PRBA003 Week 10 Tutorialsolutions 10 Ed

Question 21.
15 Full goodwill method, consolidated financial statements

On 1 July 2014, Mudlark Ltd acquired 80% of the shares of Peewee Ltd on an ex div basis for
$305 600. At this date, all the identifiable assets and liabilities of Peewee Ltd were recorded at
amounts equal to fair value except for:
Carrying amount Fair value

Inventory $120 000 $130 000
Machinery (cost $200 000) 160 000 165 000
At 30 June 2014, Peewee Ltd had recorded a dividend payable of $10 000. The inventory on
hand at 1 July 2014 was all sold by 30 November 2014. The machinery had a further 5-year life,
but was sold on 1 April 2017. At acquisition date, Peewee Ltd reported a contingent liability of
$15 000 that Mudlark Ltd considered to have a fair value of $7000. This liability was settled in
June 2015 for $10 000. At acquisition date, Peewee Ltd had not recorded an asset relating to
equipment design as the asset was still in the research phase. Mudlark Ltd placed a fair value
on the asset of $12 000, reflecting expected benefits existing at acquisition date. The asset was
considered to have a further 10-year life. On 1 January 2016, the asset met the requirements of
IAS 38 Intangible Assets and subsequent expenditure by Peewee Ltd on the asset was
capitalised.
Mudlark Ltd uses the full goodwill method. At 1 July 2014, the fair value of the non-
controlling interest was $75 000.
Additional information
(a) On 1 July 2015, Peewee Ltd sold an item of plant to Mudlark Ltd at a profit before tax of
$4000. Mudlark Ltd depreciates this class of plant at a rate of 10% p.a. on cost while
Peewee Ltd applies a rate of 20% p.a. on cost.
(b) At 30 June 2016, Mudlark Ltd had on hand some items of inventory purchased from
Peewee Ltd in June 2015 at a profit before tax of $500. These were all sold by 30 June
2017.
(c) During the 2016–17 period Mudlark Ltd sold $12 000 inventory to Peewee Ltd at a mark-
up of 20% on cost. $3000 of this inventory remains unsold by 30 June 2017.
(d) The other components of equity relate to financial assets. These assets are measured at
fair value with movements in fair value being recognised in other comprehensive income.
(e) The parent and the subsidiary are considered to be separate cash generating units.
Management have analysed the impairment indicators on an annual basis and conducted
an impairment test on the subsidiary cash generating unit in the 2015–16 year, which
resulted in the writing down of goodwill in the records of the subsidiary by $4000. There
have been no other business combinations involving these entities since 1 July 2014.
(f) The tax rate is 30%.
(g) Shareholder approval is not required in relation to dividends.
(h) On 30 June 2017 the trial balances of Mudlark Ltd and Peewee Ltd were as follows:
Debit balances Mudlark Peewee Ltd

Ltd
Shares in Peewee Ltd $305 600 —
Inventory 180 000 $60 000
Financial assets 229 000 215 000
Other current assets 10 000 2 000
Deferred tax assets 15 800 8 000
Plant 452 100 303 000
Land 144 200 42 000
Equipment design — 18 000
Goodwill 20 000 22 000
Chapter 22: Consolidation: other issues
Cost of sales 120 000 70 000

Other expenses 50 000 10 000
Income tax expense 35 000 40 000
Dividend paid 14 000 6 000
Dividend declared 20 000 4 000
$1 595 700 $800 000
Credit balances
Share capital $800 000 $330 000
Other components of equity 100 000 80 000
Other reserves 50 000 1 000
Retained earnings (1/7/16) 45 000 16 000
Transfer from other reserves — 2 000
Sales 200 000 140 000
Other revenue 40 000 25 000
Gains/losses on sale of non-current assets 10 000 5 000
Debentures 70 000 20 000
Deferred tax liability 20 000 12 000
Other current liabilities 38 700 35 000
Dividend payable 10 000 4 000
Accumulated amortisation – equipment design — 4 000
Accumulated impairment losses – goodwill — 16 000
Accumulated depreciation – plant 212 000 110 000
$1 595 700 $800 000
(i) Extracts from the statement of changes in equity for Peewee Ltd were as follows:
2014–15 2015–16 2016–17

Retained earnings (opening balance) $20 000 $19 000 $16 000
Profit for the year 20 000 20 000 50 000
Dividends paid (3 000) (6 000) (6 000)
Dividends declared (15 000) (17 000) (4 000)
Transfers to/from other reserves* (3 000) — 2 000
Retained earnings (closing balance) $19 000 $16 000 $58 000
Other reserves (opening balance) $30 000 $33 000 $33 000
Transfers to/from retained earnings* 3 000 — (2 000)
Bonus issue* — — (30 000)
Other reserves (closing balance) $33 000 $33 000 $1 000
Other components of equity (op. bal.) $10 000 $42 000 $72 000
Movements in fair value 32 000 30 000 8 000
Other components of equity (cl. bal.) $42 000 $72 000 $80 000
Share capital (opening balance) $300 000 $300 000 $300 000
Bonus issue* — — 30 000
Share capital (closing balance) $300 000 $300 000 $330 000
* These items were from equity earned prior to 1 July 2014.
Required
Prepare the consolidated financial statements of Mudlark Ltd at 30 June 2017.
© John Wiley and Sons Australia, Ltd 2015 22.1

