Chapter 4 - Selchons ss foro) Consolidation of Nonwholly Owned Subsidiaries Copyright © 2022 McGraw-Hill Ltd. All rights reserved. 7 ‘Solutions Manual, Chapier 4SOLUTIONS TO REVIEW QUESTIONS 1. Noncontroliing interest represents the equity interest of the noncontrolling shareholders in the fair value of the subsidiary. IFRS 10 requires that it be shown in shareholders’ equity in the consolidated balance sheet under both the identifiable net assets and fair value enterprise methods. 2. The consolidated balance sheet typically includes 100 percent of the subsidiary's assets and liabilities. When the parent holds less than 100 percent ownership of the subsidiary, the noncontrolling interest’s ciaim on those net assets must be reported. The balance sheet will not balance without this additional amount. 3. Consolidated retained earnings includes only amounts attributable to the shareholders of the Parent company. Thus, none of the retained eamings is assigned to the noncontrolling interest. 4. If 80% of a subsidiary cost $80,000, it is inferred that 100% would have cost $100,000. The fair value of 100% of the subsidiary's net assets is subtracted from this implied acquisition ‘cost and the difference is goodwill. The amount of the noncontrolling interest is determined based on the subsidiary's fair values and goodwill arising from the purchase. With a small ‘ownership percentage (e.g., 52%), or when majority ownership is reached through a series of small step acquisitions, this inference as to what 100% would cost is significantly less reliable than at higher ownership percentages. 5. Deferred charges do not meet the definition of an asset. Therefore, the deferred charge should not be reported on the consolidation balance sheet. In other words, the deferred charge should be measured at zero and would appear as a schedule of acquisition differential 6. The proportionate consolidation method requires consolidation of the parent's share of the subsidiary's net assets, therefore giving no recognition to the noncontrolling interest at all Fair value enterprise method views the consolidated entity as being owned by two groups of shareholders, the parent and the noncontrolling interest, and views the purchase transaction to have revalued both parties’ ownership. Thus, the fair value enterprise method requires the noncontrolling interest to be recorded at its percentage share of the fair value of the subsidiary's net assets (including goodwill) at the date that the parent acquired its controlling interest. Identifiable net assets method also gives attention to NCI as one of the shareholders groups; Under this method, noncontrolling interest is to be recorded at its value deficiency on the Copyright © 2022 McGraw-Hill Ltd. All rights reserved. 2 ‘Modemn Advanced Accounting in Canada, Tenth Eaionpercentage share of the fair value of the subsidiary’s identifiable net assets (excluding goodwil. 7. Goodwill and noncontrolling interest differ under the two consolidation methods. Under the identifiable net assets method, only the parent's share of the subsidiary’s goodwill is reported because itis too difficult or subjective to measure the total goodwill of the subsidiary. Since the noncontrolling interest's share of the subsidiary's goodwill is not included on the consolidated balance sheet, the value for noncontrolling does not include a share of the subsidiary's goodwill. Therefore, both goodwill and noncontrolling interest are ‘smaller amounts under the identifiable net assets method in comparison to the fair value enterprise method. 8. Negative goodwill exists if the implied acquisition cost for a 100% investment is less than the fair value of the subsidiary's identifiable net assets. Negative goodwill is reported on the consolidated income statement as a gain on purchase, 9. No, itis not the same. A negative acquisition differential exists if the implied value for a 100% acquisition is less than the carrying amount of the subsidiary's net assets. Negative goodwill exists if the implied acquisition cost is less than the fair value of the subsidiary's identifiable net assets. It is possible to have a negative acquisition differential and end up with positive goodwill 10. No, the historical cost principle is not applied when accounting for negative goodwill. In fact, itis violated. The subsidiary's identifiable net assets are reported at fair value on the consolidated balance sheet at the date of acquisition regardless of the amount paid by the parent. The negative goodwill is reported as a gain on purchase, which is not consistent with the historical cost principle. 