AFA 3e SM Chap05

Advanced Financial
Accounting
An IFRS® Standards Approach, 3e
Pearl Tan, Chu Yeong Lim and Ee Wen Kuah
Solutions Manual
Chapter 5
Group Reporting IV: Consolidation under IFRS 10
Copyright © 2016 by McGraw-Hill Education (Asia)
Advanced Financial Accounting Chapter 5
Concept Questions 1-12
Tan, Lim and Kuah
Concept Questions (CQ)
Reasons
---- ---- - -- ----- --- -----
CQ5.1 TRUE Balances with associates are not eliminated

-- - - --- - --------- - -- - --- ---- ----- '---------- ---- ---- -- --------- ---------------------,
------------------.--- ------- --- --·----- -- --- ------ --- - ---------- -- - - -

C:9_5.2 _ _F_!>.L§E DividendiricC>me_s_hguld bei,lirni11<1tedagainst
dividend declared
I ----------- -- ------- --- ------------- -----=--
CQ5.3 TRUE A profit from an intercompany sale would result
-in either a higher cost of sales or higher inventory

, _ _ of the buyirig_co_nipa_ny _
------•------
1---- ------ ---- --------------------- ----
CQ5A
FALSE The adjustment should correct an overstatement
--- -=:=-=--- jnot understateme-nt) of group pro fits· ' -'---=----
------------------- ----- -
CQ5_5 TRUE Risks and rewards must be transferred from the

economic entity_befgri,_r_e,v_enue can berec:og11ized
1
CQ5.6 FALSE The entity theory is the more appropriate th_EJCJry _ to justify
the consistent treatment of NCl's share of
pro_fit with that of the majority inter_ests· · ------
------ ---- --- - ·--------------
CQ5.7 FALSE NCI is not affected in a downstream sale transaction

CQ5_8 FALSE
Retain_e_d e<1rni11gs_(not current profit)_ need to be adjusted as the sale is madi, in a
previous period
---==c-==- - ------- -----
CQ5,9 TRUE The realizedprofitwiUincreasecurrent profitand reduce _
retained earnings 1
CQ5.10 C An unrealized loss will be reversed, resulting in an -----
--------- ---------in-c-r-e-a-s-e-t-o--re-ta-in-e-d--e-a-rn-in-g-s-a-n-d-fixe-d-a-ss-e-ts--·- --------------
-- - ·-------- - - --- -- ·-- - - - -- -- --- - - -------- ---- --
CQ5.11 c .If the unrealized loss is reversed,_tili,9roup's_ depreciation will be increased_

-
CQ5.12 C Loss is not reversed but is as an -------
reclassified impairment loss
----
1
1
t I
-
value a j u s t ment s = 20%*$40,0 0 0 -- --- -----
-D-e8fe0rre0d0ta'-x liability-on fair - - -- - - - --- -- -- ----
- -- --- --------- - --------------- ----
d-
Fair val-ue o-f-identifiable net -a-ssets = Book value of net assets
:':fair value adjustment on building-deft3recltaxliabjlity on fair value adjustint311t
----------- ,._ ------
Fair value of WALL acquisition date 2-8- 000-0 --
fc1irvalu of NClc1tacguisJtion date 84000

Fair e
valu of acquirer's consideration
196000 of identifiable n-e-t-a-
Fair e sse-ts ---- _ 232,000
valu
e
Goodwill 4_8,0_00 =280000-2_32000
1--------------------------- ------------------- - .l I
{_1) Consolidationadjustments
CJE-1-:-E-l-im--ination oflnvestment -----·--- -
Dr §17a_r_<, cal)ital _ _ _ 160,0()0_
Dr Retained earnings 40,000 ---•--
Dr Goodwill 48,000------
Dr Buildings 40,000
Cr _Defe_rr_<,d_ tax liability _ 8,000
Cr Investment 196,000 I _ _ C:r_Non-controlling
intt3rests _ _ _ 8<1,QO_O ( Q /o* fair yalue o_fWall Co) 0
288,000 288,000
------ - - --- -----

CJE2: Past impairment of goodwill
Dr Retained-earnings --- 6,7_20=?0%*70%*48000 Dr Non- ----------•--
controlling interests 2,880 =20%*30%*48000
Cr Goodwill 9,600 _
----- ------------------- --------------
CJE3: Past and current depreciation on undervalued building
iS-rRE-- -- _ _ _ 2,800 (70%*40k/10)
Dr I\ICI _ --- ----- 1,200
Dr Depreciation 4,0QO.
Cr Accumulated _d_<,preciation _ 8,000 _
- ---- -------
CJE4: Tax effects on pas n_d_£_ur!r.ntd_ep!<3cfatio_n_o_n_u_r,dervalued building _
D__r_D_e_f_er_r_edta)(liabiHt:, 1,600 _ -- --------
_c:;r R_E _ 5_6()
-C-r--N-CI- --- 240 - ------, I
Cr Tax expense
800 -- --- _ _ _ ------- ------- -- --- - ---
- ------------------- ------- ---
(;_J_ 5:Attributing_ pos_t:a_c_g i5E_to_ NCI
Dr RE 18,000
Cr NCI
18 ,_00_0 ------------------------------- --- ---
--------
RE at 1.1.20x3 100,000, -- ---------- ---

RE at date of acquisition -40,000
----
Change 60,000
- - ---- --------
N
---C- -I-'-s--s--h--a--r-e------- --- 30%*60K 18,000
-----------
----
CJE6: Elimina-ti-o--n--o--f-d--iv- idends
Dr Dividend income 21,000- - - ------ ---- ---

Dr Non-controlli11g_interests fl,000(30%*30000)
Cr Dividends declared 30,000 - - ------ -- -- - ----+------------ -----
1 -
-
I
1
1
5CrJREE7: A-d-ju(isDt %fo*r 3u2nKrefa-li-s--ed--pr-o-f-it-o-n u-pstr-e-am sale of inventory in 20x2

22.400· .
oi Ncf (3oo; •3 KL . _ e;5oo_-· _
_C:_<Jst of sale (54/fJ6*32K) 1_8,000
Cr Inventory (42/96*32K)
14,000
-----------. -- -- ··---- ---------
CJEB: Adjust for tax effects of CJE7

Dj_T§)(i,)(pense(20%*18K)_ - -3:600
Dr Deferred tax asset (20%*14K) 2,800
Cr RE (20%*22.4K) - -- ,--- - -- 4,480
Cri'JC:f{?O'.'fo*9:6i<)- · · ..... _ _ .. ····--·--·-·-·-·--1 ,9-2-0---- · ···•---------
I . ·------ - ---- -- -- --·· ....
CJE9: Adjustment for unrealised profit on downstream sale of building in 20x2
Dr RE .. ···-···- 32,000 Cr Building-·---
_·- 24,000 (reinstate to original cost)
<::_r_l'.ccum_ulated del)reciation s]Jo6(reinstate_to previous accuni cie,p)
----------- - - ----------------------- ...... ·--·-····· - •--·---
S.§!e_s_eroceeds .. -··· . .......... . ......... _ ... 64,000