At 1 July 2014:
Peewee Ltd: Goodwill $22 000
Accum. impairment losses ($16 000 - $4 000) 12 000
10 000
Net fair value of identifiable assets,

liabilities and contingent liabilities
of Peewee Ltd = $300 000 + $30 000 + $10 000 + $20 000
+ $10 000 (1 – 30%) (BCVR – inventory)
+ $5 000 (1 – 30%) (BCVR – machine)
- $7 000 (1 – 30%) (BCVR – provision)
+ $12 000 (1 – 30%) (BCVR – equip. design)
- $10 000 (goodwill)
= $364 000
(a) Consideration transferred = $305 600
(b) Non-controlling interest = $75 000
Aggregate of (a) and (b) = $380 600
Goodwill = $16 600
Goodwill of Peewee Ltd:

Fair value of Peewee Ltd = $75 000/20%
= $375 000
Net fair value of identifiable assets and
liabilities of Peewee Ltd = $364 000
Goodwill of Peewee Ltd = $11 000
Recorded goodwill = $10 000
Unrecorded goodwill = $1 000
Goodwill of Mudlark Ltd:

Goodwill acquired = $16 600
Goodwill of Peewee Ltd = $11 000
Goodwill of Mudlark Ltd – control premium = $5 600
CONSOLIDATION WORKSHEET ENTRIES
1. Business combination entries
Equipment design Dr 12 000

Deferred tax liability Cr 3 600
Business combination valuation reserve Cr 8 400
Amortisation expense Dr 1 200

Retained earnings (1/7/16) Dr 2 400
Accumulated amortisation Cr 3 600
(1/10 x $12 000 p.a. for 3 years)
Deferred tax liability Dr 1 080

Income tax expense Cr 360
Retained earnings (1/7/16) Cr 720

Depreciation expense Dr 750

Gain on sale of machinery Dr 2 250
Transfer from business combination
valuation reserve Cr 3 500
(Depreciation is 1/5 x $5 000 p.a.)
Accumulated impairment losses – goodwill Dr 12 000

Goodwill Cr 12 000
Goodwill Dr 1 000
2. Pre-acquisition entries
At 1 July 2014:

Share capital Dr 240 000
Other reserves (1/7/14) Dr 24 000
Other components of equity (1/7/14) Dr 8 000
Business combination valuation reserve Dr 12 000
Goodwill Dr 5 600
Shares in Peewee Ltd Cr 305 600
At 30 June 2017:

Goodwill Dr 5 600
Shares in Peewee Ltd Cr 305 600
RE: 80%[$20 000 + $7 000 (BCVR – inv) - $4 900 (BCVR –prov)

- $3 000 (transfer to other reserves)]
Other reserves: 80% ($30 000 + $3 000)
BCVR: 80%($3 500 + $8 400 + $1 000)

Other reserves: bonus issue Cr 24 000
(Bonus issue: 80% x $30 000)
Transfer from other reserves [RE] Dr 1 600

Transfer to retained earnings [OR] Cr 1 600
(80% x $2 000)


valuation reserve Dr 2 800
(80% x $3500)
3. NCI share of equity at acquisition date 1/7/14

Business combination valuation reserve * Dr 3 000
NCI Cr 75 000
(20% of balances)
* 20% x ($7 000 inv + $3 500 mach - $4 900 liab. + $8 400 eq design + $1000 g’will)
4. NCI share of changes in equity from 1/7/14 to 30/6/16
Other reserves (1/7/16) Dr 600

Retained earnings (1/7/16) Cr 1 416
Business combination valuation reserve Cr 420
NCI Cr 11 164
RE: 20% [$16 000 - $20 000 - $1 400 – ($2 400 - $720)]
BCVR: 20% ($7 000 - $4 900)
Other reserves: 20% ($33 000 - $30 000)
Other components: 20% ($72 000 - $10 000)
5. NCI share of changes in equity from 1/7/16 to 30/6/17
NCI share of profit Dr 9 412

NCI Cr 9 412
(20% [$50 000 – ($1 200 - $360) – ($750 + $2 250 - $900)]
NCI Dr 1 200
Dividend paid Cr 1 200
(20% x $6 000)
NCI Dr 800
Dividend declared Cr 800
(20% x $4 000)
Transfer from other reserves [RE] Dr 400

Transfer to retained earnings [OR] Cr 400
(20% x $2 000)

Other reserves: bonus issue Cr 6 000
(20% x $30 000)