411. Goodwill of this nature is treated as if it does not exist at the date of acquisition. A new goodwill figure is calculated based on the acquisition cost at the date of acquisition. When preparing the schedule to allocate the acquisition differential, we assume that the goodwill had been written off by the subsidiary just before the parent acquired its controlling interest in the subsidiary. When calculating goodwill and goodwill impairment in subsequent years, we must adjust on consolidation based on the goodwill calculated at the date of acquisition. 12, Contingent consideration is the additional consideration that may be payable for the. acquisition of a business. The additional consideration is dependent upon whether certain future events occur (or do not occur). For example, a further payment may be required if future net income reaches (or fails to reach) a certain level. The contingent consideration should be measured at fair value at the date of acquisition. To do so, the parent should Copyright © 2022 McGraw-Hill Ltd. All rights reserved. Solutions Manual, Chapter 4 3‘assess the amount expected to be paid in the future under different scenarios, assign probabilities as to the likelihood of the scenarios occurring, derive an expected value of the likely amount to be paid, and use a discount rate to derive the value of the expected payment in today’s dollars. 13. Changes in the fair value of contingent consideration that will be payable in cash should be recognized in net income at each reporting date with a corresponding adjustment to the contingent liability 14. A private company may choose not to consolidate its subsidiaries and instead can report its investment in subsidiaries using the equity method or the cost method, All subsidiaries ‘should be reported using the same method. However, if the entity would otherwise choose to use the cost method and the security is traded in an active market, it must report the investment at fair value. 18, The fair value enterprise method would typically report the lowest and proportionate consolidation the highest debt-to equity ratio because of the value reported for noncontrolling interest, which is reported as a part of shareholders’ equity. Under proportionate consolidation, no value is included for NCI. Under the fair value enterprise method, NCI reports the highest amount because it includes the NCI's share of the subsidiary’s goodwill. The higher the shareholders’ equity, the lower the debt-to-ecuty ratio and vice versa. 46. The consolidation elimination entries are not recorded in the accounting records of either the parent or subsidiary unless the subsidiary applies push down accounting. The elimination entries are recorded on a consolidated working paper or consolidated worksheet, which is used to facilitate the consolidation process. Copyright © 2022 McGraw-Hill Ltd. All rights reserved. a ‘Woden Advanced Aecountng in Canada, Tenth EditionSOLUTIONS TO CASES Case 4-2 Factory Optical Distributors, Teaching Note* Purpose of the case ‘The purpose of this case is to provide students with an opportunity to work with IFRS 10 Consolidated Financial Statements. The requirement is very directive, asking students to examine the specific clauses of a franchise agreement to determine if control exists. The answer is not immediately obvious, since ownership by the parent is much less than 50%, and there are No convertible preferred shares outstanding or signed shareholder agreements in place. Students must look further to decide whether the details of the franchise agreement give FOD (Burnaby) control over the franchisee. Control has the following three elements: (a) the investor has power