Qriginal cost . ---·····- _ 40,000 ·----- _ Accumulated depreciation _
-8,000
Net book value _ _ 32,000 -'--
Profit on sale 32,000

---------------- --
---- - --"---- ----------------- -----
CJE10: Adjustment for the tax effects on CJE 9

D_r Deferred tax asset 6,.40_0_ CrRE
6,400
G_J_E11: Adju t_for exces5d_epreciation
.Dr Accumulated depreciation
8,000.
CrRE ---- -- ----· 4,000 _

Cr Depreciation --- _ 4,000.
- ------------------
- 8,00. 0
New_depreciaUon=64K/8
_
Old_cj_e_ereciation=40K/10 4,000
Excess . '-- 4,000
CJE12: Adjust for tax on CJE11

Dr RE . . ................ (20%*4000K) .. 800
Qr_:i: xe)(l)ensei_ -- (20%*40001<f _ 800
Cr Deferred tax asset 1,600
CJE13: Adjustment for unrealised profit on downstream sale of inventory in 20x3

Dr Sales -------- ----- -- ·-------- -----180,000 - ····· ··· ·----- -
Cr Cost of sales
144,000 _------ Crlnventory---- .....
36,000(6Qo/o_*6_0_K )--·---
---------------
or break into two parts_

Realised sales
Dr Sales _40%*180K . 7 ,QOO. ---···
Cr Cost of Sales 7 2 ,0 0 0
··----·-····· ---····-·-------- ---··- ·-·----·- - - - - .
----------- . --
-
Unrealised sales
------------ ---
·-·
Dr Sales
60%*180K 108,000 ···--····
Cr Cost of sales 72,000 (60%*120K)
Cr Inventory
36,000
1
I
----
--- ' ------ ------------- --- - ---
CJE14:Adjustment for tax on CJE13
brbeferred asset ·2oo; *36boo·
7,200
Cr Tax expense ··- .......... 7,?00
CJE15:Assigf1 curreT1t profit to NCI

------ - ---- --------------
Dr Income to NCI (PL) 17,760

Cr NCI
- -------- --------·-·
1..7..,7. 60
- ---- '-------- ---
Unadjusted NPAT
Less depreciation on undervalued building--
1'.dd ta_x_on clepr-eciatiorion_ uridervalued buHding
Add realised profit from 20x2 upstream sale'
t,eiss tax on realised_profitfrom 20x?ups_trea_m_s_a_le _
48,000
..(.4.,00-0)-,---... ......- ---·--------1

800 ; ,
18,000 •- ,,.,.,,. ··-···
. ---- (3,600)
Adjusted NPAT
·-- --··
NCl's share at 30%
###
.....................,,, 17,76_0_· _
NCI balance as at 31 Dec 20x3
------- -- - -- ---- --------
CJE1 84,000
------- -----·--
CJE2 -- - ·- ----- -(2,880) ----
CJE3 (1,200)'
CJE4
- ---·---·
240
CJ_E_5_
CJE6
C:J_E7
###
. _ ·-· _(9,QOO)
.... _(9 600 )_,
0
..
CJE8 ......1,920_.·.... CJE15
NCI total 99,240
--------- -- -- .
(?)-6.rii,lytical check of N_CJ ········•--
...... I
Stiare capital
13e,tained earnings bf 1_0(),000
_ 160,000 .,
I\Jeit_p_rofit after tax
.. 48.,_0_(JQ _
---- ----------·- -
L
R E cf - -
e ss divi de nds (30,0
.. .... .... .. ,....
0 0 ) ,
118,000
b_§r_ehol ers' e_quity at 31.12.20x3 .. ::_ 7_8,Q@ ···-······ _........ _
Unreal ed profit from upstream sale ....
Tax on unrealized
------- --------- - --- ------ ------········ .....•... •··············
_p_rofit
.. (14,000)
###
U_namortized FV adjustment (after-tax)
} 5 §_()0_ 2
fUan1aim1paired bal·ance of goo-dw-il-l 38,400

_i --------
NCl's share @ 30% 99,240
FIRE WALL Dr Cr Cons-o--li-d--a-t-e--d-

Income Statement
Sales ----- 520,000 250,000 180,000 590,00Q
Cost of sales (372,000) _ (15 ,6Q0) _ 18,000 (369,600)
144,000 '
------ -------•---- ·------·--------------
_Gross pro_f_it _ 18 ,0_0_0 90,400 --
2?0,-4Q_0
Other income 79,?50 50,000 -- _ -• 129,250
-----------------
- D-ivid-end incom-e---------- ----21,000 21,000
-- - - --------- -•---------------- --------- ------------- -----------------
Depreciation _ _ . (-40,QQ0) (30,Q00) 4,000 4,000 (70,000)

Interest expense (32,000L j1_0,-4QQL _ _(4 40Q)
0
Other expen_s_El (12,000) 1 (-4Q,000). _ (5?,0Q0)

--- ---------- ------------
NPBT 164,250 60,000 _ 800 185 50

Tax_@ 20% _
_ (32,850) -- _(12,000) 3,60Q!
800
j<l1,25Q)
NPAT 131,4QQ 48,0Q_0 _

144,00_Q_
Income to NCI --- _ _ 17,760 _

(17,760)
RE bf 24_1,600.
100,000
40,000 4,480 234,._3_2Q
6,720 _----- 6,400_
?,800 .. 4,000
18,000 • _ _5 0 I
22,400. ------
32,000
800
Dividends declared RE cf (60,00_0)
j 0,0Q_0) 30,000J _ -- (60,000)
Dividends declared RE cf
313,000
118,000 349,880 . 219,440 300,560
t-
Statement of Financial Position FIRE WALL
Dr Cr Consolidated
Cash 19,_8()0
..3,200_ .. . . . 23,000
Accounts Receivable
32,000 38,000 70 0_DO
2
Deferred tax asset

_ 7,200·- .....1,600 . 14,800
2,800
-------------------------
-- 6,400
Jn:,., ntory 330,0_00 j ... 17_0,000
---·.......14,000
450,000
36,000
Land 160,000 80,000 240,000
.Buildin[S and eciuipment .. 680,000 520,000 40,_Cl0_()_ 24,000 1,216,000
Less accumulated depreciation (280,000) .. (160,000) .. .. 8,000_ .. 8,000. (448,000)
8,000
Investment in Wal-l-- 196,000 J

..... ..... 196,000
Goodwill 48,000 9,600 38,400
1,137,800 651,200; 112,400 297,lQ0
1,l304,200
§hare capital _ --· 240,000 _1_6Cl,D_0_() 160,000 240,000

Retained earniri!J.s 313,000
118,000. 34_g,88o.. 219,440 300,560
Non-controlling int ests
1,20() .... 84,000 99,240_
... . 9,000_. 18,000 _
_ 9,600 1,920
2,880 17,_760 _
240
Bonds pa)'able 400,000 3()(),000
700,000
_El_c,_riclJ)remium_ 3,2Cl0 3,200 Accounts payable ........ 18-
4,800 70,000
254,8_DCl
-----·- -------·--
_[)eferredtaxliability 1_,600 8,000 -·· 6,400
---- ---------------
1,137,800 651,200 534,160 349,360 1,604,_200