Movements in fair value [OCE] Dr 1 600

NCI Cr 1 600
(20% x $8 000)

valuation reserve Dr 700
(20% x $3 500)
6. Dividend paid
Dividend revenue Dr 4 800

(80% x $6 000)
7. Dividend declared

Dividend declared Cr 3 200
(80% x $4 000)
Dividend payable Dr 3 200

Dividend receivable Cr 3 200
8. Sale of plant: Peewee Ltd to Mudlark Ltd

Deferred tax asset Dr 1 200
Plant Cr 4 000
9. NCI effect
NCI Dr 560
(20% x $2 800
10. Depreciation
Accumulated depreciation Dr 800
Depreciation expense Cr 400
(10% x $4 000 p.a.)
Income tax expense Dr 120

Retained earnings (1/7/16) Dr 120
Deferred tax asset Cr 240
11. NCI effect

NCI share of profit Dr 56
NCI Cr 112

12. Profit in opening inventory

Cost of sales Cr 500
13 NCI effect

14. Sales of inventory: current period Mudlark Ltd to Peewee Ltd
Sales Dr 12 000
Cost of sales Cr 11 500
Inventory Cr 500
Deferred tax asset Dr 150


QUESTION 21.15 (cont’d)

Financial Mudlark Peewee Group NCI Parent
Statements Ltd Ltd Dr Cr
Sales revenue 200 000 140 000 14 12 000 328 000
Other revenue 40 000 25 000 6 4 800 57 000
7 3 200
240 000 165 000 385 000
Cost of sales 120 000 70 000 500 12 178 000
11 500 14
Other expenses 50 000 10 000 1 1 200 400 10 61 550
1 750
170 000 80 000 239 550
Trading profit 70 000 85 000 145 450
Gains on non- 10 000 5 000 1 2 250 12 750
current assets
Profit before 80 000 90 000 158 200
tax
Tax expense 35 000 40 000 10 120 360 1 73 860
12 150 900 1
150 14
Profit 45 000 50 000 84 340 5 9 412 74 802
11 56
13 70
Ret. earnings 45 000 16 000 1 2 400 720 1 39 770 3 4 000 1 416 4 37 760
(1/7/16) 1 1 400 400 10 11 56 560 9
2 15 280 70 13
8 2 800
10 120
12 350
Transfer from 0 0 2 2 800 3 500 1 700 5 700 0
BCVR
Transfer from 0 2 000 2 1 600 400 5 400 0
other reserves
90 000 68 000 125 210 112 562
Dividend paid 14 000 6 000 4 800 6 15 200 1 200 5 14 000
Div. declared 20 000 4 000 3 200 7 20 800 800 5 20 000
34 000 10 000 36 000 34 000
Ret. earnings 56 000 58 000 89 210 78 562
(30/6/17)
Share capital 800 000 330 000 2 240 000 866 000 3 60 000 800 000
2 24 000 6 000
BCVR 0 0 2 10 320 8 400 1 1 880 3 3 000 420 4 0
1 000 1 700 5
2 800 2
856 000 388 000 957 090 878 562
Other reserves 35 000 33 000 2 26 400 41 600 3 6 000 35 000
(1/7/16) 4 600
Transfer 15 000 (2 000) 1 600 2 14 600 400 5 15 000
to/from RE
Bonus issue 0 (30 000) 24 000 2 (6 000) 6 000 0
Other reserves 50 000 1 000 50 200 50 000
(30/6/17)

OCE (1/7/16) 90 000 72 000 2 8 000 154 000 3 2 000 139 600
4 12 400
Movements 10 000 8 000 18 000 5 1 600 16 400
OCE (30/6/17) 100 000 80 000 172 000 156 000
Total equity: 1 084 562
parent
Total equity: 5 1 200 75 000 3 94 728
NCI 5 800 11 164 4
9 560 9 412 5
1 600 5
112 11
Total equity 1006000 469 000 1179290 108 854 108 854 1 179 290
Dividend 10 000 4 000 7 3 200 10 800

payable
Other current 38 700 35 000 73 700
Deferred tax 20 000 12 000 1 1 080 3 600 1 34 520
liabilities
Debentures 70 000 20 000 90 000
Total liabilities 138 700 71 000 209 020
Total equity 1144700 540 000 1388310
and liabilities
Shares in 305 600 0 305 600 2 0

Peewee Ltd
Plant 452 100 303 000 4 000 8 751 100
Accumulated (212 000)(110 000) 10 800 (321 200)
depreciation
Equipment 0 18 000 1 12 000 30 000
design
Accumulated 0 (4 000) 3 600 1 (7 600)
amortisation
Land 144 200 42 000 186 200
Deferred tax 15 800 8 000 8 1 200 240 10 24 910
assets 14 150
Inventory 180 000 60 000 500 14 239 500
Financial assets 229 000 215 000 444 000
Receivables 10 000 2 000 3 200 7 8 800
Goodwill 20 000 22 000 1 1 000 12 000 1 36 600
2 5 600
Accumulated 0 (16 000) 1 12 000 (4 000)
impairment
losses
Total assets 1144700 540 000 396 970 396 970 1388310