over the investee to direct the relevant activities. (b) the investor has exposure, or rights, to variable retums from its involvement with the investee and (c) the investor has the ability to use its power over the investee to affect the amount of the investor's returns. All three elements must be met for the investor to have control, Objectives and constraints Since FOD is a public company, audited financial statements are required. Thus, IFRS must be used in reporting the franchise investments. Discussion Factory Optical Distributors (FOD) (Burnaby) owns 35% of the franchise operation's outstanding ‘common shares. No other equity instruments can be issued. Thus, contro! does not exist based on share ownership or ownership of convertible rights, options, or warrants. As well, there is no evidence of an irrevocable shareholder agreement conferring control to either party. * © 1995 J.C. (Jan) Thatcher, Lakehead University, Facully of Business Administration and Margaret Forbes. Used with permission. Adapted by Darrell Herauf. Copyright © 2022 McGraw-Hill Ltd, All rights reserved. ‘Solutions Manual, Chapter 4 3IFRS 10 requires consolidation of all subsidiaries. A subsidiary is defined as an entity that is controlled by another entity. The following specifics of the franchise agreement between FOD (Bumaby) and its franchise operations suggest that the franchisee may be controlled by FOD (Burnaby): + FOD is the only supplier of the lenses to the franchisees and approves the suppliers of frames. Thus, FOD has control over the supply of the primary products offered by the franchise (while the franchisee controls the services offered). ‘+ FOD maintains control over advertising, requires a minimum amount to be spent on advertising and promotion, and dictates special sales and promotions. These points, coupled with FOD's control over the supply of frames and lenses, indicate that FOD is highly involved in many of the day-to-day decisions that must be made for the franchises to succeed. * The franchise agreement sets a maximum on the salary of the franchisee, limiting the rights of the franchisee to withdraw funds from the corporation without involving the other ‘shareholders. ‘+The franchise fee is not a flat fee, but is variable based on revenue. Thus, FOD benefits from the retums earned by the franchises. ‘+ FOD guarantees the financing for new franchise locations or for renovations to existing locations and, thus, is exposed to the same financial risk as the franchises. | The following specifics of the franchise agreement suggest that the franchisee may not be controlled by FOD (Burnaby): ‘+ The franchisee has clear voting control based on common share ownership. The franchisee oversees day-to-day operations and thereby determines the following: © quality of services provided to the customer © other products and services to be offered to the public © selling price of products and services ‘The decision as to if the franchisees are controlled by FOD is one of professional judgment. Some | students may feel that given FOD’s control of financing and operating policies, and exposure to similar business risks, a subsidiary does exist. Others may feel that the factors discussed in the Copyright © 2022 McGraw-Hill Lid All rights reserved, é ‘ociem Advanced Accounting in Canada, Tenth Editioncase do not provide sufficient evidence, and a subsidiary does not exist. In the opinion of the authors, a subsidiary does exist, and consolidation would be appropriate. There is no right or wrong answer to this case. A good classroom discussion will raise all the issues and will allow students to formulate their own opinions based on professional judgment. Case 4-3 Valero - Ultramar Diamond Shamrock - Teaching Note This case is concerned with the nature of the various intangible assets acquired in a business combination, and their valuation in the consolidated financial statements pursuant to the combination. The student is directed to devote attention to a variety of unrecorded intangible assets, and should address their identification and then their valuation issues. Even though this is an American Company, students