Akl P4.3 & P4.4 [PDF]

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Acquirer: Parent Co. Acquiree: Subsidiary Co. Date of Acquisition: 31 December 20x0 Subsidiary Co Statement of Financial Position As at 31 December 20x0 (date of acquisition)

Fixed assets, net Current Assets: Inventory Accounts receivable Cash

Less Current Liabilities: Accounts payable Short-term loans Net current assets/liabilities

Shareholders' equity Share capital Retained Earnings

Book Value Fair Value $ 600,000 $ 750,000 $ $ $ $

40,000 100,000 20,000 160,000

$ $ $ $

50,000 70,000 20,000 140,000

$ $ $ $ $

80,000 110,000 190,000 (30,000) 570,000

$ $ $ $ $

80,000 110,000 190,000 (50,000) 700,000

$ $ $

320,000 250,000 570,000 $

700,000

Income Statement and Partial Statement of Changes in Equity For Year Ended 31 December 20x1

Net profit before tax (including dividend income) Less tax expense Net profit after tax Less dividend declared Profit retained for the year Retained earnings, 1 January Retained earnings, 31 December

$ $ $ $ $ $ $

Parent Co 550,000 110,000 440,000 100,000 340,000 1,000,000 1,340,000

Subsidiary Co $ 100,000 $ 20,000 $ 80,000 $ 24,000 $ 56,000 $ 250,000 $ 306,000

a. Parent paid $1,000,000 for an 80% stake in Subsidiary on 31 December 20x0. Fair value of NCI was $250,000 at acquisition date that was proportional to the

consideration transferred by Parent Co. b. On 31 December 20x1, total goodwill was assessed to be impaired to the extent of $50,000 c. There were no intragroup transactions other than parent Co's investment in Subsidiary Co and dividends declared by S Co d. Information relating to "undervalued" and "overvalued" identifiable net assets is as follows i. Remaining useful life of undervalued fixed assets as at 31 December 20x0 was ten years ii. Undervalued inventory was sold in 20x1 iii. Overvalued accounts receivable was written down for a potential bad debt. The debt was confirmed bad in 20x1 and written off in subsidiary's book in 20x1 e. Assume a tax rate of 20%. Recognize tax effects on fair value adjustments Required: 1. What is the goodwill arising from the applications of IFRS 3? 2. Prepare the consolidation adjustments for the year ended in 31 December 20x1 3. Perform an analytical check on the NCI balance as at 31 December 20x1 4. Show the consolidation adjustments that need to be passed in 20x2 to re-enact the consolidation adjustments of 20x1 5. Prepare the conslidated income statement for the year ended 31 December 20x1

1. What is the goodwill arising from the applications of IFRS 3? Investment cost NCI Total transferred Book value of net assets/equity Book value and fair value differential Allocation of FV over BV Fixed Assets Inventory Accounts receivable

[80%] {20%] [100%]

$ $ $ $ $

1,000,000 250,000 1,250,000 570,000 680,000

Goodwill

$ $

104,000 576,000

Goodwill attributable to NCI

$

115,200

Deferred tax liability (20%)

$ $ $ $ $

150,000 10,000 (30,000) 130,000 26,000

2. Prepare the consolidation adjustments for the year ended in 31 December 20x1 CJE 1: Elimination of investment entry (20x1) Dr Share capital Dr Retained earnings Dr Fixed assets Dr Inventory Dr Goodwill Cr Investment in S Co. Cr NCI

$ $ $ $ $

320,000 250,000 150,000 10,000 576,000

Cr Accounts receivable Cr Deferred tax liability CJE 2: Impairment of goodwill (20x1) Dr Impairment loss of goodwill Cr Goodwill

$

CJE 3: Elimination of dividend declared (20x1) Dr Dividend Income Dr NCI Cr Dividend declared

$ $

CJE 4: Depreciation Adjustment (20x1) Dr Depreciation expense Cr Accumulated depreciation

$

Dr Deferred tax liability

$

$ $

1,000,000 250,000

$ $

30,000 26,000

$

50,000

$

24,000

$

15,000

50,000

19,200 4,800

15,000

3,000

Cr Tax expense

$

3,000

$

10,000

$

2,000

$

30,000

$

6,000

$

6,800

$

80,000

Impairment loss of goodwill (CJE 2) Adjusted NPAT

$ $ $

4,000 (50,000) 34,000

NCI shares @20%

$

6,800

$ $ $ $

250,000 (4,800) 6,800 252,000

$

Hak NCI (20%) 626,000 $ 125,200

CJE 5: Sale of Undervalued Inventory (20x1) Dr Cost of good sold Cr Inventory

$

Dr Deferred tax liability

$

10,000

2,000

Cr Tax expense CJE 6: Written down of accounts receivable (20x1) Dr Accounts receivable Cr Bad debt expense