MUDLARK LTD
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the financial year ended 30 June 2017
Revenue:
Sales $328 000
Other 57 000
Total revenue 385 000
Expenses:
Cost of sales 178 000
Other 61 550
239 550
Profit from trading 145 450
Gains from sale of non-current assets 12 750
Profit before tax 158 200
Income tax expense 73 860
Profit for the period $84 340
Other comprehensive income:
Movements in fair value of financial assets 18 000
Comprehensive income for the period $102 340
Profit for the period attributable to:

Parent entity interest $74 802
Non-controlling interest $9 538
Comprehensive income for the period attributable to:

Parent interest $91 202

MUDLARK LTD
Consolidated Statement of Changes in Equity
Group Parent
Comprehensive income for the period $102 340 $91 202
Retained earnings:
Balance at 1 July 2016 $39 770 $37 760
Profit for the period 84 340 74 802
Transfer from BCVR 700 0
Transfer from other reserves 400 0
Dividend paid (15 200) (14 000)
Dividend declared (20 800) (20 000)
Balance at 30 June 2017 $89 210 $78 562
Other reserves:
Balance at 1 July 2016 $41 600 $35 000
Transfers to/from retained earnings 14 600 15 000
Bonus issue of shares (6 000) ____0
Balance at 30 June 2017 $50 200 $50 000
Business combination valuation reserve

Balance at 1 July 2016 $2 550 0
Balance at 30 June 2017 $1 880 0
Other components of equity:

Balance at 1 July 2016 $154 000 $139 600
Gains/Losses 18 000 $16 400
Balance at 30 June 2017 $172 000 $156 000

MUDLARK LTD
Consolidated Statement of Financial Position
as at 30 June 2017
Current Assets
Inventories $239 500
Receivables 8 800
Financial assets 444 000
692 300
Non-current Assets
Property, plant and equipment
Plant 751 100
Accumulated depreciation (321 200)
Equipment design 30 000
Accumulated amortisation (7 600)
Land 186 200
Tax assets: Deferred tax asset 24 910
Goodwill 36 600
Accumulated impairment losses (4 000)
Total Non-current Assets 696 010
Total Assets $1 388 310
Equity and liabilities
Equity attributable to equity holders of the parent

Share capital $800 000
Reserves: Other reserves 50 000
Other components of equity 156 000
Retained earnings 78 562
Parent Entity Interest 1 084 562
Non-controlling Interest 94 728
Total Equity 1 179 290
Current Liabilities
Payables: Dividend payable 10 800
Other 73 700
Total Current Liabilities 84 500
Non-current Liabilities
Interest-bearing liabilities: Debentures 90 000
Tax liabilities: Deferred tax liability 34 520
Total Non-current Liabilities 124 520
Total Liabilities 209 020
Total Equity and Liabilities $1 388 310

Question 22.5 Consolidation worksheet, consolidated statement of

profit or loss and other comprehensive income
Pakistan Ltd acquired 75% of the shares of Peru Ltd on 1 July 2013 for $1 900 000. The
identifiable assets and liabilities of Peru Ltd at fair value on the acquisition date were
represented by:
Share capital $ 500 000
General reserve 800 000
Retained earnings 1 200 000
$ 2 500 000
On the same date, Peru Ltd acquired 60% of Philippines Ltd for $1 100 000. The identifiable
assets and liabilities of Philippines Ltd at the acquisition date at fair value were represented by:
Share capital $ 660 000

General reserve 500 000
Retained earnings 500 000
$ 1 660 000
The financial information provided by the three companies for the year ended 30 June 2018 is
shown below.
The following additional information was obtained:
(a) All transfers to general reserve were from post-acquisition profits.
(b) Included in the plant and machinery of Philippines Ltd was a machine sold by Peru Ltd on
30 June 2015 for $75 000. The asset had originally cost $130 000 and it had been written
down to $60 000. Philippines Ltd had depreciated the machine on a straight-line basis over
5 years, with no residual value.
(c) Philippines Ltd had transferred one of its motor vehicles (carrying amount of $15 000) to
Pakistan Ltd on 31 March 2017 for $12 000. Pakistan Ltd regarded this vehicle as part of its
inventory. The vehicle was sold by Pakistan Ltd on 31 July 2017 for $17 000.
(d) The tax rate is 30%.
Pakistan Ltd Peru Ltd Philippines Ltd

Sales revenue $ 2 850 000 $ 1 100 000 $ 880 000
Other revenue 420 000 200 000 60 000
Total revenues 3 270 000 1 300 000 940 000
Cost of sales 1 410 000 520 000 380 000
Other expenses 200 000 80 000 110 000
Total expenses 1 610 000 600 000 490 000
Profit before income tax 1 660 000 700 000 450 000
Income tax expense 580 000 160 000 140 000
Profit 1 080 000 540 000 310 000
Retained earnings (1/7/17) 4 070 000 2 300 000 1 120 000
Total available for 5 150 000 2 840 000 1 430 000
appropriation 400 000 160 000 80 000
Dividend paid 400 000 200 000 90 000
Dividend declared 100 000 50 000 40 000
Transfer to general reserve 900 000 410 000 210 000
$ 4 250 000 $ 2 430 000 $ 1 220 000
Retained earnings (30/6/18)
Required
Prepare the consolidated statement of profit or loss and other comprehensive income and
statement of changes in equity (not including movements in the general reserve and share
capital) for the group for the year ended 30 June 2018.

