease in investment in X Co and Y Co 702,440 702,440
CJE3: Settlement of undervalued provision for claims 8,000 8,000
CJE4: Tax effects of CJE3 (1,600) (1,600)
CJE5: Allocate share of post-acq RE of X Co to NCI of X Co 109,000 109,000
CJE6: Eliminate dividends declared by X Co (69,000) (69,000)
CJE7: Allocate share of current income of X Co to NCI of X Co 499,860 499,860
CJE8: Adjustment for upstream sale of inventory from Y Co to P Co (9,900) (3,150) (6,750)
CJE9: Tax effects on CJE8 1,980 630 1,350
CJE10: Allocation of post-acquisition RE to total NCI of Y Co 132,000 42,000 90,000
CJE11: Allocation of current profit after tax to total NCI of Y Co 313,956 129,276 184,680
CJE12: Elimination of dividends declared by Y Co (40,200) (40,200)
CJE13: Allocation of post-acq revaluation reserves to total NCI of Y Co 12,750 5,250 7,500
2,649,086 2,049,006 600,080
Analytical check on non-controlling interests of X Co

X Co's shareholders' equity as at 31 December 20x3 3,975,000 1200000+2775000

Less Provision for claims, after tax (16,000) 80%*(220000-200000)
Less investment in Y Co (900,000)
3,059,000

NCI's share of book value of equity as at 31 Dec 20x3 917,700 30%*3059000

NCI of X Co's goodwill as at 31 Dec 20x3 746,250
NCI of X Co and indirect NCI of Y Co 1,663,950

Analytical check of NCI of Y Co Indirect NCI Direct NCI

Y Co's shareholders' equity as at 31 December 20x3 1,836,000 350000+1366000+120000

Less unrealized profit in inventory (Y to P) (2,400) 80%*10%*30000
Adjusted shareholders' equity 1,833,600
Y Co's total NCI share of equity as at 31 December 20x3 935,136 51%*1833600 385056 550080
Goodwill attributable to Y Co's NCI 50,000 50,000
Total NCI of Y Co as at 31 December 20x3 985,136 385056 600,080

Total NCI 2,649,086 0 2,049,006 600,080

0 0
Analytical check of Investment in Z:
Book value of shareholders' equity of Z 2,081,920
Add unamortised intangible asset, after tax 32,000 100000*2/5*80%
Less unrealized profit of fixed assets at year end (26,000) 40000*6.5/8*80%
2,087,920
P's share of Z's identifiable net assets 626,376
Implicit goodwill in investment in Z:
Investment in Z 1,500,000
BV of net assets of Z at acq 1,245,000
Unrecognized intangible, after-tax 80,000
FV of net assets of Z at acq 1,325,000
Less Share of FV of net assets of Z at acq 397,500
Goodwill in Z implicit in the investment in Z 1,102,500
1,728,876

Investment in Z, at cost 1,500,000

EA1: Recognize share of post-acq RE of Z 61,500
EA2: Reclassify dividend income as a reduction of investment (21,000)
EA3: Amortisation of undervalued intangible (9,600)
EA4: Adjustment for unrealised profit in transfer of equipment (9,000)
EA5: Recognize share of current profit after tax of Z 206,976
Investment in Z as at 31 Dec 20x6 1,728,876 -

Analytical check of closing retained earnings

P's RE 4,620,000
X's RE 2,775,000
Y's RE 1,366,000

CJE1: Elimination of investment in X Co and Y Co (1,300,000) 700000+600000

CJE2: Effects of the decrease in investment in X Co and Y Co (375,000)
CJE3: Settlement of undervalued provision for claims 32,000
CJE4: Tax effects of CJE3 (6,400)
CJE5: Allocate share of post-acq RE of X Co to NCI of X Co (109,000)
CJE6: Eliminate dividends declared by X Co 69,000
CJE7: Allocate share of current income of X Co to NCI of X Co (499,860)
CJE8: Adjustment for upstream sale of inventory from Y Co to P Co 6,900 19500-12600
CJE9: Tax effects on CJE8 (1,380) 2520-3900
CJE10: Allocation of post-acquisition RE to total NCI of Y Co (132,000)
CJE11: Allocation of current profit after tax to total NCI of Y Co (313,956)
CJE12: Elimination of dividends declared by Y Co 40,200
EA1: Recognize share of post-acq RE of Z 61,500
EA2: Reclassify dividend income as a reduction of investment (21,000)
EA3: Amortisation of undervalued intangible (9,600)
EA4: Adjustment for unrealised profit in transfer of equipment (9,000)
EA5: Recognize share of current profit after tax of Z 206,976