$

Dr Tax expense

$

30,000

6,000

Cr Deferred tax liability CJE 7: Attributable Net Profit After Tax to NCI (20x1) Dr Income to NCI Cr NCI NPAT Current adjustment Depreciation adj. (CJE 4) COGS adj. (CJE 5) Written down of A/R adj. (CJE 6) Tax expense

$

$ $ $ $ $

6,800

(15,000) (10,000) 30,000 5,000 (1,000)

3. Perform an analytical check on the NCI balance as at 31 December 20x1 CJE 1 CJE 3 CJE 7 Balance NCI (31/12/20x1)

Book value of net assets (31/12/20x1) Share of FV&BV Differential Fixed assets

$

135,000

$

27,000

Deferred tax liability

$

(27,000) $ $

Share of Identifiable Net Assets Goodwill attributable to NCI NCI share of goodwill impairment Balance NCI (31/12/20x1)

$ 108,000 $ 233,200 $ $ $ $

(5,400) 21,600 146,800 115,200 (10,000) 252,000

Hak NCI = Hak NCI atas net aset teridentifikasi (%NCI x Net aset teridentifikasi) + Hak NCI atas Goodwill 4. Show the consolidation adjustments that need to be passed in 20x2 to re-enact the consolidation adjustments of 20x1 CJE 1: Elimination of investment entry (20x2) Dr Share capital Dr Retained earnings Dr Fixed assets Dr Inventory Dr Goodwill Cr Investment in S Co. Cr NCI Cr Accounts receivable Cr Deferred tax liability

$ $ $ $ $

320,000 250,000 150,000 10,000 576,000 $ $ $ $

1,000,000 250,000 30,000 26,000

$

50,000

$

15,000

$ $

2,400 600

$

15,000

$

3,000

CJE 2: Impairment of goodwill (Last/past year 20x1) Dr Opening Retained earnings Dr NCI Cr Goodwill

$ $

CJE 4: Depreciation Adjustment (Last/past year 20x1) Dr Opening Retained earnings Dr NCI Cr Accumulated depreciation

$ $

Dr Deferred tax liability

$

40,000 10,000

12,000 3,000

3,000

Cr Opening Retained Earnings Cr NCI CJE 5: Depreciation Adjustment (current year 20x2) Dr Depreciation expense Cr Accumulated depreciation

$

Dr Deferred tax liability

$ Cr Tax expense

CJE 5: Sale of Undervalued Inventory (past year 20x1)

15,000

3,000

Dr Opening Retained Earnings Dr NCI Cr Inventory

$ $

Dr Deferred tax liability

$

2,000 8,000

Dr Opening Retained Earnings Dr NCI Cr Deferred tax liability CJE 7: Allocation of change in R/E to NCI Dr Retained Earnings Cr NCI R/E at acquisition date (1/1/20x1) R/E at beginning of current year (1/1/20x2) Allocation to NCI

$ $

$

$ $ $ $

10,000

$ $

1,600 400

$ $

24,000 6,000

$

6,000

$

11,200

2,000

Cr Opening Retained Earnings Cr NCI CJE 6: Written down of accounts receivable (past year 20x1) Dr Accounts receivable $ Cr Opening Retained Earnings Cr NCI

$

30,000

4,800 1,200

11,200

250,000 306,000 56,000 11,200

5. Prepare the conslidated income statement for the year ended 31 December 20x

Consolidated Income Statem For Year Ended 31 December

Net profit before tax (including dividend income)

Less tax expense

Net profit after tax Less income to NCI Less dividend declared Profit retained for the year Retained earnings, 1 January Retained earnings, 31 December

Book value of fixed assets Fair value of fixed assets Differential Remaining useful lifes

$ $ $

600,000 750,000 150,000 10 years

Depreciation adj.

$

15,000

Book value inventory Fair value inventory Differential

$ $ $

40,000 50,000 10,000

on adjustments of 20x1

t for the year ended 31 December 20x1 Consolidated Income Statement For Year Ended 31 December 20x1

Parent Co Subsidiary Co $ 550,000 $ 100,000 $ $ $ $

$

110,000 $

20,000

CJE 4 CJE 5 $

$

440,000 $ 100,000 340,000 1,000,000 1,340,000

$ $ $ $

$ $

3,000 $ 2,000

131,000

6,000 CJE 6

80,000 $

$ $ $ $

Consolidation Entries Dr Cr Consolidation 50,000 CJE 2 $ 585,800 19,200 CJE 3 15,000 CJE 4 10,000 CJE 5 CJE 6 $ 30,000