75% 60%
Pakistan Ltd Peru Ltd Philippines Ltd
Pakistan Ltd 75% Pakistan Ltd 45%
DNCI 25% DNCI 40%
INCI 15%
Pre-acquisition analysis: Pakistan Ltd – Peru Ltd

At 1 July 2013:
Net fair value of identifiable assets

and liabilities of Peru Ltd = $500 000 + $800 000 + $1 200 000 (equity)
= $2 500 000
(a) Consideration transferred = $1 900 000
(b) Non-controlling interest = 25% x $2 500 000
= $625 000
Aggregate of (a) and (b) = $2 525 000
Goodwill = $25 000
1. Pre-acquisition entry Pakistan Ltd – Peru Ltd
At 30 June 2018:
Retained earnings (1/7/17)* Dr 900 000

General reserve Dr 600 000
Goodwill Dr 25 000
Shares in Peru Ltd Cr 1 900 000
* (75% x $1 200 000)
2. DNCI share of equity of Peru Ltd at 1/7/13

NCI Cr 625 000
(25% of balances)
3. DNCI share of equity of Peru Ltd: 1/7/13 – 30/6/17

NCI Cr 275 000
(25% ($2 300 000 - $1 200 000))

4. DNCI share of equity of Peru Ltd: 1/7/17 – 30/6/18

NCI Cr 135 000
(25% x $540 000)

Transfer to general reserve Cr 12 500
(25% x $50 000)
NCI Dr 40 000
(25% x $160 000)
NCI Dr 50 000
(25% x $200 000)
NCI Dr 13 500
NCI share of profit Cr 13 500
(25% x 60% x $90 000 –
Dividend declared by Philippines Ltd,
in current period)
NCI Dr 12 000
(25% x 60% x $80 000 –
Dividend paid by Philippines Ltd,
in current period)
Pre-acquisition analysis: Peru Ltd – Philippines Ltd
At 1 July 2013:

and liabilities of Philippines Ltd = $1 660 000
(a) Consideration transferred = $1 100 000
(b) Non-controlling interest = 40% x $1 660 000
= $664 000
Aggregate of (a) and (b) = $1 764 000
Goodwill = $104 000
5. Pre-acquisition entry: Peru Ltd – Philippines Ltd

Goodwill Dr 104 000
Shares in Philippines Ltd Cr 1 100 000

6. DNCI share of equity of Philippines Ltd at 1/7/13

NCI Cr 664 000
(40% of balances)
7. NCI share of equity of Philippines Ltd: 1/7/13 – 30/6/17

NCI Cr 248 000
(40% ($1 120 000 - $500 000))

NCI Cr 93 000
(15% ($1 120 000 - $300 000/0.6))
8. NCI share of equity of Philippines Ltd: 1/7/17 – 30/6/18
NCI Share of profit Dr 124 000

NCI Cr 124 000
(40% x $310 000)
NCI Share of profit Dr 46 500

NCI Cr 46 500
(15% x $310 000)

Transfer to general reserve Cr 22 000
(55% x $40 000)
NCI Dr 32 000
(40% x $80 000)
NCI Dr 36 000
(40% x $90 000)
9. Dividend paid: Peru Ltd

(75% x $160 000)
10. Dividend paid: Philippines Ltd

(60% x $80 000)

11. Dividend declared: Peru Ltd

(75% x $200 000)

12. Dividend declared: Philippines Ltd

(60% x $90 000)

13. Plant and machinery transfer: Peru Ltd – Philippines Ltd

Deferred tax asset Dr 4 500
Plant and machinery Cr 15 000
14. NCI adjustment
NCI Dr 2 625
(25% x $10 500)
15. Depreciation
Accumulated depreciation Dr 9 000

Depreciation expense Cr 3 000

Deferred tax asset Cr 2 700
16. NCI adjustment
NCI share of profit * Dr 525

NCI Cr 1 575
(* 25% x $2 100)

17. Transfer of non-current assets to inventory in prior period: Philippines Ltd – Pakistan Ltd
Cost of sales Dr 3 000

18. NCI adjustment

(55% x $2 100)

Question 22.5 (cont’d)