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Consolidated RE at 31 Dec 20x3 6,400,380

Analytical check
P's RE 4,620,000
P's share of post-acquisition RE of X Co 1,452,500 70%*(2775000-700000)
P's share of post-acquisition RE of Y Co 375,340 70%*70%*(1366000-600000)

P's share of post-acquisition RE of Z Co 251,076 30%*(1181920-345000)

P's share of past expensing of claims of X Co 22,400 70%*80%*40000

P's share of amortization of intangible asset of Z Co (14,400) 30%*100000*80%*3/5

P's share of unrealized profit of Y Co (inventory) (1,176) 70%*70%*80%*10%*30000

P's share of unrealized profit of Y Co (sale to Z) (7,800) 30%*80%*40000*6.5/8

Gain on sale taken to capital reserve (297,560) Plug CJE2

Consolidated RE at 31 Dec 20x3 6,400,380 -

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CJE1: Elimination of investment in B Co and C Co

Dr Share capital (B Co) 1,500,000
Dr Share capital (C Co) 420,000
Dr Retained earnings (B Co) 650,000
Dr Retained earnings (C Co) 180,000
Dr Revaluation reserve ( C Co) 70,000
Dr Inventory (C Co) 50,000
Dr Deferred tax asset 6,000
Dr Goodwill 1,304,000
Cr Accounts receivable 80,000
Cr Investment in B Co 2,500,000
Cr Investment in C Co 800,000
Cr Non-controlling interests in B Co 250,000
Cr Non-controlling interests in C Co 550,000
4,180,000 4,180,000

Goodwill in sub-group
Fair value of INA of subgroup at 1 Aug 20x4
Share capital (B Co) 1,500,000
Retained earnings (B Co) 650,000
Book value of B Co 2,150,000
Less B Co's investment in C Co (800,000)
Less provision for AR (80,000)
Deferred tax asset 16,000
Fair value of INA of B Co 1,286,000

Share capital (C Co) 420,000

Retained earnings (C Co) 180,000
Revaluation reserve (C Co) 70,000
Add undervalued inventory 50,000
Deferred tax liability (10,000)
Fair value of INA of C Co 710,000

FV of B Co's consolidated net assets 1,996,000

Fair value of consideration transferred 2,500,000

Fair value of non-controlling interests (B Co) 250,000
Fair value of non-controlling interests (C Co) 550,000
Less fair value of INA of subgroup (1,996,000) (see workings above)

Goodwill 1,304,000

P Co's goodwill 90%

Fair value of consideration transferred 2,500,000

Less share of fair value of INA of sub-group (1,540,800) (90%*1286000)+(90%*60%*710000)

Goodwill attributable to P Co 959,200

Total

B Co's NCI 250,000

Less fair value of INA of sub-group (171,200) (10%*1286000)+(10%*60%*710000)

B Co's NCI's goodwill 78,800

C Co's NCI 550,000

Less Share of C Co's FV of INA (284,000) 40%*710000
C Co's NCI's goodwill 266,000

Total Goodwill 1,304,000 0

CJE2: Loss of control of D Co

Dr Investment 650,000
Cr ORE 650,000 1800000-1150000

Workings:
Group Legal
Sales proceeds on sale of 20% 900,000 900,000

20/60 of initial investment in D Co (575,000) (575,000) 1725000*20/60

20/60 x P Co's share of post-acquisition change in equity of D Co (176,667)

Profit recognized on 1 Jan 20x5 148,333 325,000

Group Legal
Fair value of retained interests 1,800,000

40/60 of iniitial investment in D Co (1,150,000)

40/60 x P Co's share of post-acquisition change in equity of D Co (353,333)

Re-measurement gain 296,667 0

During 20x5, the following entry was passed

Dr Investment 650,000 1800000-1150000
Dr Profit on sale 176,667 148333-325000
Cr ORE 530,000

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Cr Remeasurement gain 296,667 Above

CJE3: Impairment loss on AR

Dr Provision for impairment loss 80,000
Cr Impairment loss 80,000

CJE4: Tax effects of CJE3

Dr Tax expense 16,000
Cr Deferred tax asset 16,000

CJE5: Allocate share of post-acq RE of B Co to NCI of B Co

Dr Opening RE 80,600
Cr NCI (BS) 80,600
RE at 1 Jan 20x6 1,456,000
RE at date of acquisition 650,000
Change in RE 806,000
NCI's share 80,600 10%*806000