646,560 646,560 i
.. 372,000
1Ja) Consolidated cost of sales
Fire's cost of sales
Wall's cost of sales
1592600 --···- ·--··· Adjustme.nt to cost of.sales
Upstream sale from20x2 .... Note 1

(_18,ooo). 56.25%*(9_602Q:_6<1_D_QQ)
--·
(72,000) 40o/,*180Q0Q_.._
. Downstr am sal Jre_alized portion) Note 2
. Downstream sale (unrealizt'ld J)Orti_c,n) Note 3 (72,000) 60%*120000

369,600
Note 1:
Perc .n_t_ag_e_r_e:,_sCJl_cl_t_c, third parties ·-· 56.25%· 54000/96000 _ Note 2 ....
Transfer price ... . . ................ . . .. _180,000 .
,e>old portion _ 4Q'lo
Note 3
Original cost . ........ 120,000
Unsold p_ortion 60%
4(b) Consolidateddepreciation expense

Depreciationexpense .....
-- --- -------- --------- - -- --- -
--- ---F-i-r-e------ ..... (40,000)
Wall
_... _(30,000) -- --··
Adjustments
Depreciation oiunc:ler-valued buildings ........- (4,000) 40000/10-
Excess·d_epre,ciationof transferred buttdings -- . 4,0i5o_jzo0oiil ---
(70,000)
--------------------
4(c) Consoliclc1tecl inventory balance
--------- -F-ir-e------------- _ .. 330,000

Wall .. 170_,ooo
--------
A djustments
Unrealized profit in ending inventory from
- -----------------
·- Upstream sale _ (Note 1)
. (14,ooCJl_<l3,!§o/o:<9600.Q:64oooL
Downstream sale ·--
(36,o_()o). 60% *(18ooo_o_-12_0QQCJ)
450,000 •
Note 1: Bala_nce un olcl("l'o) = <12000/96000 = 43. 75% ---- ---

4(d)
Consolidated carryingamount ofbuildingsand_ equipment --··---
Fire 400,000
Wall 360,00_0
Adjustments Under-valuation_of_buildin(Js _
.. ... 32,000 8/10*40000.
...... Excessprofit on transferred buildings
(?<1,QOO) 6/8*(64000:3_20_0Q)
.. 768,000
4(eJ _ _ Co_r, o!i t _cl_retained earnin_gs_C l::L
----- -- ---------'----··
Less Fire's RE
--' ... .......•.. _ _ ...... --··· _ 313,000 .
Less--- Fire's share of Wall's post-acquisitio11 RE 54,13()0
54600
0
Share of impairment loss on goodwill -- (6,720) 70%*20%*48000

0
Sare of after-tax depreciation-ofu der:valuation

•••••• •• (4,486},'7'0"l',*80o/o*4000_0_/1-0-*2--
- --- - -- . . --------------- --------,
Unrealized profit, after-tax, on inventory (downstrean (28,800) 80%*36000
·•Unrealized profit, after-tax-onbuilding(downsireamj·(19 200).80%*24000 --
share of unre_aliz_e,cl profit, after-tax oninv_entor.j ·• •-··•-.(i, o)10°J/il0%•14006 - ......
_:3_00,560
1
Fair _value of nCJn contr_o inginJ.erests 112500
Considerationpaidat acquisition date 450000

---- ------ ---
Fair value of entity' as a whole 562500
Fair value of identifiable net assets of Opal Ltd 4-2-0--000 Goodwill

- ---
·- - -- 142500
- ,--- -----
11Jf' epare_consoli_d,.i_ticm journal entries for th_e ye_.:ir ende_d 31 Dec 20x2.
(;_,11=_1 Elimination of investmer,tin ()pa/Ltcl

Dr Share caeital..
300.,_D_QQ.
DI' OeenJ.ng_ re_ta_ir1ed earning_s .. 120,00Q
Dr Goodwill
142,500 -, ..
-----------
Cr Investment
45Q,Q.00
C:r_f\Jon controllinginterests ...... --·---· 112,500

----- 56_2,500 ... 5(32,500
CJ _Goodwi/1 impairment (past and pr_e_s_e11_t)J11<)pall,tcl
Dr Opening retained _earnings 40,000
10,ooo_
Dr Non-controlling inter_ests ---------
[)_r_lm_pairment of goodwill _(C3_rou_e's.£' ) 40,000
Cr Goodwill on consolidation 90,000
(;_,11=_3_1=_/imir,ationofclividends declareclby(}pal
Dr_[)_ividend income from Opal (Jewel's P/L) ------------ p, O
Dr Non-controlling interests_(B/S) ---
Cr Dividends declared, net l.Qeal's F'/_l,) 29,250
(;_.J_1=_4_ dj11_s_t111_e11_tof u11re_alise_d_pr()f_its in c/osing_inventories _

Dr Sales (Jewel's) 10_0,0QQ_
Cr Cost of Sales (Jewel's) 70,000
Cr Closing_lnventory (Opal's_B/S )- _
_ 30,000I
(;_J1=_5_.fl_d_j(Jstment of tax on unrealis_ed_pr_ofi_ts 1 _ _ _
Dr Deferred tax asset 6,000 (20%*30K)
Cr T1ix expe_nse --- ----- 6,000
CJE6 Non-controlling interests -Change in post-acq RE to beginning of year
Dr_Qpening retained Earning_s_ ·--·- . 18,000_
Cl'Non-controlling_ intere-sts-(B/S)--------· •-· --- 18,000
Ret.:iin_e_cJ_e,irnings, 1 Jan 20x2 210,000
Retai11ed earnings., 1_ .:in_:1()x0 ---- ------ (120,000) _
Change in retained earnings ----,----- 90,000
C:l's share of c_han_g_e i11_RE .. ----·--- ---·-----···· 18,000_
(;_J_E!_ No_ _c_CJn_trolli11_g_i11te_r_ests' share o_fpro_fit afer tax for 2Q)(2_
l)r Non-controlling interei_sts_(PjlJ 16,960
Cr_Non-contrCJll nginteres_ts,1B/S) .. 16,!J60

Non-controlling interest share of Opal's profit after tax for 20x2
_Net_profit after tax of S
-•
_12'1,8(}(} _
C _oo_cl11viUin1pairn,<;rit_lo_ss_f(lr2Qx2 -40,000- _
Adjusted net profit after tax of S 84,800
------- -- --------
(2)_ n_aly_tic;,lche_ck_oflbalance of NCI NCI at acquisition date, 1 Jan 20x0 NCl's share of past goodwill impairment
NCl's share of post-acqREto 1 Jan 20x2
_112,500_
###
###
NCl's share of profit after ta_x
-D-iv-iden--d- s- received
Closing NCI------
Check:
- ------- --
_
16,960
###
131,610
§h_arehold<;rs' equity of Opal Ltdas a_t_:31 Dec 20x2 Ad_d ur,irnpaired balanc ()f_g_oo_dwill
Adjusted shareholders' equity of Opal
-- -------------- ------
605,550
52,500
658,050
NCl's share @l 20%