Financial Pakistan Peru Philippines Adjustments Group NCI Parent
Statements Ltd Ltd Ltd Dr Cr Dr Cr
Sales revenue 2 850 000 1 100 000 880 000 4 830 000
Other revenue 420 000 200 000 60 000 9 120 000 308 000
10 48 000
11 150 000
12 54 000
Total revenue 3 270 000 1 300 000 940 000 5 138 000
Cost of sales 1 410 000 520 000 380 000 17 3 000 2 313 000
Other expenses 200 000 80 000 110 000 3 000 15 387 000
Total expenses 1 610 000 600 000 490 000 2 700 000
Profit before tax 1 660 000 700 000 450 000 2 438 000
Tax expense 580 000 160 000 140 000 15 900 900 17 880 000
Profit 1 080 000 540 000 310 000 1 558 000 4 135 000 13 500 4 1 278 630
8 124 000 12 000 4
8 46 500 1 155 18
16 525
Retained earnings 4 070 000 2 300 000 1 120 000 1 900 000 6 000 15 6 285 800 2 300 000 2 625 14 5 170 220
(1/7/17) 5 300 000 2 100 17 3 275 000
13 10 500 6 200 000
15 1 800 7 248 000
7 93 000
16 1 050
18 1 155
5 150 000 2 840 000 1 430 000 7 843 800 6 448 850
Dividend paid 400 000 160 000 80 000 48 000 10 472 000 40 000 4 400 000
120 000 9 32 000 8

Dividend declared 400 000 200 000 90 000 150 000 11 486 000 50 000 4 400 000
54 000 12 36 000 8
Transfer to general 100 000 50 000 40 000 190 000 12 500 4 155 500
reserve 22 000 8
900 000 310 000 210 000 1 148 000 955 500
Retained earnings 4 250 000 2 430 000 1 220 000 6 695 800 5 493 350
(30/6/18)

PAKISTAN LTD
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 30 June 2018
Revenue:
Sales revenue $4 830 000
Other revenue 308 000
5 138 000
Expenses:
Cost of sales 2 313 000
Other expenses 387 000
2 700 000
Profit before income tax 2 438 000
Profit for the period $1 558 000
Comprehensive Income for the period $1 558 000
Attributable to:
Parent interest $1 278 630
Non-controlling interest 279 370
$1 558 000
PAKISTAN LTD
Consolidated Statement of Changes in Equity (extract)
Consolidated Parent
Comprehensive income for the period $1 558 000 $1 278 630
Retained earnings at 1 July 2017 $6 285 800 $5 170 220

Profit for the period 1 558 000 1 278 630
Dividend paid (472 000) (400 000)
Transfer to general reserve (190 000) (155 500)
Retained earnings at 30 June 2018 $6 695 800 $5 493 350

Question 22.8 Consolidation worksheet, consolidated statement of

profit or loss and other comprehensive income and
statement of changes in equity
On 1 July 2017, Vanuatu Ltd acquired 80% of the shares in Vietnam Ltd (cum div.) for
$44 760. At this date, Vietnam Ltd had not recorded any goodwill and all its identifiable
net assets were recorded at fair value except for land and inventory.
Carrying Fair value

amount
Land $ 8 000 $ 10 000
Inventory 12 000 15 000
Half of this inventory still remained on hand at 30 June 2018. Immediately after the
acquisition date, Vietnam Ltd revalued the land to fair value. The land was still on hand
at 30 June 2018.
At 1 July 2017, Vietnam Ltd acquired 75% of the shares in Brunei Ltd for $15 300.
Brunei Ltd had not recorded any goodwill and all its identifiable assets and liabilities
were recorded at fair value except for the following:
Carrying Fair value

amount
Inventory $ 10 000 $ 14 000
All the inventory was sold by 30 June 2018. When assets are sold or fully consumed,
any related valuation surpluses are transferred to retained earnings.
At the acquisition date, the financial statements of the three companies showed the
following:
Vanuatu Vietnam Brunei Ltd

Ltd Ltd
Share capital $ 80 000 $ 32 000 $ 20 000
General reserve 20 000 3 200 —
Asset revaluation surplus 16 000 6 400 —
Retained earnings 6 400 4 800 (3 200 )
Dividend payable 12 000 3 200 —
The following information was provided for the year ended 30 June 2018:
Vanuatu Ltd Vietnam Brunei Ltd

Ltd
Sales revenue $ 108 000 $ 72 000 $ 54 000
Cost of sales 72 000 61 200 40 500
Gross profit 36 000 10 800 13 500
Less: Distribution and
administrative 9 000 2 700 2 880
expenses 27 000 8 100 10 620
1 280 1 500 —
Plus: Interim dividend revenue 28 280 9 600 10 620
Profit before income tax 8 480 1 920 2 400
Income tax expense 19 800 7 680 8 220
Profit 6 400 4 800 (3 200 )
Retained earnings (1/7/17) 26 200 12 480 5 020