CJE6: Eliminate dividends declared by B Co

Dr Dividend income 180,000
Dr Non-controlling interests 20,000 10%*200000
Cr Dividend declared 200,000

CJE7: Allocate share of current income of B Co to NCI of B Co

Dr Income to NCI 134,000
Cr NCI (BS) 134,000
NPAT of B Co 1,336,000
Impairment loss written back, after tax 64,000
Less dividend received from C Co (60,000)
Adjusted NPAT 1,340,000

CJE8: Adjustment of interest capitalized (transfer from P to B)

Dr ORE 15,000
Dr Interest income 205,000
Cr Interest expense 195,000
Cr Fixed asset 25,000

CJE9: Tax effects of CJE8

Dr DTA 5,000
Cr Tax expense 2,000
Cr ORE 3,000

CJE10: Elimination of post-construction interest

Dr Interest income 150,000
Cr Interest expense 150,000

CJE11: Adjustment of excess depreciation on fixed assets

Dr Accumulated depreciation 4,583 11/12*25000*1/5
Cr Depreciation expense 4,583

CJE12: Tax effects of CJE11

Dr Tax expense 917
Cr DTA 917

CJE13: Adjustment of cost of sales of undervalued inventory

Dr ORE 16,200 90%*60%*60%*50000
Dr NCI 13,800 46%*60%*50000
Cr Inventory 30,000

CJE14: Tax effects of CJE13

Dr DTL 6,000
Cr ORE 3,240
Cr NCI 2,760

CJE15: Adjustment to current cost of sales of undervalued inventory

Dr Cost of sales 15,000 30%*50000
Cr Inventory 15,000

CJE16: Tax effects of CJE15

Dr DTL 3,000
Cr Tax expense 3,000

CJE17: Allocation of post-acquisition RE to total NCI of C Co

Dr Opening RE 23,920
Cr Non-controlling interests 23,920
Retained earnings at 1 Jan 20x6 232,000
Retained earnings at 1 Aug 20x4 180,000
Change in retained earnings 52,000
Direct NCI 40% 20,800
Indirect NCI 6.00% 3,120
Total NCI 46% 23,920

CJE18: Allocation of current profit after tax to total NCI of C Co

Dr Income to NCI 150,236
Cr Non-controlling Interests 150,236
Net profit after tax of C Co 338,600
Less cost of sales of undervalued inventory, after tax (12,000)
Adjusted NPAT 326,600
Direct NCI 40% 130,640

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Indirect NCI 6% 19,596

Total NCI 46% 150,236

CJE19: Elimination of dividends declared by C Co

Dr Dividend income 60,000 60%*100000
Dr Non-controlling interests 40,000 40%*100000
Cr Dividend declared 100,000

CJE20: Allocation of post-acq revaluation reserves to total NCI of C Co

Dr Share of Revaluation reserves to NCI 39,560
Cr Non-controlling interests 39,560
Revaluation reserves at 31 Dec 20x6 156,000
Revaluation reserves at 1 Jan 20x6 70,000
Change in revaluation reserves 86,000
Direct NCI 40% 34,400
Indirect NCI 6% 5,160
Total NCI 46% 39,560

CJE21: Eliminate intercompany payable and receivable

Dr Intercompany payable 1,700,000
Cr Intercompany receivable 1,700,000

EA1: Recognize share of post-acq RE of D Co

Dr Investment in D Co 400,000
Cr ORE 400,000
RE of Z as at 1 Jan 20x6 1,400,000
RE of Z as at date of acquisition 400,000
Change in RE 1,000,000
Share of B's change in RE 400,000

EA2: Reclassify dividend income as a reduction of investment

Dr Dividend income 60,000
Cr Investment in D Co 60,000

EA3: Unrealized loss in transfer of inventory

Dr Investment in D Co 2400 40%*75%*80%*(80000-70000)
Cr Opening RE 2,400

EA4: Share of profit of associate

Dr Investment in D Co 189,920
Cr Share of profit of associate 189,920

Workings:
NPAT 480,000
Less realized loss on inventory transfer (5,200) 80%*65%*10000
Adjusted NPAT of D 474,800
Share of adjusted NPAT of D 189,920.00

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Profit and Loss Statement for year ended 31 December 20x6