6,800 CJE 7 CJE 3 $

24,000 56,000 250,000 $ 250,000 CJE 1 306,000 $ 357,000 $

$ 454,800 $ 6,800 24,000 $ 100,000 $ 348,000 $ 1,000,000 59,000 $ 1,348,000

On January 20x4, P Co acquired 90% of S Co. Details of S Co as at the date of acquisition are as follows Share capital Retained earnings as at 1 January 20x4

$ $ $

1,000,000 150,000 1,150,000

Fair value was different from book value of the following assets of S Co

Fixed assets

Fair Value $ 900,000

Book Value $ 800,000

Remaining useful life for the fixed assets as at acquisition date was five years and residual value of the fixed assets was zero. Fair value of NCI as at acquisition date was $345,000. The financial statement of P Co and S Co for the year ended 31 December 20x5 are shown below. Assume a tax rate of 20% throughout. Income Statement and Partial Statement of Changes in Equity For Year Ended 31 December 20x5 P Co S Co Sales $ 10,000,000 $ 3,500,000 Cost of Sales $ (7,820,000) $ (1,200,000) Gross profit $ 2,180,000 $ 2,300,000 Operating Expense $ (800,000) $ (560,000) Operating Profit $ 1,380,000 $ 1,740,000 Dividen Income from S $ 54,000 Interest Income - S and Bank $ 100,000 Interest expense to P $ (90,000) Profit before tax $ 1,534,000 $ 1,650,000 Tax at 20% $ (306,800) $ (330,000) Profit after tax $ 1,227,200 $ 1,320,000 Dividen declared $ (120,000) $ (60,000) Profit retained $ 1,107,200 $ 1,260,000 Retained earnings, 1 January $ 1,300,000 $ 400,000 Retained earnings, 31 December $ 2,407,200 $ 1,660,000 Statement of Financial Position As at 31 December 20x5 P Co Investment in S Co $ 3,200,000 Fixxed Asset $ 4,500,000 Loan Receivable from S Co $ 500,000 Inventory $ 1,250,000 Account receivable $ 1,300,000 Other receivable $ 200,000

S Co $

2,000,000

$ $ $

670,000 500,000 120,000

Cash

Share capital Retained earnings Loan Payable to P Account payable Other payable

$ 320,000 $ 11,270,000 $ $

3,000,000 2,407,200

$ 5,742,800 $ 120,000 $ 11,270,000

$

3,290,000

$ $ $ $ $ $

1,000,000 1,660,000 500,000 80,000 50,000 3,290,000

Required: 1. Prepare the consolidation adjustments for the year ended 31 December 20x5 2. Prepare the consolidation worksheets for the year ended 31 December 20x5 3. Reconcile the NCI interest' balance as at 31 December 20x5

1. Prepare the consolidation adjustments for the year ended 31 December 20x5

1/1/20x4

Investment cost [90%] NCI [10%] Total transferred [100%] BV of equity S Co Differential Allocation of FV and BV differential Fixed assets $ DTL (20%) $

$ $ $ $ $

3,200,000 345,000 3,545,000 1,150,000 2,395,000

Goodwill

$ $

80,000 2,315,000

Goodwill attributable to NCI (10%)

$

222,000

$ $ $ $

1,000,000 150,000 100,000 2,315,000

$

$ 3,200,000 $ 345,000 $ 20,000 3,565,000 $ 3,565,000

100,000 (20,000)

CJE 1: Elimination of investment in S Co (20x5) 31/12/20x5 Share capital Retained earnings Fixed assets Goodwill Investment in S Co NCI DTL

CJE 2: Depreciation adjustment (past year 20x4) 31/12/20x5 Opening retained earnings NCI Accumulated depreciation - FA Fair value of fixed assets Book value of fixed assets Differential Remaining useful life Depreciation adjustment

$ $ $ $

$ $

18,000 2,000 $

20,000

$ $

3,600 400

$

20,000

900,000 800,000 100,000 5 years 20,000 /years

31/12/20x5 Deferred tax liability Opening retained earnings NCI

$

CJE 3: Depreciation Adjustment (current year 20x5) 31/12/20x5 Depreciation expense Accumulated depreciation - FA

$

31/12/20x5 Deffered tax liability

$

4,000

20,000

4,000

Tax expense CJE 4: Elimination of dividend 31/12/20x5 Dividend income from S NCI Dividend declared

$ $

CJE 5: Elimination of receivables from S Co 31/12/20x5 Loan payable to P Loan Receivables from S Co

$

CJE 6: Elimination of interest expense to P 31/12/20x5 Interest Income - S Interest expense to P

$

CJE 7: Allocation of change in retained earnings to NCI 31/12/20x5 Opening retained earnings NCI

$

Retained earnings at acquisition date Retained earnings at beginning of current year Differential Allocation to NCI (10%) CJE 8: Attributable net profit to NCI 31/12/20x5 Income to NCI NCI NPAT of S Co (20x5) Current adjustment Depreciation expense