are directed to basically treat it as a Canadian company as ‘far as financial reporting is concerned. Students should recognize that IFRS and US GAAP are almost identical in the accounting for business combinations. ‘The case mentions that the acquisition includes the extensive UDS refining, logistics, and retail network operating under several brands, including Ultramar, Diamond Shamrock, Beacon, and Total. The retail network is large, with 2,500 company-owned sites and supplying 2,500 further sites. There are extensive brand support programs, and a large home heating oil business (250,000 households). IFRS 3.18 requires that the cost of the acquisition be allocated to identifiable assets acquired and liabilities assumed in a business combination, if recognized in the financial statements of the acquired enterprise based on their fair values at the date of acquisition. An intangible asset is identifiable and should be recognized apart from goodwill when * the asset results from contractual or other legal rights (regardless of whether those rights are transferable or separable from the acquired enterprise or from other rights and obligations); or + the asset is capable of being separated or divided from the acquired enterprise and sold, transferred, 80). [IAS 38.12} sed, rented, or exchanged (regardless of whether there is an intent to do Copyright © 2022 McGraw-Hill Lid. All rights reserved. ‘Solitions Manual, Chapter 7‘A sample memorandum follows: To: CFO, Valero Energy Corp. From: Advanced Accounting Student Re: Intangible assets, UDS acquisition This acquisition includes a variety of intangible assets, some of which should be segregated from goodwill under the provisions of IFRS 3. The overall amount to be allocated to intangible assets is determined in two stages. First, fair values of the various tangible assets and liabilities, and those intangible assets which can be ascertained separately from goodwill, should be determined. After these amounts have been provided for, the remainder of the acquisition cost will be recognized as goodwill. Itis necessary to carefully identify and determine the value of intangible assets, which can be recognized apart from goodwill. Although no separate value can be assigned to the workforce or management team, intangible assets that can be recognized include: + Intangible assets that arise from contractual or other legal rights, regardless of whether the asset is transferable or separable from the acquired enterprise or from other rights and obligations. This category of asset would include the legal rights associated with leases, licences, and other items of that nature, as well as legally protected trademarks and brand names. ‘+ Intangible assets that are not legal or contractual rights, but which are capable of being separated or divided from the acquired enterprise and sold, transferred, licensed, rented, or exchanged, if it was the intent of management to perform any of these actions and even when these assets are linked to tangible assets. This category would include the network of dealerships, where individual locations or territories could be sold separately. Itwould also include the customer lists such as the proprietary credit cards and the home heating business household addresses, as well as the related customer contracts and service agreements. Estimates of fair value for these items should be based on the best information available, including prices for similar items, independent appraisals, and the results of other valuation techniques. Valuation techniques used would be consistent with the objective of measuring fair Copyright © 2022 McGraw-Hill Ltd, All rights reserved. e ‘Modem Advanced Accounting in Canada, Tenth EaWionvalue and may include such approaches as earings or revenues multiples and present value techniques. Individual values for many of these intangible assets (such as individual retail locations) may be difficult to determine and would not be necessary for financial reporting Purposes. However, if the disposition of any part of any assets were contemplated, an allocation of cost to this level of detall would be required