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accounting question QUESTION 3 Part A (a) There is one asset that appears in the consolidated...

accounting question

QUESTION 3

Part A

(a) There is one asset that appears in the consolidated balance sheet of the group but probably

does not appear in the parent entity’s or subsidiary entity’s separate financial statements, and

there is also one asset that will appear in the balance sheet of the parent entity but will not

appear in the consolidated financial statements. Name these two assets.

(b) What is the primary criterion for determining whether or not to consolidate an entity?

Briefly explain this criterion.

Part B

Parent Ltd acquired equity in Subsidiary Ltd on 1 April 2009. At that date the identifiable net

assets were considered to be fairly valued and the equity of Subsidiary Ltd comprised:

Share capital

$100,000

Retained earnings

30,000

Nine years later Parent Ltd is preparing consolidated financial statements for the financial

year ended 31 March 2018 and has gathered the following information:

?

Prior years’ impairment of total goodwill amounted to $26,000. For the current year

ended 31 March 2018 the directors of Parent Ltd believe that the total goodwill has

been further impaired by $4,000.

?

During the financial year ended 31 March 2017 Subsidiary Ltd made sales to Parent

Ltd of $30,000 and recorded a profit of $5,000. Parent Ltd had not sold this purchase

of inventory as at 31 March 2017.

?

During the financial year ended 31 March 2018 Parent Ltd made sales to Subsidiary

Ltd of $7,000 and recorded a profit of $3,200. This purchase remained in the

inventory of Subsidiary Ltd as at 31 March 2018.

?

Subsidiary Ltd billed Parent Ltd $2,100 for consulting advice provided on 25 March

2018. This transaction had been recorded by both entities; it remained unpaid as at 31

March 2018.

?

The following account balances have been extracted from the financial statements of

Subsidiary Ltd at 31 March 2018:

$

Profit after tax

60,000

Retained earnings-opening balance

40,000

Dividends declared and paid

15,000

Retained earnings–closing balance

85,000

Share capital

100,000

Required:

(a) Assume Parent Ltd acquired 100% of the equity in Subsidiary Ltd for $200,000 on

1 April 2009. Complete the consolidation worksheet in the answer book for Parent

Ltd for the financial year ended 31 March 2018 in accordance with NZ IFRS 10 and

NZ IFRS 3. Other relevant information about intercompany transactions are provided

in the consolidation worksheet.

(b) Assume Parent Ltd only acquired 80% of the equity in Subsidiary Ltd for $160,000

on 1 April 2009. Prepare the notional journal entry as at 31 March 2018 to identify the

non-controlling interest (NCI), in Subsidiary Ltd, to be reported in the group accounts

in accordance with NZ IFRS 10 and NZ IFRS 3. The directors of Parent Ltd require

the non-controlling interest in Subsidiary Ltd to be measured at the non-controlling

interest’s proportionate share of the Subsidiary Ltd’s identifiable net assets i.e. not at

fair value. Workings must be included in your notional journal entry.

(c) Assume Parent Ltd only acquired 80% of the equity in Subsidiary Ltd for $160,000

on 1 April 2009. Calculate the amount at which the group equity account NCI would

be reported at in the consolidated financial statements, as at 31 March 2018, in

accordance with NZ IFRS 10 and NZ IFRS 3, if the directors of Parent Ltd required

the NCI to be measured at fair value. Workings must be included.

Part A (a) Name the Asset that:

Appears in the consolidated balance sheet:

                 

Does not appear in the consolidated balance sheet:

Part A ( b) The primary criterion is:

Part B (a) Consolidation Worksheet for Parent Ltd for the financial year ended 31 March 2018

Parent

Ltd

Sub

Ltd

Notional Journal Entries

        Dr                 Cr

Group

Income statement/dividend items:

$

$

$

$

$

Income

522,500

275,000

Less expenses

410,000

197,000

Profit before tax

112,500

78,000

Less income tax expense

50,000

18,000

Profit after tax

62,500

60,000

Retained earnings – opening balance

50,000

40,000

Less: dividends declared and paid

50,000

15,000

Balance Sheet items:

Equity

Retained earnings – closing balance

62,500

85,000

Share capital

400,000

100,000

Total equity

462,500

185,000

Liabilities

Various liabilities

127,900

70,000

Consulting fee payable to Sub Ltd

2,100

-

Bank loan

92,500

30,000

Total liabilities

222,500

100,000

Total equity and liabilities

$685,000

$285,000

Assets

Receivables

40,000

20,000

Inventory

120,000

55,000

Various assets

325,000

210,000

Investment in Subsidiary Ltd

200,000

-

Total assets

$685,000

$285,000

Part B (b) Notional journal entry for the NCI not measured at FV

31/03/18

Include your workings on each line of your notional journal entry below:

$

$

Part B (c) The NCI if measured at FV would be:

$

Workings:

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