P Co B Co D Co C Co Consolidated
Profit before tax 5,800,000 1,670,000 600,000 420,000 7,839,503 Note 1
Tax (1,160,000) (334,000) (120,000) (81,400) (1,587,317) Note 2
Profit after tax 4,640,000 1,336,000 480,000 338,600 6,252,187
Income to NCI (284,236) Note 3
Dividends declared (320,000) (200,000) (150,000) (100,000) (320,000)
Profit retained 4,320,000 1,136,000 330,000 238,600 5,647,951
Retained earnings, 1 Jan 20x6 2,000,000 1,456,000 1,400,000 232,000 3,780,920 Note 4
Retained earnings, 31 Dec 20x6 6,320,000 2,592,000 1,730,000 470,600 9,428,871 AC

Balance sheet as at 31 December 20x6 P Co B Co D Co C Co Consolidated

Goodwill 1,304,000 CJE1
Fixed assets, net book value 4,490,000 3,340,000 2,540,000 761,000 8,570,583 Note 5
Investment in B Co 2,500,000
Investment in D Co 1,150,000 2,332,320 AC
Investment in C Co 800,000
Inventory 600,000 520,000 448,500 348,900 1,473,900 Note 6
Intercompany receivable 1,700,000
Other net assets (including deferred tax) 1,125,800 1,880,000 1,973,000 557,200 3,566,083 Note 7
Cash 747,000 256,000 189,000 56,000 1,059,000
12,312,800 6,796,000 5,150,500 1,723,100 18,305,887

Accounts payable 2,492,800 1,004,000 2,520,500 676,500 4,173,300

Bank loans 1,500,000 1,500,000
Intercompany payable 1,700,000
Share capital 2,000,000 1,500,000 900,000 420,000 2,000,000
Retained earnings 6,320,000 2,592,000 1,730,000 470,600 9,428,871
Revaluation reserves 156,000 46,440
Non-controlling interests 1,157,276 AC
12,312,800 6,796,000 5,150,500 1,723,100 18,305,887

Note 1: Combined P and subsidiaries 7,890,000 -

Impairment reversals of B 80,000

Current FV adjustment of C (15,000) 30%*50000
Adjustment for capitalized interest (P to B) (5,417) (-10000+(25000/5*11/12))
Less dividend income from B Co (180,000) 90%*200000
from C Co (60,000) 60%*100000
from D Co (60,000) 40%*150000
Add share of profit of associate 189,920
Consolidated profit before tax 7,839,503

Note 2: Combined P and subsidiaries (1,575,400)

Tax on:
Impairment reversals of B (16,000)
Current FV adjustment of C 3,000
Adjustment for capitalized interest (P to B) 1,083
(1,587,317)

Note 3: Income to NCI of B 134,000

Income to NCI of C 150,236
284,236

Note 4: P's RE at 1 Jan 20x6 2,000,000

P's share of B's post-acquisition RE 725,400 90%*(1456000-650000)

P's share of C's post-acquisition RE 28,080 90%*60%*(232000-180000)
P's share of D's post-acquisition RE 400,000 40%*(1400000-400000)

P's share of adjustments for FV-BV of C (12,960) 54%*80%*60%*50000

P's share of capitalized interest, 1 Jan (P to B) (12,000) 80%*(120000-105000)

P's share of unrealized loss in inventory, 1 Jan (D to P) 2,400 40%*75%*80%*(80000-70000)

Remeasurement gain on loss of control of D Co 650,000.00

3,780,920 -

Note 5: 4490000+3340000+761000-(25000*49/60)

Note 6: 600000+520000+348900+(10%*50000)

Note 7: 1125800+1880000+557200+(20%*25000*49/60)

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Analytical check of Non-controlling interests

Total Non-controlling interests as at 31 December 20x6
NCI of B Co
and indirect Direct NCI
Total NCI NCI of C Co of C Co
CJE1: Elimination of investment in B Co and C Co 800,000 250,000 550,000
CJE5: Allocate share of post-acq RE of B Co to NCI of B Co 80,600 80,600
CJE6: Eliminate dividends declared by B Co (20,000) (20,000)
CJE7: Allocate share of current income of B Co to NCI of B Co 134,000 134,000
CJE13: Adjustment of cost of sales of undervalued inventory (13,800) (1,800) (12,000)
CJE14: Tax effects of CJE13 2,760 360 2,400
CJE17: Allocation of post-acquisition RE to total NCI of C Co 23,920 3,120 20,800
CJE18: Allocation of current profit after tax to total NCI of C Co 150,236 19,596 130,640
CJE19: Elimination of dividends declared by C Co (40,000) (40,000)
CJE20: Allocation of post-acq revaluation reserves to total NCI of C Co 39,560 5,160 34,400
1,157,276 471,036 686,240