131,610
( ) Analytical check on cons<JUdated retaine_d_e_arni_ng_i; _ _
Jewel's RE
Opal'sRE CJE1_Elimination of investmentin OpalLtd
CJE2 Goodwill_impairment(past and present) in Opal Ltd
CJE3 Elimination of dividends declared by Opal ----- -------- ----------
CJE4 Adju_stm<;r,_t of unrealised profits in closing _i_nventories
C:JE'/5_/\djustment of tax on unrealised p_ro_fit_s_
2,7_53,4Q0
305,550
_ (120,000)
-- (80,000)
5,850 (3Q,000)
###
j18,QCJ0)
(;JE'61'J_(ln:controlling interests - Chang<;i_npost-acq RE tc, e!:)innin!:) ()f ye,ar
CJ_E7 Non-controlling interests' share of profit afe_r_ta_xfCJr20x:2

Reconciliation:
Jewel's RE
_ (16,960)
2,805,840
2,753,400
J<,\'/e s s_h_a_r13_o f Op_c1l's_p_o_st:acquisition retaimid earning_s Note 1 80%*(305550-120000)
hare of goodwill impair111en_t --------

LJnrealized profit in inventory (downstream), a ft_er-tax
Note 1
80%*90000
80%*30000
148,440
(72,000)
(24,000)
2,805,840
------------------------ ------ ---

0
CJE1 Elimination of investment in subsidiary

Qr:Share ca[)it_a_l_ 200,000
.. ··- --· --·
Dr Re_tained earnings ····-·-···-·-···--- .... _ 150,000
Dr Buildings and equipment . 31,250

Cr Deferred tax liability _ 6,250
Cr Investment in Sapphire . _ --·--·---····· 300,00_Q_
Cr Non-controlling interests (_E)§)_ (NCI at_f8: _value at acq date) 7 ,Q00

..... 381,?50 3§1,?150
Excess of acquisition cost_over P's share of book valLJ_e of S ·-·--·-·-
= 300000 - 80%*(200K+150K) = 2000_0 ·-··-··c-··
Under-valuation of buildings less DTL for entityc1s a vvhCJle_ 25,000 20000/0.8
(r_egrossed for No.n.:_controlling interests share as well)

- ----- -----------------
·- ,, - --- --
There is no g_2odwill. Assume that purchase differential (e_x_ce_s_s_()f c() !_Qf

b_u.s_i_nes.s combination over net fair 1JalLJ_e) is on an after-tax basis.
Re-gross the purchase differential to determine theu11cJe_r:_11c1luc1tiQ11 ()f_b_Llildi11gs_.
L,Jrider-valuation ()fbuilcJ_ings_ar1d e_qLJ_ipment,gross .. 31,250 :25000£Qc _
l§l<_()n Lmder-valuation of buildings_ a11d equipment 6,250 31250*02
F'c1i_r-value adjustment 25,000
-----------
CJE2 Past ar,d current depre_cia_tic,n on underv_alu_e_dbu_ild_ings

Dr Op_EJn_i_ng_retaim,d earnings =31250/10*2*80% 5,000
Dr Non-controlling interests (BS) =31250/10*2*20% 1,250
----------------·-- -- - -- - --- - ----- ------ ------ --

DrlJe_f)reciation , =31250/1 o
.125
Cr Accumulated depreciation 9,375
CJE3 Tax effects of CJE2

Dr Deferred tax_lic1bility ........1/375 _
Cr OpeningJetained earnings ·-- _ ·-- ----· _ -·-.-··-- . -·-· -- 1,000
Qrt',1Qn-controlli11g interes_ts_ _ 250
C_rT_ax_e_xpense •--- ------- ........ ··-··-····-···········-·-··-· .... 6 _2_5
CJE4 Elim--inate dividend income
Dr Dividend income 16,000
Dr No11_-controlling interests (_E).§)_ _ .......................... _
........... _ 4 ,o_o_o _
Cr Dividends decl-are-d -------- 20,000
-
C_!E5 Curre_nt_income tc,IV_on_-c_c,n_trc,1/in_gJnte_r_e_:sts
Qr.N_()n-controlling interests (PL) _ .. 11,020
_Cr Non-controllingi_nte_res_!_s (_E)_§)_ - _ 11,020
F'rQfil_be_f_o_re_adjustment _ _ 60,0_Q0
Add_bac_l<_previous year's unrealised p_rofit now realised (1150QQ:_1Q0_QQ) 5,000
L,ess_c_urr_entj1e_ar's u e_alis_e_cj_f)rQfi! ..... 4_Do/o_:J6()1<_ 4Qk)
-8,00_() Tc1_x_e_ff_e_c;ts_CJ11L111re_aii:z_e_clprofit on inventorx (1 00-10Q_01_
...... _ 600
L,ess clepreciation on u_11cJ_e_rv_aLuecl_ buil_cl_ing_ _ ..... _ .. . .. _ .. _:_3
125
Add_tcil< effects on de_pre_ciation on undervalued btJilcli11_g .................
625
Adjusted_profit 55,100
INCl's share 11,020
j
1
1
1
CJE6 Ass_igr1_e_c,s_t•t1£quisition RE to NCI

Dr Ope_nJng retained earr1ir1gs_(frorn 20x7 to begi11ning 20x9) 30,000
- -- - - ---- ------
Cr f\J-0r1:controlling interests _ _ 30,000
,A.ssignJJCJ_st:cic::guisition RE to NCl 0_ /o_*(300K-150f<) _

0
_ _
CJE7 Realizatfon_of beg_{nniflg_uJJ.reapzed_ {n_Vf!n_tory jn inven_tory
Dr Opening retained earnings 4,000 Q_r l\J_on-
ccmtr()_llin_g interests (13§) _ 1,000
fr Cost of g_(Jods sold_ _ _ _ - 5-,_()_00
_CJEB Eliminatior,_o_[ir,te_rpc,f11_p_an_ys_ale_ ofinv_e_nto_ry

D r Sales•
-- . 60,000,
- -
. .. 52,Q0Q
Cr Cost of g9_Cl_ds sold
_Cr Inventory --·- _ _ (40%*20K 8,00_0
Alternativ_e,ly ,
Dr Sales· j_60%*_60f<L _ Cr Cost of g-0ods sol.d
36,000
_Elirninate intercompany sales(realised) _
Dr Sales
(40%*60K) 240, 00 Cr Cost of_goods sold ...(40%*40K) _ _
-- 16,000 Cr Inventory 8,O0_Q

Eliminate intercompan sales and unrealised profit in invento
-- --
G_JE9 Tax.g_n_ realization of unrealizeclprofit in begi11_nffl_gir,v_e11to_ry _
D_r Tax e_xpense _ 1,000
800
200
Cr Opening retained earning s - ----- ------- -,-----------
Cr Non-controlling interests (BS) _