4 000 — 1 000
Less: Dividend paid 4 000 1 600 1 000
Dividend declared 8 000 1 600 2 000
$ 18 200 $ 10 880 $ 3 020
Retained earnings (30/6/18)
Additional information
(a) Dividends declared for the year ended 30 June 2017 were duly paid.
(b) Intragroup purchases (at cost plus 331/3%) were:
Vanuatu Ltd from Vietnam Ltd — $43 200; Vietnam Ltd from Brunei Ltd —
$37 800.
(c) Intragroup purchases valued at cost to the purchasing company were included in
inventory at 30 June 2018, as follows:
Vanuatu Ltd — $5400; Vietnam Ltd — $4500.
(d) The tax rate is 30%.
Required
A. Prepare the consolidation worksheet entries for the preparation of the consolidated
financial statements of Vanuatu Ltd at 30 June 2018.
B. Prepare the consolidated statement of profit or loss and other comprehensive income
and statement of changes in equity (not including movements in share capital and
other reserves) at 30 June 2018.
80% 75%
Vanuatu Ltd Vietnam Ltd Brunei Ltd
Vanuatu Ltd 80% Vanuatu Ltd 60%
DNCI 20% DNCI 25%
INCI 15%
Acquisition analysis: Vanuatu Ltd – Vietnam Ltd
At 1 July 2017:

and liabilities of Vietnam Ltd = ($32 000 + $3 200 + $6 400 + $4 800) (equity)
+ $2 000 (1 – 30%) (ARS - land)
+ $3 000 (1 – 30%) (BCVR - inventory)
= $ 49 900
(a) Consideration transferred = $44 760 – (80% x $3 200) (div. receivable)
= $42 200
(b) Non-controlling interest = 20% x $49 900
= $9 980
Goodwill = $ 2 280

1. Business combination valuation entries
The land is revalued in the records of Vietnam Ltd.

Inventory Dr 1 500
Deferred tax liability Cr 450
2. Pre-acquisition entry: Vanuatu Ltd – Vietnam Ltd

Asset revaluation surplus * Dr 6 240
Goodwill Dr 2 280
Shares in Vietnam Ltd Cr 42 200
* 80%($6 400 + $1 400)
3. NCI share of equity in Vietnam Ltd at 1/7/17

General reserve Dr 640
Asset revaluation surplus Dr 1 560
Business combination valuation reserve Dr 420
NCI Cr 9 980
(20% of balances)
4. NCI share of equity in Vietnam Ltd: 1/7/17 – 30/6/18

NCI Cr 1 326
(20% x [$7 680 – ($1 500 - $450)])

(20% x $1 050)
NCI Dr 300
NCI share of profit Cr 300
(20% x 75% x $2 000, being
dividend revenue from Brunei Ltd)
NCI Dr 320
(20% x $1 600)

Acquisition analysis: Vietnam Ltd – Brunei Ltd
At 1 July 2017:
and liabilities of Brunei Ltd: = ($20 000 - $3 200) (equity)
+ $4 000 (1 – 30%) (BCVR - inventory)
= $19 600
(a) Consideration transferred = $15 300
(b) Non-controlling interest = 25% x $19 600
= $4 900
Goodwill = $600
5. Business combination valuation entries

Income tax expense Cr 1 200
6. Pre-acquisition entry: Vietnam Ltd – Brunei Ltd
The entry at 30 June 2018 is:

Goodwill Dr 600
Shares in Brunei Ltd Cr 15 300

valuation reserve Dr 2 100
7. 25% DNCI share of equity in Brunei Ltd at 1/7/17

Business combination valuation reserve Dr 700
NCI Cr 4 900

8. NCI share of equity in Brunei Ltd: 1/7/17 – 30/6/18

NCI Cr 1 355
(25% x [$8 220 – ($4 000 - $1 200)])

NCI Cr 813
(15% ($8 220 – ($4 000 - $1 200)))
Transfer from BCVR Dr 700

(25% x $2 800)
NCI Dr 250
Dividend paid Cr 250
(25% x $1 000)
NCI Dr 250
(25% x $1 000)
9. Dividend paid
Brunei Ltd: 75% x $1 000 = $750
Dividend revenue Dr 750