to determine the gain or loss on disposition. (IFRS 13) ‘The amount to be assigned to goodwill is the residual value of all items which cannot be ‘separately identified and measured under the criteria suggested above, including the value of the human resources of the acquired company. In short, the amount assigned to goodwill is the total value of the acquisition, less all amounts that can be assigned to identifiable tangible and intangible assets and liabilities, after those values have been objectively determined based on the best information available. Goodwill cannot be independently determined. (IFRS 3.32] ‘Subsequent to the date of acquisition, the intangible assets should be accounted for as follows: * An intangible asset is not written down or written off in the period of acquisition, unless it becomes impaired during this period. [IAS 38] © Arecognized intangible asset should be amortized over its useful life to an enterprise, unless the life is determined to be indefinite. When an intangible asset is determined to have an indefinite useful lfe, it should not be amortized until its life is determined to be no longer indefinite. [IAS 38] + The amortization method and estimate of the useful life of an intangible asset should be reviewed annually. An intangible asset that is subject to amortization should be tested for impairment in accordance with IAS 36. (That is, when the carrying amount exceeds its recoverable amount, the excess should be charged to income.) © An intangible asset that is not subject to amortization should be tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test should consist of a comparison of the asset's recoverable amount with its carrying amount. When the carrying amount of the intangible asset exceeds its recoverable amount, an impairment loss should be recognized in an amount equal to the excess. [IAS 36] ‘+ Goodwill should be recognized on an enterprise's balance sheet at the amount initially recognized, less any subsequent write-down for impairment. [IAS 36] Copyright © 2022 McGraw-Hill Ltd. All rights reserved. ‘Saliions Manuel, Chapter eCopyright © 2022 McGraw-Hill Ltd All rights reserved. 70 ‘Modern Advanced Accounting iv Canada, Tenth EaitonCase 4-5 Memo To: Partner From: CPA Subject! Eternal Rest Engagement ‘As requested, | have reviewed the files and notes prepared for the Eternal Rest Limited (ERL) engagement. Below is my analysis and disposition of outstanding accounting issues. Copyright © 2022 McGraw-Hill Lid. All rights reserved. Solutions Manwal, Chapter a iOverview Management has an income-based bonus plan which creates incentives for them to increase ERL's income, ‘Tranquil acquisition The value of the shares issued in the Tranquil acquisition was set as the closing market price on the day before the signing of the sale agreement. However, the shares must be held in escrow and cannot be sold for a year. This restriction reduces the market value of the shares. Therefore, a discount from the market price should be applied when calculating the cost of the investment in Tranquil. Similarly, the first mortgage bonds that were issued are noninterest-bearing and recording them at face value ignores implicit interest. Using the face value of the bonds to determine the acquisition cost of Tranquil overstates the price and therefore overstates the amount of goodwill recorded on acquisition. (IFRS 3.37] The information provided indicates that Tranquil likely receives funds in advance for services to be provided (such as prepaid funerals). However, no unearned revenue is reported on the balance sheet. It is unclear what revenue recognition policy Tranquil uses for prepaid services, and the policy needs to be identified so that the reason for the absence of unearned revenue can be evaluated. [IFRS 15] The use of historical cost as an estimate of fair value does not seem very realistic since it is Unlikely that values for land, buildings and equipment will remain unchanged over time. By reporting the assets at historical cost, any fair value excess related to these assets would end up in goodwill. Since goodwill is not amortized whereas the fair value