!_ --------[ --- ---- -- -- -
- - --- -- -------
G .J_E10 Tax or,u_n_realized profit of currents_alf!
_ 1,600 --- _ 1,600
Dr Deferred tax as set - ------

Cr Tax expense
1---- ---------- --- -----·- -
-- - --- ------
Problem 5.3(2) _
--------- -----
Eliminations
Cr
----------
###
Consolidated
###
Sales P--ri-s--m Sapphire
- - -- Dr
.1,000,000 480,000
Cost_()fg()_o_cls_s()l _ .. _(640.000) (320,000)

d
Dividend income 16,000
0 1
·-
6,000
52,000
5,000
(903,000)
----- ---------- -----------

Depredation_ expense (100,000)
(10,000) -- :3,125 -- -- (113,125)
- .
Interest expense ----
(72,000) _(14,000) {!36_,_000)
I·· - .... --·--· --
Tax and other eJ<pe_n_s_EJs _ . {'!_4_,()Q_D)i _(76_,000)
1,000 1,600 -·-··(118,775)
625
..... 11,020 _ (11,020)
-------
Non:controlling,_i_n_te_r_e_st_s _
160,000 60,000 1_88,_Q80
--,
580_,000 . 300,000 5,o_oo 1,_ooo .. 692,800

Net income transferred to RE
- - -------- ·---
-------·--·---- - ---
Be!ained Elarning_s, Jan 1

--·-·------··--·------· -- ----+-----4 ,0_0_0 80_0 _
1,150,000
·--·.··-·-30,000
Dividends declared (40,000)[ J2_Q_,QO_O)
2_Q,OOO (40,_QOO)
1-- --- -------- ---- ----- -- --
R_EJtained earnings, [)ec 31 700,000 1
_
::140 000
- -
?80 14fi
-,
81,025 840,880
Cash and receivables_ 620,000

Deferred tax asset
Inventory 640 000
-- - -- - - - ·------
420,000 1,040,000
1,600 1,600
270,000
8,000 902,000
--------------------- ----,--- I •-- -
L-,;nd -- -- - --- - 260,060

- 150.000 -
- -----·-----. -- - ----
-- --- ·----- ---- ---
410,000
-
Elu_ildings:3nd EJquipt,cost 1,500,000
- -------------- ---.-------
200,000 31,250
1,731,250
1 n vestment in Sapphire, cost 300,000
.. _
_300,000 0
Debits 3,320,000 1,040,000 32,850 308,000 4,084,850

Accumulated de[JrEJci<1tio11
Payables·--· -
- -
_1 0 _QO,O_Q_O
2
80,000
1,220,000 2_0,000
9,375 .....1,089,375
_1,640,000
--- -- -
DefElrredtax liability
---- ----- - ----
1,875 -- 6,250
-4,375
Share capital
400,000
_2_00,000 200,000
---·····--·---·· 400,000
-
Retained earninqs 700,000 340,000 2_80,145
81,025 840,880
2016 © All rights reserved, McGraw Hil! Education (Asia)
Ng11 c()_ntrolling nterests _ 200 110,220
-- 250
_4 0Q_Q _ 75,000.
-·-- ---- .......... ...1,2§0 .....11,02.0.•.....
1,000 30,000
Credits 3,320,000 1,040,000 488,270 213,120 4,084,850
521,120 521,120
Problem 5.3(3) _
fv_<J_11_:_co_ntrolli11_g_interests' check:
- -- ------------------ ---·- -- - - ---------
Shareholders' equity of Sa[)phire at 31_[)ec 20x9 -

5·4- 0,000
Net book value of fair value adjustment (after-tax) --- 17,500
------- ------------------------------------- -----------------·--·--- . -------
Unrealized profit on upstream sale ··--· -- . (§,OQQ)
T_clx on urirealized prciflt o_ri upstream sale 1,600
Adjusted shareholders' equity of Sap_p_hi_r t 31 Dec 20x9 ---- -- 551,100

----- -
NCl'sshare @20%
--------------•---- 110,220
NCI balance in consolidated worksheet 110,220
---- -------
-- -- --------- -
P_roblem_ .3(4)
4(c1)_ _ _(:_<>nsoJidated in\/e11to_ry balance _ _
Prism 4o,_o_o
§appbire ..... .... --------------------··-- ·····--··-·-- -·--·-·-···-·····
o
.. _ ,ll,_dj_ustments . ·····- . _ 270,000
Unsold inventory at_ye_a_r_e_n_d _
8,000
--- -------- 902,QO_
O
-B---alance on -c--o--n--s--o-l-i-d-a--t-io--n worksheet 9()2,000 4.(b) .
C::e>11sC>lid_atedt>_uil ill!:J!:;<1_n_d equipment, net of accumulated depreciation _
P ism .................··--·· -··- -·· ......... _. -······ §CJCJ,QOO
Sapphire _ _ 120,000
Adjustments
\---- ...... --- ··-
·•-----·-·-----·
Remaining balance of under-valll clbllilcling c1nclequip111ent................... ....... 2.1,87§

. -··-·· ·- -- --·
641,875
Balanc- e on consolidation worksheet:
- ------ - -- ---- ---- ----------,------------- -------·-----------------------
Cost _ 1,731,250
,ll,c_ctJmulated de[)_r(,c_iation Net book value 1,089,375
-- - ---
641,875
4Jc)gonsolidated retained earrii11gs_·-···--···-·'"-···-
f:risrn s_l3E ·---- ···-··-·---- ·--·-·-- _ --···· -··- Prism's share of
Sap[)bire{s p()st:c1c_quisition RE _
7QCJ,Cl()O
152,000
I
I
2016 © All rights reserved, McGraw-Hill Education (Asia)
F=',ris_lll's s_hare CJf-de!}reciation on t1ncJeir:_valued buildings, after tax (6,000)
I
. (5,120)
Prism's sh11re of unreia eidprofit in inventory, 9 erJ<1l(
1------ ------- --------- -------- ------ ---------------------,------
840,880
Balance on consolidation worksheet 840,880
2016 © All rights reserved, McGraw-Hill Education {Asia)
Part (1) Parent Co sold equipment to Subsidiary Ce>·-·
------ ----------- ----
CJE1: Reversal of profit
--- --·---
Dr Profit on Sale
Dr Fixed asset
- - ----------- ---- -----
10,000
80,000 I
. Cr_6ccu..n,_ulclted dep!eciation 90,000
Selling price 120,000
Net book value (110,000)
Profit on sale 10,000
C}E2:Tax on profit on sale ........ _ _ _

Dr Deferred tax asset
Cr Tax expense-······
------ ---- -- 2,000 _ ---- _
###
_C:JE3: Adjustment for excess depreciation [)_ J\ccumulated depre_ciation
Cr D_epreciation
--------- f1·4----
----·-------- 714 ---····-----------------
---- ------ - - -----------·-- ------ -------- ---------------------
Revised depreciatio..r, based on original cost .. 7,857 (Note,_1)

i'Je_',V_ epreciation 8,571 (Note 2) _ _
Excess depreciation (714),
---. ---···-- ·-- - ..
Note 1: Had the_transfernotbe_e,nrn_ade,the_net book value as at 1 J1Jly20x5is($200,Cl00/10*5.5) CJrJ1_1Cl,000. With the change in the r
is$110,000/7*0.5 or..... $7,857
000/7*0.5 = 8571
Note 2: New depreciation··--·· 120

- -- ----- ------ ------ ----- -------- -- -- -- - -·- ------- ----------
CJE4:.Adjustment for tax onexcess _depreciation...
_Dr Tax expense 143 Cr Deferred tax asset
CJE5: Income allocated to NCI
Dr Non-cor,trollin[)inte_rests{P?L) 50,000 .. _ ......
Cr Non-controlling interests (E3_Eil_
0
50,000
Part (2) Subsidiary Co sold equipment to Parent Co

---- ---- -----·----- ----- ----- - ---·- -- ----
Same entries (CJE 1 _to CJE 4) in part(1) .