Dividend paid Cr 750
10. Dividend declared
Vietnam Ltd: 80% x $1 600 = $1 280

Brunei Ltd: 75% x $1 000 = $ 750
$2 030

11. Intragroup sales: Vietnam Ltd – Vanuatu Ltd
Sales revenue Dr 43 200

Inventory Cr 1 350

12. NCI adjustment
NCI Dr 189
(20% x ($1 350 - $405)

13. Intragroup sales: Brunei Ltd – Vietnam Ltd
Sales Dr 37 800
Inventory Cr 1 125

14. NCI adjustment
NCI Dr 315
((25% + 15%) ($1 125 - $338))

Financial Vanuatu Vietnam Brunei Adjustments Group NCI Parent

Statements Ltd Ltd Ltd Dr Cr Dr Cr
Sales revenue 108 000 72 000 54 000 11 43 200 153 000
13 37 800
Cost of sales 72 000 61 200 40 500 1 1 500 41 850 11 100 675
5 4 000 36 675 13
36 000 10 800 13 500 52 325
D&A expenses 9 000 2 700 2 880 14 580
27 000 8 100 10 620 37 745
Dividend revenue 1 280 1 500 - 9 750 --
10 2 030
28 280 9 600 10 620 37 745
Income tax expense 8 480 1 920 2 400 450 1 10 407
1 200 5
405 11
338 13
Profit 19 800 7 680 8 220 27 338 4 1 326 300 4 24 668
8 1 335 189 12
8 813 315 14
Retained earnings 6 400 4 800 (3 200) 2 3 840 2 400 6 6 560 3 960 800 7 6 400
(1/7/17)
Transfer from BCVR - - - 2 840 1 050 1 910 4 210 0
6 2 100 2 800 5 8 700
26 200 12 480 5 020 34 808 31 068
Dividend paid 4 000 - 1 000 750 9 4 250 250 8 4 000
Dividend declared 4 000 1 600 1 000 2 030 10 4 570 320 4 4 000
250 8
8 000 1 600 2 000 8 820 8 000
Retained earnings 18 200 10 880 3 020 25 988 23 068
(30/6/18)

Question 22.8 (cont’d)
VANUATU LTD
Statement of Profit or Loss and Other Comprehensive Income

Sales revenue $153 000

Expenses:
Cost of sales 100 675
Other 14 580
115 255
Profit before income tax 37 745
Profit for the period $27 338
Comprehensive Income for the period $27 338
Attributable to:
Parent interest $24 668
VANUATU LTD
Consolidated Statement of Changes in Equity (extract)
Consolidated Parent
Comprehensive income for the period $27 338 $24 668
Retained earnings at 1 July 2017 $6 560 $6 400

Profit for the period 27 338 24 668
Transfer from business combination valuation reserve 910 0
Dividend paid (4 250) (4 000)
Retained earnings at 30 June 2018 $25 988 $23 068

PRBA003 Week 10 Tutorialsolutions 10 Ed

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Question 21.

15 Full goodwill method, consolidated financial statements

Carrying amount Fair value

Debit balances Mudlark Peewee Ltd

Cost of sales 120 000 70 000

2014–15 2015–16 2016–17

© John Wiley and Sons Australia, Ltd 2015 22.1

Net fair value of identifiable assets,

Goodwill of Peewee Ltd:

Goodwill of Mudlark Ltd:

CONSOLIDATION WORKSHEET ENTRIES

1. Business combination entries

Equipment design Dr 12 000

Amortisation expense Dr 1 200

Deferred tax liability Dr 1 080

© John Wiley and Sons Australia, Ltd 2015 22.2

Depreciation expense Dr 750

Accumulated impairment losses – goodwill Dr 12 000

Retained earnings (1/7/14) Dr 16 000

Retained earnings (1/7/16) Dr 15 280

RE: 80%[$20 000 + $7 000 (BCVR – inv) - $4 900 (BCVR –prov)

Share capital Dr 24 000

Transfer from other reserves [RE] Dr 1 600

© John Wiley and Sons Australia, Ltd 2015 22.3

Transfer from business combination

3. NCI share of equity at acquisition date 1/7/14

Retained earnings (1/7/16) Dr 4 000

4. NCI share of changes in equity from 1/7/14 to 30/6/16

Other reserves (1/7/16) Dr 600

5. NCI share of changes in equity from 1/7/16 to 30/6/17

NCI share of profit Dr 9 412

Transfer from other reserves [RE] Dr 400

Share capital Dr 6 000

© John Wiley and Sons Australia, Ltd 2015 22.4

Movements in fair value [OCE] Dr 1 600

Transfer from business combination

Dividend revenue Dr 4 800

Dividend revenue Dr 3 200

Dividend payable Dr 3 200

8. Sale of plant: Peewee Ltd to Mudlark Ltd

Retained earnings (1/7/16) Dr 2 800

Income tax expense Dr 120

11. NCI effect

© John Wiley and Sons Australia, Ltd 2015 22.5

12. Profit in opening inventory

Retained earnings (1/7/16) Dr 350

NCI share of profit Dr 70

14. Sales of inventory: current period Mudlark Ltd to Peewee Ltd

Deferred tax asset Dr 150

© John Wiley and Sons Australia, Ltd 2015 22.6

QUESTION 21.15 (cont’d)

© John Wiley and Sons Australia, Ltd 2015 22.7

Dividend 10 000 4 000 7 3 200 10 800

Shares in 305 600 0 305 600 2 0

© John Wiley and Sons Australia, Ltd 2015 22.8

Profit for the period attributable to:

Comprehensive income for the period attributable to:

© John Wiley and Sons Australia, Ltd 2015 22.9

Business combination valuation reserve

Other components of equity:

© John Wiley and Sons Australia, Ltd 2015 22.10

Equity and liabilities