excess related to buildings and equipment would be amortized, net income would be overstated in the current year. Also, understating the value of land permits immediate recognition of the increase in the value if some of it was sold (as was done) thereby increasing income. Since ERL's management has a bonus plan based on income before taxes, historical cost may have been used as an estimate of fair value to increase their bonuses. | have concerns about the reliance that was placed on management's estimates of the fair value of Tranquil's land, buildings and equipment. It is not clear from the files that other evidence ‘supporting the fair value estimates (such as appraisals) were obtained. Indeed, the fact that ERL sold some of the land acquired in the purchase of Tranquil at a gain supports the contention that Copyright © 2022 McGraw-Hill Lid. All rights reserved, 2 ‘Madam Advanced Accounting in Canada, Tenth Editionhistorical cost is a poor basis for estimating the fair value of the acquired assets. (IFRS 3,18] ‘The $702,000 included in working capital and held in trust for cemetery maintenance should be segregated on the balance sheet, classified as a long-term asset on the balance sheet or disclosed in the notes to the financial statements since its use is restricted. [IAS 1.16] The contingent payment for meeting the three-year revenue target is an additional cost of acquiring the Tranquil business. If the revenue target is met over the first three years, it indicates that the prospects for future revenues are promising. The probability adjusted present value of $2.5 million should be added to the acquisition cost, Since this payment is not conditional on the four owners staying on as employees, this payment would not be compensation for services rendered after the date of acquisition. [IFRS 3.39] ‘The profit-sharing component of the employment contract appears to be compensation for services to be rendered. It will not be paid if the owners do not work as employees. It should be ‘expensed when the bonus is earned. It is not an additional cost of buying the business. [IFRS: Conceptual framework for financial reporting] Peaceful acauisition As with Tranquil, the goodwill recorded regarding Peaceful may be overstated. The loss camry- forwards have not been recorded, so their value is included in goodwill, thereby overstating goodwill. IFRS require that the tax benefit be set up if there is reasonable assurance that the benefits will be realized during the carryforward period. It appears that there is reasonable assurance since use of the carryforwards was one of the reasons for the purchase by ERL and ‘some of the carryforward benefits have already been used. ERL has incorrectly treated the benefit from utilization of the carryforwards as a gain in Year 5. If the loss carryforward benefit is recognized as an asset at the date of acquisition, it should be drawn down as the benefit of the loss carryforwards are utilized. If no benefit was recognized at the date of acquisition, then a credit to income tax expense should be recognized when the benefit of the loss carryforwards is utilized. Also, since the allocation of the acquisition cost for Peaceful to the acquired assets and liabilities was done in the same manner as for the Tranquil acquisition, | am also concemed about the amount reported for goodwill. [IFRS 3.25] There is no indication that the $4 million attributed to the noncompetition agreements signed as Copyright © 2022 McGraw-Hill Lid, All rights reserved. ‘Solutions Manual, Chapter 4 3part of the Peaceful acquisition is being amortized. Since the agreements are for five years, itis appropriate to amortize the amount over that period. (IFRS: Conceptual framework for financial reporting] Environmental issue ‘The Sunset Hill land is subject to a government order related to environmental concems. An ‘employee estimates that clearing up the concerns would cost about $500,000. No accrual has been made. The potential cost should be recognized as a liability at the date of acquisition at fair value i.e. the probability adjusted present value of expected costs to clear up the problem. [IFRS 