_
--------------
CJE5: Income allocated to NCI

- - - ------ -- ------- --- -------
DrNon-controlling interests (P&L)

49,257
crNon controlling.interests _(ssr·-

49,2_!57 ·---- I
Profit after tax of S 500,000
Less profit on ale, ....... _ j1Cl,0llll) ............. _
A_dd tax on profit ori_s_ale, 2,000 .
Add excess depreciation--·-· --····-···-- 714 _
Less tax on excess depreciation _ (143)
Adjusted profit after tax of S 492,571
NCI @ 10% 49,257
----------- -----------
2016©AII rights reserved, McGraw-Hill Education (Asia)
(1) Consolidation adjustments. for the year_ended31.l)ecember 20x5
CJE1: Elimination of investment in Y Co
" --- -- - --- ------- ---- -------------------- - ------ -- -
DrShare capital -----· ... 500,Q00 Dr Retained earnings
600,Q00
Dr Inventory:
50,0QO ---········-·
Dr Goodwill ·
200,000
------- -- - --- - -
Cr Deferred tax.Iiability 10,000 =20%*50000{in_vento_ry)
Cr Investment in Y Co
.1,200,000
- - ---- --- ---------
grN_on-controUing interests 140,000

1,3_!;_0,000 _ 1,350,000_
Determination of Goodwill:
-
Pu c ase consideration by P_(;_o_ _ 1,200,000

F'ail:._v_alue of Non-controlling_irlte_re.s_t.s......... 140,000
Fair value of Y Co
1,340,000.
- --------- - ---------- ------
Less fair value of identifiable net assets 1,140,000

------ - " --- .,_ ---------- -
G--oodwill ---- --- 200,000,
,
E_are_rit's share of goodwill ... _ .......... 1!.4,00Q 12Q0000:90%*1140000 I\J_ciri:c;o_n!

r_cilling_in_terests' share_oJ goodwill 26,000 140000-10%*1140000
200,000
- - ---------------------······-···------· --
(;_J_l=J_:S_a_le of under-valued_jnll_entory_ ....... _
Dr Opening_B_E ---- ................ -·- 45,000
Dr Non-controlling_interests 5,000
Cr Inventory_. ····-- 50,000'
"CJE3:-rax-effi=e-c-ts-of CJE2
--------------------- -------- ---- ----
Dr l)eferred tax lia_bility··-· 10,000,
.................................................
..Cr Opening RE 9,000
Cr Non-controlling.interests ··-- . 1,000
CJE4: Adjustment for unrealized profit on transfer of fixed assets
Reinstate to original cost and accumulated depreciation prior to transfer
orGainansaIe······················································································· · so,ooo 1
Cr Fixed assets .... · ·-- ··· 20;060 ··--

g _l\_c;_cumulated depreciation 60,000.
-·• Shd be ... What is Adjustmt
Fixed assets, cost

100,000 1 0,000
_
(_20,Q00) _
ccu111ulated depr_e_cia_tion ......... {60,000) 0 • {60,000)
Net book value 40,000 120,000 · (80,000)

...................................................... -·
G_JE_5_:_ _dj1J_,;_tme_ntJor tax on unrealized_ profit on transfer of fixed assets
Dr Deferred tax asset 16,000
Cr Tax expense 16,000
---- --·- ----- ----- ------ -- - ------ -----------------------•-
CJE6: Adjustment of current depreciation on transferred.fixed.asset··-------
Dr_Accumulated depreciation ... .. ............... .. . 40,0Q0.. gr_ epreciatio_n

40,000
Depreciatio_n b.efore tr_ansfer , -- ~-- 20,000 _
Depreciation after transfer 60,000
,rinual over-depreciation tob_ecorfectecf{2D_04&20x5) . (40,000)
CJE7: Tax effects on CJE6

Dr Tax expense 8,000
I
--------------------
1
G_JEB: Allo.E_ate sh_are ofpost_-a_i;qRE_tc,f,J(;I_ _

[)_r QJ:>e_ning_Fs_E: 20,000
Cr NCI (BS)
........... --- -- 20,000,
RE at 1 Jan 20x5 800,000
-----------------
_B-E:_c1t date of acquisit_io_n 600,000.

Change in RE 200,000
NCl's share '

----·------- 20,000. --
I - ------------------------------------------·-------- --------------------------------------------------'---- -----
CJE9: Eliminate dividends declared by Y Co
Dr Dividend in_c;CJ_111_e_ _ ,_ 126,000 ---- ---- --- [)_r_Non-controUing
interEJ ts 14,000'
Cr Dividend declared - 140,000
CJE10: Allocate share of current income to NCI

DCrrNInCcIome to NGI 68,800
(BS) .. ... -- 68,800
, --------- --------
NPATofYCo
---;----- 720,00D_·-·
Less Gain on sale of Ff,' .... _. . . -· ------- (80 0Q_OL_ Add taxCJ_n gain on sale of FA
........16,0QO_
J\cld depreciationon !;Jain on sale_of_i=_A 40,000
Less tax expe_n.se _c,11_gai_n._on sale Clf FA _ (8,000)'
Adjusted NPAT 688,000'
--------- - ---- ---- -- -- --- - ----- --·- ---------
(2) Analytical check of Non-controlling Interests:

-Bookvalue of net_assets asat 31_D_ElC 20x5--·· .. 1,880,000
AcljLJst_mEJnt_for unrealized gain_ on FA (after-tax) (32,000) _
Adjusted net assets as at 31 Dec 20x5 1,848,000
---- ------ .------- -
--;-- ------- ----·--------- -------------
NCl's share 184,800
r-.JCl's share of_g_oCJcl_;v ill . _

26,000
-·- --------·-·----·= = = ===,----- 21 0,8 00
CJE1: NCI at date ofacquisition 140,000, CJE2: Adjustment for sale of
under-valued inventory · · (5,006);
fJE_:lJax_ o_n_c1cljustmentforsaieoiunder:valuedinventory ----· 1,QOO_' .... - C::JE8 ha_r(,_
of J)OSt-acq RE 20,0Q_(l_ _
CJE9: Dividends received --·--------------- (14,000)'
CJE10: Allocate share of current income to NCI 68,800 !
-- --- ----------- --
NCI balance as at 31 Dec 20x5 210,800