Analytical check on non-controlling interests of B Co

B Co's shareholders' equity as at 31 December 20x6 4,092,000 1500000+2592000

Less investment in C Co (800,000)
3,292,000

NCI's share of book value of equity of B as at 31 Dec 20x6 329,200 10%*3292000

NCI's share of equity of C as at 31 Dec 20x6

NCI of B Co's goodwill as at 31 Dec 20x6 78,800

NCI of B Co and indirect NCI of C Co 408,000

Analytical check of NCI of C Co Indirect NCI Direct NCI

C Co's shareholders' equity as at 31 December 20x6 1,046,600 420000+470600+156000

Remaining balance of undervalued inventory, after tax 4,000
Adjusted shareholders' equity 1,050,600
C Co's total NCI share of equity as at 31 December 20x6 483,276 46%*1050600 63036 420,240
Goodwill attributable to C Co's NCI 266,000 266,000
Total NCI of C Co as at 31 December 20x6 749,276 63036 686,240

Total NCI 1,157,276 0 471,036 686,240

0 0
Analytical check of Investment in D Co:
Book value of shareholders' equity of D 2,630,000 900000+1730000
Add unrealized loss on inventory, after tax 800 10%*80%*10000
2,630,800
P's share of Z's identifiable net assets 1,052,320 40%*2630800
Implicit goodwill in Investment in D Co:
Investment in D Co 1,800,000
BV of net assets of D at acq 1,300,000
FV-BV 0
FV of net assets of D at acq 1,300,000
Less Share of FV of net assets of D at acq 520,000
Goodwill in Z implicit in the Investment in D Co 1,280,000
2,332,320

Investment in D Co, at cost 1,150,000

CJE2: Loss of control of D Co 650,000
EA1: Recognize share of post-acq RE of D Co 400,000
EA2: Reclassify dividend income as a reduction of investment (60,000)
EA3: Unrealized loss in transfer of inventory 2,400
EA4: Share of profit of associate 189,920
Investment in D Co as at 31 Dec 20x6 2,332,320 -

Analytical check of closing retained earnings

P's RE 6,320,000
B's RE 2,592,000
C's RE 470,600

CJE1: Elimination of investment in B Co and C Co (830,000) 650000+180000

CJE2: Loss of control of D Co 650,000
CJE3: Impairment loss on AR 80,000
CJE4: Tax effects of CJE3 (16,000)
CJE5: Allocate share of post-acq RE of B Co to NCI of B Co (80,600)
CJE6: Eliminate dividends declared by B Co 20,000
CJE7: Allocate share of current income of B Co to NCI of B Co (134,000)
CJE8: Adjustment of interest capitalized (transfer from P to B) (25,000)
CJE9: Tax effects of CJE8 5,000
CJE11: Adjustment of excess depreciation on fixed assets 4,583
CJE12: Tax effects of CJE11 (917)
CJE13: Adjustment of cost of sales of undervalued inventory (16,200)
CJE14: Tax effects of CJE13 3,240
CJE15: Adjustment to current cost of sales of undervalued inventory (15,000)
CJE16: Tax effects of CJE15 3,000
CJE17: Allocation of post-acquisition RE to total NCI of C Co (23,920)
CJE18: Allocation of current profit after tax to total NCI of C Co (150,236)
CJE19: Elimination of dividends declared by C Co 40,000
EA1: Recognize share of post-acq RE of D Co 400,000

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 Advanced Financial Accounting Tan, Lim and Kuah
P7.18

EA2: Reclassify dividend income as a reduction of investment (60,000)

EA3: Unrealized loss in transfer of inventory 2,400
EA4: Share of profit of associate 189,920
Consolidated RE at 31 Dec 20x6 9,428,871

Analytical check

P's RE 6,320,000
P's share of B Co's post-acquisition RE 1,747,800 90%*(2592000-650000)
P's share of C Co's post-acquisition RE 156,924 54%*(470600-180000)
P's share of D Co's post-acquisition RE 532,000 40%*(1730000-400000)

P's share of reversal of expensing of overvalued AR of B Co 57,600 90%*80%*80000

P's share of cost of sales of undervalued inventory of C Co (19,440) 54%*80%*90%*50000

P's share of unrealized profit from interest (P to B Co) (16,333) 80%*25000*49/60

P's share of unrealized loss from sale to D Co (P to D) 320 40%*80%*10%*10000

P's remeasurement gain from loss of control 650,000

Consolidated RE at 31 Dec 20x6 9,428,871 -

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