3.23] i Copyright © 2022 McGraw-Hill Ltd. All rights reserved, 4 Modem Advanced Accounting in Canada, Tenth EditionSOLUTIONS TO PROBLEMS | Problem 4-2 | (a) Khan's cost for 70% of shares 770,000 Implied value of 100% of shares 1,100,000 NCI's 30% interest 330,000 ) Implied value of 100% of Winnipeg $1,100,000 Carrying amount of Winnipeg's net assets Assets cls 2o%,006 $1,426,000 Liabilities Re 465,000 4 558,000 typo ia dent Rlcclb v6.6, vce 68,000 ~ ‘Acquisition differential Tee tga ely wp-bovo 232,000 Allocated: FV-CA Plant and equipment $149,000 Patents 120,000 Current assets 35,000 Long-term debt (23.000) 281,000 Goodwill ($49,000) Copyright © 2022 McGraw-Hill Ltd, All rights reserved. ‘Solutions Manuel, Chapter 4 5Problem 4-9 (b) Fair value enterprise method Cost of 70% investment (497 shares x $40) $19,880 Implied value of 100% investment $28,400 (f) Carrying amount of J's net assets Assets $108,150 Liabilities (75,300) 32,850 Acquisition differential (4.450) Allocated: Plant assets Long-term debt (2,550) Negative goodwill in total (1,900) Recognized in parent's income 4,900) Goodwill Se Noneontrolling interest [(f) 28,400 x 30%] $8,520 E Ltd. Consolidated Balance Sheet December 31, Year 6 Cash and receivables (96,450 - 4,370 + 20,400) $112,480 Inventory (57,900 + 9,450) 67,350 Plant assets (229,800 + 71,400 - 5,950) 295,250 Intangible assets (24,450 + 6,900) 31,350 $806,430 Current liabilities (63,900 + 30,100) $94,000 Long-term debt (98,400 + 45,200 ~ 3,400) 140,200 ‘Common shares (154,800 + 19,880 - 1,780) 172,900 Retained earnings (91,500 + 1,900 - 2,590) 90,810 Noncontrolling interest 8.520 SORARE IROL Sehale Copyright © 2022 McGraw-Hill Ltd, All rights reserved. 76 ‘Modem Advanced Accounting in Canada, Tenth EditionProblem 4-12 Cost of 90% of ERS (($252,000 + (12,000 shares x $48) $828,000 Implied value of 100% of ERS $920,000 ‘Carrying amount of ERS's net assets Assets Clo B00 $1,216,000 Liabilities Kle 31b,060 422,000 : == 3-794,000 ‘Acquisition differential 426,000 Allocated: FV-CA | Equipment $98,000 Patented technology (24,000 74,000 Goodwill $52,000 (a) Oll's income prior to the date of acquisition, $256,000, less $38,000 paid to broker = $218,000 {b) OIL’s retained earnings, on January 1, Year 5 (given) = $808,000 (e) $708,000 + $608,000 + $98,000 = $1,414,000 (d) $908,000 + $312,000 - $24,000 = $1,196,000 (©) $62,900 int dele (f) $60§,000 + $422,000 + $252,000 = $1,282,000 fac bal Shacos (g) $538,000 + $576,000 - $40,000 = $1,074,000 (h) 10% x $920,000'= $92,000 chart { ceue Cosh Cinghed we'd) Copyright © 2022 McGrav-Hil Ltd, All rights reserved. @ ‘oder Advanced Accounting In Canada, Tenth EationProblem 4-13 Cost of investment (288,000 + 48,000 for contingent consideration) $336,000 ' Implied value of 100% investment $420,000 | Carrying amount of McGraw Ltd.'s net assets nese C]s 29,000 $728,000 Liabilties ale_(2, 602) 380,000 33800 <-> 398.000 Less: goodwill 35,000 303,000 Acquisition differential 117,000, Allocated. FV=CA i Inventory $8,000 i Land 36,000 Plant and equipment 13,000 156,000 Goodwill $61,000 | Hill Corp. | Consolidated Balance Sheet | December 31, Yoar 4 | Cash (13,000 + 6,500) $19,500 | Accounts receivable (181,300 + 45,500) 226,800 | Inventory (117,000 + 208,000 + 8,000) 333,000 | Land (81,000 + 52,000 + 35,000) 478,000 Plant and equipment (468,000 + 381,000 + 13,000) 862,000 Goodwill (117,000 + 0 + 61,000) 178,000 $4,207.300 | Current liabilties (188,000 + 104,000) $260,000 i Contingent consideration payable 48,000 Long-term debt (416,000 + 286,000) 702,000 ‘Common shares 520,000 | Retained earings 183,300 Noncontrolling interest (20% x $420,000) 84,000 $4,297,300 | Copyright © 2022 McGraw-bill Ltd. All rights reserved. 