-- ------ ---
----- - -- -- --- --- - - --- l. --
(3) Conslidation adjustments thatdifferifNCI is measured as 3proportion of identifiable net
assets at acquisi1:ion date
CJE1: Elimination of investment in Y Co
--- - - ---- -- ---
Dr Share capital 500,000

i5r-RetaTnecfearnings .. _ ........ ···- 660 ·,o_o_o_•· _ Dr Inventory, _ __
·- , ··- ·-· .. _ ---··----50,000 -----
Dr Goodwill -- ···-·············--·-··· . 174,000 C_r_D_eferred
tax_ liabilit',' 10,000 =20%*50000(inventory)
Cr Investment in Y Co -._-_.-1,-20-0 ,00_0'

-------- ---- ----------------
c;_r r,Jon-controlling_ inte_r_e ts
114,000_
···-·- ·-·--· 1,324,000 1,324,0001
-D--e-t-e--rm--in-ation of--G- oo-d-w-ill:- ----- -------

- -------
purchase consideration_b)lf'C:o _
. 1,200,000_
i=air_value of No.n-contrCJHing_in_terests Fair
114,000 10%*1140000
value of Y Co
1,340,000
Less fair value of identifiable net assets 1,140,000 Goodwill .. - .

200,000
--- - ----------·--- - --
(2) Analytical check of Non:c_o_11trollir1g lrit1e es_ts:_ ........... ---· ...·- _ Book \/alue
of_l1Elt_assets as at 31 D_ec_20x5 1,880,0_00
_ Adjustment for unrealized_gain on FA (after-tax) (32,000).
-------, ---- -- ---- ------- --
-----------
- - - -----
NCI bflla_nce asat 31 D_ec20x5 ---····· --············- 184,800 10%*1848000
CJE1: NCI at date of acqllis it io_n -- - -----' _ 114,000 '
CJE2: Adjustment for sale_ofunder:valu_edinvent<Jry ·-·-··(5,000)

CJE3:Tax on adjustment for sale of under-valued inventory 1,000 ;
CJE8: Share of post-acq RE
20,00Q
CJE9: Dividends received (14,000)
- ------------------------ - --- ----- ------- ------- -------- ----- -------
CJE10: Allocate share of current income to NCI 68,800

- ---- -----·------ ------ ··- ·-------
(-4). n_alytical check on consolidated retained earni119s --- ---
P Co's RE 2,600,000
!"_(;o's share of Y Co's riost-acq_uisition retaine_d earnin11s 702, -0- 00 -;9--0-%---*-(-13800-00-900000)
. --- --
Share of cost of sales of under-valued inventory,_§ftertax (36,00Q)90%*80%*50000 -·
Share of unrealized gain_in fixed assets, af_teir tax . -··- g _8 _130Q) 9_Q_0/4,*3 200Q_
0
3,237,200
L
_Listill_lJ_S§_ppr_oach to reconstruct consolidated retained earnin11s =------,
Co's RE ·-·- ··- _ -· -· _ _ _ 2,600,0IJ_Q_
Y Co's RE------------··--- ·-· 1,380,000
C- JE1: Elim--ination of i-nvestment in Y Co (600,000).
g_ _!= _ ale of under-valued inventory -------- -( 4 5,000}' _
CJE3: Tax effects of CJE2 9,000
CJE4: Adjustment for unrealized profit on_transfer affixed assets (80,000)
16,001)
CJE5: _. \ j- stment for tax on unrealiz_ ':! e t on transfer of fixed assets
JE6: Adjustment of c !r _ tj ereciation_9!1_!: ,! !ed fixed asset --- 40,000 ' _
CJE7: Tax effects on CJE6 (8,000)'
s;JE8: Allocate share of post-acq RE to NCI
E :- li ]n ividend dared by Y Co CJE10: Allocate
..... (20,000)
share of current income to NCI _ 14.,000,-.-- .
. (68,800)
3,237,200 ; 0
P
(1) Consolidation adjustments for theyear ended31December20x5 ..
CJE1-:-E--limi-n--a·tion of investment in Y Co
Dr Sharecapital _ _
•·················5···0··0,000.......... ---
Dr Retained earnings
.. _. 1,000,000'(lnferred) Drlntangible Asset_---- -.- ------- - 100,000
Dr Goodwil,l
620,000----- --
---
Cr Deferred tax liability- 20,000!=20%*100000
Crlnvestment Tn Ye-o •·-•- =- - -

-2Jjoo @o[_-- -•- -·-- ---- .
Cr Non-controlling_i.nterests _ .. ···- -·-- . . ·--- -·- ... 2Q0,.ooo.
2,220,000 i _ 2,220,000
Determination of Goodwill:
Purc_hase consideration by P Co 2,000,000
Fair_valLJ_e o_f Non:con_trollinQ interests_ 200,000 --- ----- .
Fair value of Y Co - ···- 2,200,00_0 _ _ Less
fair value of identifiable net assets 1,580,000 1600000-20000
Goo--dwill --- _ 620,000 --, -
Parent'sshare
at goodwill 578,ooo12O06ooo-(90%*1580000)'
Non-controlling_inter_e,sts'shar_ElofgC>odv.,ill 42,00o]:f6oooo-(10_'l',*_1580Q_OD}.···
620,000!
------- --------------- --------------- ---
-----·---- --------- -----
CJE2: Amortization of intangible asset
Dr OpeningRE-· .. . . -. 36,000 (100K/5*2*O.-9) ------
Dr Non-controlling interests 4,000 (100K/5*2*0.1)
DrAmortization --- --- - ... - 20;000· . ·········
-- ------
Cr Accumulated amortization.----·----------· 60,000:
CJE3: Tax effects of arri_o!Y_z_a_t_ion_o! in_ta_n_gible asset -------·- _··-·
.Dr Deferred tax liability 1c2,QQ0L _
Cr Opening RE ...... 7,20Q Cr Non-

controlling interests 800,
Cr T ax exp en
. . ,--se ------- --- .------ - --· ,,_ -- -<-- -- 4--,-0-0-0·--
Adjustment for unrealized_profit on transfer of fixed assets (upstream sale)

---
Reinstate to original cost an_d_accum_ulated depreciatio_npriottotr<1ns_fe[ ............ _.... . .... . . _ _ _ ·- _
Dr _()_penirlg retained earnings 5_7L,6_0_0 ---
_[)r_Non:c:on_troll ng inte_rests . 6,400.
Dr Fixed assets 20,000
Cr Accumulated depreciation------- -o----------- - ..-.--.-..-8-_4-_,-0-0-0+-'------
Shd be What is Adjustmt Fixed assets, cost , -------·f40,000 120,0001--·-20,·ooo

Accumulated depreciation ----- (84,000). (84,000 )--
Nethook value -
56,000 120,000, (64,000)
: -- [ - --- --- ---- - -

CJE5: Adjustment for tax on unrealized profit on transfer of fixed assets (upstream sale)
_[)r [2_eferred tax asse.t . . ... _ ----•- 1_2,800 __ __ _ . .
(;r_()e_e11irlg retained earnings 11,520 i _
Cr Non-controlling int(l e,sts_ 1,280: ...