$

60,000

$

500,000

$

90,000

$

25,000

$

130,400

500,000

90,000

25,000

$ $ $ $

150,000 400,000 250,000 25,000

$

130,400

1,320,000

Adjusted NPAT of S Co (20x5)

$ $

(16,000) 1,304,000

Allocation to NCI (10%)

$

130,400

Tax expense

4,000

54,000 6,000

$ $ $ $

$

(20,000) (20,000) 4,000

2. Prepare the consolidation worksheets for the year ended 31 December 20x5

Income Statement and Partial Statement of Changes in Equity Consolidation Wo For Year Ended 31 December 20x5 Consolidation entries P Co S Co Dr Sales $ 10,000,000 $ 3,500,000 Cost of Sales $ (7,820,000) $ (1,200,000) Gross profit $ 2,180,000 $ 2,300,000 Operating Expense $ (800,000) $ (560,000) $ 20,000 Operating Profit $ 1,380,000 $ 1,740,000 Dividen Income from S $ 54,000 $ 54,000 Interest Income - S and Bank Interest expense to P Profit before tax Tax at 20% Profit after tax Income to NCI

$ $ $ $

Dividen declared Profit retained Retained earnings, 1 January

$ $ $

Retained earnings, 31 December

$

Investment in S Co Fixed Assets (Net) Accumulated Depreciation - FA Fixed Assets (Net) Loan Receivable from S Co Inventory Account receivable Other receivable Cash Goodwill Total Assets Share capital

100,000

$

90,000

$

130,400

(120,000) $ (60,000) 1,107,200 $ 1,260,000 1,300,000 $ 400,000 $ $ $ 2,407,200 $ 1,660,000 $

150,000 18,000 25,000 487,400

$ (90,000) 1,534,000 $ 1,650,000 (306,800) $ (330,000) 1,227,200 $ 1,320,000

Statement of Financial Position Consolidation Worksheet As at 31 December 20x5 Consolidation entries P Co S Co Dr $ 3,200,000 $ 4,500,000 $ 2,000,000 $ 100,000

$ $ $ $ $

500,000 1,250,000 $ 1,300,000 $ 200,000 $ 320,000

670,000 500,000 120,000 $

2,315,000

3,000,000 $ 1,000,000 $

1,000,000

$ 11,270,000 $ 3,290,000 $

Retained earnings NCI

Loan Payable to P Account payable DTL

Other payable

$

$

2,407,200 $ 1,660,000 $

487,400

$ $

2,000 6,000

500,000 $ 80,000

500,000

$ $

4,000 4,000

$ 5,742,800 $

$ 120,000 $ 50,000 $ 11,270,000 $ 3,290,000

3. Reconcile the NCI interest' balance as at 31 December 20x5 1. NCI 31/12/20x5 (ending balance from worksheet) 2. Analytical Check NCI 31/12/20x5) Equity S Co. (31/12/20x5) Change in FV and BV differential Fixed Assets DTL Goodwill attributable to NCI NCI (31/12/20x5)

NCI interest (10%) $ 2,660,000 $ 266,000 $ $ $

60,000 (12,000) 48,000 $ $ $

4,800 222,000 492,800

n Equity Consolidation Worksheet er 20x5 Consolidation entries Cr

CJE 3 CJE 4 CJE 6 CJE 6 $ CJE 3 $ CJE 8 CJE 4 $ CJE 1 CJE 2 $ CJE 7 WS 1 $

Consolidation $ 13,500,000 $ (9,020,000) $ 4,480,000 $ (1,380,000) $ 3,100,000 $ -

$ 90,000 $ $ 4,000 $ $ $ $ 60,000 $ $ $ 3,600

10,000 3,110,000 (632,800) 2,477,200 (130,400) 2,346,800 (120,000) 2,226,800 1,510,600

157,600 $

3,737,400

dation Worksheet x5 Consolidation entries CJE 1 CJE 1 CJE 2 CJE 3

$ $

CJE 5

$

CJE 1

CJE 1

$

Cr Consolidation 3,200,000 $ $ 6,600,000 20,000 $ (40,000) 20,000 $ 6,560,000 500,000 $ $ 1,920,000 $ 1,800,000 $ 320,000 $ 320,000 $ 2,315,000 $ 13,235,000 $

3,000,000

WS 1 CJE 1 CJE 2 CJE 4 CJE 7 CJE 8 CJE 5 CJE 1 CJE 2 CJE 3

$ $ $

157,600 $ 345,000 $ 400

$ $

25,000 130,400

$

3,737,400 492,800

$ $ 20,000 $

5,822,800 12,000

$ $

170,000 13,235,000

$

492,800