8 ‘Modem Advanced Accounting in Canada, Tenth EditionProblem 4-17 Case 1 Cost of investment Carrying amount of Sub Ltd.'s net assets $95,000 Assets Liabilities Acquisition differential Allocated: EV-cA Inventory (26,000 — 21,000) $5,000 Plant (60,000 — 51,000) 9,000 Trademarks (14,000 - 7,000) 7,000 21,000 Long-term debt (19,000 ~ 20,000) 4,000 22,000 Balance: goodwill $15,000 tv Par Ltd. ca ci} Consolidated Balance Sheet Paad + Sao % BS January 4, Year 2 Cash (100,000 - 98,000 + 2,000) $7,000 Accounts receivable (25,000 + 7,000) 32,000 Inventory (80,000 + 21,000 + 5,000) 56,000 Plant (175,000 + 51,000 + 9,000) 235,000 Trademarks (0 + 7,000 + 7,000) 14,000 Goodwill (0 + 0 + 18,000) 15,000 $359,000 Current liabilities (50,000 + 10,000) $60,000 Long-term debt (80,000 + 20,000 - 1,000) 99,000 Common shares, 110,000 Retained earnings 90,000 ‘Solutions Manuel, Chapter 4 Copyright © 2022 McGraw-Hill Ltd. All rights reserved. 18Case 2 Cost of 80% investment Implied value of 100% Carrying amount of Sub Ltd.'s net assets Seal C]s 24,000 ~ Liabilities Cle 22 wo Acquisition differential Allocated Inventory Plant Trademarks Long-term debt Goodwill Noncontroling interest (20% x 95,0005 $359,000 Par Ltd. Consolidated Balance Sheet January 1, Year 2 Cash (100,000 ~ 76,000 + 2,000) Accounts receivable (25,000 + 7,000) Inventory (30,000 + 21,000 + 5,000) Plant (175,000 + 51,000 + 9,000) Trademarks (0 + 7,000 + 7,000) Goodwill (0 + 0 + 15,000) Copyright © 2022 McGraw-Hill Ltd All rights reserved. 20 ‘$78,000 $95,000 2k $88,000: . 30,000 7 $8,000 37,000, FV-CA ‘$5,000 9,000 7,000 21,000 1,000 22,000 $15,000 $19,000 $26,000 32,000 56,000 235,000 14,000, 15,000 $378,000 ‘Madam Advanced Accounting in Canada, Tenth EdivonCurrent liabilities (50,000 + 10,000) ‘$60,000 Long-term debt (80,000 + 20,000 — 1,000) 98,000 Common shares 110,000 i Retained earings 90,000 Noncontrolling interest 19,000 $378,000 Case3 Cost of investment $80,000 | Carrying amount of Sub Ltd.’s net assets” Assets Liabilities Acquisition differential 22,000 Allocated: FV-CA | Inventory $5,000 Plant 9,000 Trademarks 7.000 21,000 Long-term debt 1,000 22,000 Goodwill Soo Par Ltd. Consolidated Balance Sheet | January 1, Year 2 | Cash (100,000 -80,000 + 2,000) $22,000 Accounts receivable (25,000 + 7,000) 32,000 Inventory (30,000 + 21,000 + 5,000) 56,000 Plant (175,000 + 51,000 + 9,000) 236,000 Trademarks (0 + 7,000 + 7,000) 14,000 $359,000 Copyright © 2022 McGraw-Hill Ltd. All rights reserved. ‘Solutions Manual, Chapter 4 2Current liabilities (60,000 + 10,000) $60,000 Long-term debt (80,000 + 20,000 ~ 1,000) 99,000 Common shares 110,000 | Retained earings 90,000 i $359,000 Case 4 Cost of investment $70,000 | Carrying amount of Sub Ltd.'s net assets _ Assets (cls 3 Tas Liabilities \ ale S600.) ‘Acquisition differential 12,000 | Allocated: FV-cA Inventory $5,000 Plant 9,000 Trademarks 7,900 21,000 Long-term debt 1.900 22,000 | Negative goodwill (10,000) \ Recognized in income 40,000 Goodwill 0: Par Ltd. i Consolidated Balance Sheet | January 1, Year 2 Cash (100,000 - 70,000 + 2,000) $32,000 Accounts receivable (25,000 + 7,000) 32,000 Inventory (30,000 + 21,000 + 5,000) 56,000 Plant (175,000 + 51,000 + 9,000) 235,000 Trademarks (0 + 7,000 + 7,000) 14,000 Copyright © 2022 MoGraw-Hil Ltd, All ights reserved. 2 ‘Modem Advanced Accounting in Canada, Tenth EatonCurrent liabilities (50,000 + 10,000) $60,000 Long-term debt (80,000 + 20,000 - 1,000) 99,000 Common shares 110,000 Retained earnings (90,000 + 10,000) 100,000 $369,000 Case5 Cost of 90% investment $63,000 Implied value of 100% investment $70,000 > Carrying amount of Sub Ltd.’s net assets Assets efs soe0 ) $88,000 Liabilities Ke AD OD 30,000. oe ? 58,000 Acquisition differential 12,000 Allocated: Fv-CA Inventory $5,000 Plant 9,000 Trademarks 1.009 21,000 Long-term debt 4,000 22,000 Negative goodwill (10,000) Recognized in income 10,000 Goodwill Sa: Noncontroliing interest (10% x 70,008) $7,000 Copyright © 2022 McGraw-Hill Lid, All rights reserved. Solutions Menai, Chapter 2Par Ltd. Consolidated Balance Sheet January 1, Year 2 ‘Cash (100,000 - 63,000 + 2,000) Accounts receivable (25,000 + 7,000) Inventory (30,000 + 21,000 + 5,000) Plant (175,000 + 61,000 + 9,000) Trademarks (0 + 7,000 + 7,000) Current liabilities (50,000 + 10,000) Long-term debt (80,000 + 20,000 ~ 1,000) Common shares Retained eamings (90,000 + 10,000) Noncontroliing interest Copyright © 2022 McGraw-Hill Ltd All rights reserved. 24 ‘Modern Advanced Accounling in Canada, Tenth Eaiion $39,000 32,000 56,000 235,000 14,000 $328,000 $60,000 99,000 110,000 100,000 7,000 $376,000