-- ---- ----- ---- -------- ------- ---- --------···
CJE6: Adjustment of f)as_t_andc_u_rren_td_eprec_iation

on_tr_a_nsferred fixed asset (uf)s_tr_e,a_111s_ale)_
Dr Accumulated depreciation 48 000 '
0 "-- _
Cr Depreciation .. _ . ---·- 32,000' --· _
c;r Qe_eni11g_retaine,d earnings ._ _ _1<!,i_0_Q (16K*0.9) Cr Non-
controlling interests 1,600 (16K*0.1)
[)e_rir_e_c:iatiol1_beforetransfer . . . .... ..... ..... - .... .... -- _ 28_,(l()_0 _
Depreciation after transfer _ 60,000
Annual over-depreciation to be corrected (20x5) (32,000)
------ ----·--- .. -
Half-year over depreciation for past period for 20x4 (1.7.04 to 31.12.04) (16,000)
c.J_EE_4:
- -- -------
-
I
-C-JE7: Tax effects on CJE6
--- ---- - --
Dr Tax_ expense _ _ 6,400
[lr()pening_retained earnings _ 2,880
_[Jr_No11-controlling_interests 320
··---- ----- -- ----------
Cr Deferred tax asset - _ --- 9,600 ----- --
1------ ---- -------- --
CJEB: AUocate share of post-acq RE toNCI
Dr Opening RE
- 50,000 ----------------- Cr NCI (BS) _
_ 50,0_00 _
RE at 1 Jan 20 x5
- - ----- 1,500,000
Kl:: at date of acquisition
---- ·-- ----- 1,000,000
Change in RE - - - -- -- 500,000
NCl's share '

--- 50,000
------------ -------
-----·------ ----- -----
CJE9: Eliminate dividends declared b)f_'r' Co

Dr Non-controlling interests _ _ 2Q,000
Cr Dividend declared
CJE10: Adjust unrealized profit from beginning inventory , ,

[Jr Opening R_E -- - - - . - - - 18,000(90"/ *<i°O"l,-* SO_K_) ,
Dr Non-controlling_ interests 2,000j1Q_o/,*j0_%*_5_0_K ) _
CCrost of sales 15,000 (30%*50K) '
<::_rlnventory, _ _ 5,00O(10% 0K)l
- - ·- - --- --·---·--·--
(;_J_E1_1: Adjust tax on unrealized profit in begi1111{ng inventory in CJE 10

[}r_T§x_e_xpen El --- ------ 3,00Q_( 0°/,*1 1<)_ _ _
Dr Deferred tax asset 1,000_ (20%*5K)
fr()e.ening RE 3 600.(20%*18K) 0
Cr Non-controlling interests __ _4Q0J20%*2K) -----

- --- --- ------- ----- -
G_JE12: dj11_stm nt_for unrealized_lo_ss_o_nuJJ_str_El;,m sale in curren_tyear
Dr Sales _ 350-_,_,o=-=o=-=o:c.. _ Cr
Cost of sales --- 0_,000 i_
--- ---· -
CJE13: Allocate -s-h-a--r-e·-of current income to NCI - -------- -- --------,
DrIncome to NCI
---- ------------------ 106,160
Cr NCI (BS)_
1_()_ ,_1_ 60
NPATofYCo 1,040,000_
Addrealized p_rofit from 20x4 15,000, Less tax on realized profit from 20x4 _ __
_ -- -(3,000)'.
Les_s_ arn_ort ati n_c,n_inta_ngible a_s_sElt_(fair_value adjustment)_ ---- (20, 0_00 ) •---
Add tax on amortization on_intangible asset _ _ _ -- 4:,000:
32,000
Add back depreciation experi_se _o_17_transferred asse_t
L
Less tax on depreciation expense on tr.311s_ferre_d_asset (6,400) Adjusted NPAT
1,061,600 : ---
---
200,000
-- =----
(_2)l>,_n_alytical check of Non-c<>ntro_lli11g l11_tere_sts:
Book value of net assets as at 31 Dec 20x5
2,840,000
--·--·--· --"-----
Un_an,o_rtize_d(after:tax)b;:ilanc_e of_intangible asset _ 32,00080%*_40_K _
L1S<;s unrealized profit _(_a e_r:taxLon tJnsold inventory (4,000) 80%*5K
Unre_alized_p_rofit
(undep!i,c:iat_ed bala_nc_e) on fixed asset_ (12,800) 803/,*16,000
---A---d- justed net assets as at 31 Dec 20x5 2,855,200:

--- - ---------- - - -- - -- -- -------- -- - ------- ---
----- - -- - -- - --- -------

l ' s h
-- . ---
a re
tio,520
NCl's share of go<Jclwill as at 31 Dec 20x5 42,000
327,520
- -
CJE1: NCI at date of acquisition 200,000'
CJE2: Adjustment for amortizationoTintangible asset -- - -- -(4)J6o)i -- ----- ----- --
C_,JE3: Tax_e_ffects ofp_ast amortization_ofinlangibleasset 800.------
CJE4: Adjustment for unrealized profit on fixed asset transfer (6,400) CJE5:Adjustment for tax on
unrealized profit on fixedassei --- {zso•·

c:JE6:-Acijust_merit ior-_pji(ei_x ess depreclation on fixed asset --: 1:;-6_00 --
CJE7: Adjustment for tax on CJE6 (320)
CJ :_siiare of post=acquisition retained earnings 50,_oo_-o_- ----_- _
CJE9: Dividends received (20,000)

<;JE10: Less unrealizec! ero_fiUr_oni_l)eg 11_n_ing_mvemorx (2,000}J
<; E:11:_ T_ax on unrealized profit in beginning inve_n_t_ory _ 400 i
CJE1 3 : A lloc a te sh a re of c u rr e n t in c o m e to NC I
-- -- - - · - - - - -- - -- - -- - -- -- - -- - - -- 106,160 I NCIbalance as at 31 Dec 20x5
327,520
------------- -----
(3) Non-controlli11g interests as a r>!<>_llortion of identifiable_ net assets ---- -----
CJE1: Elimination of investment in Y C- o----- -------'-------

Dr Share ca_i:,_ital
500,000
- - -------- ----·-------------
Dr Retained earnings 1,000,000 (Inferred)

Dr Intangible Asset
_1_00,000 Dr Goodwill : _
578,000
Cr Deferred tax lia ility ; 20,000, =20%*100000
Cr Investment in Y Co
2,000,000'
Cr Non-controlling interests 158,000
- - - -- -- ----------- 2,178,000 2,178,000-!--
Determination of Goodwill: - ---------- ---- --- · --- ·
Purchase consideration by P Co 2,000,000
Fair value of Non-controlling interests 158,00_0 10%*1580000
Fair value of Y Co _ _ 2,158 00_-0 _,--
Goociwiil- ----- -- sia:ooo--
Less fair val e of identifiable net assets 1,580,000 1600000-20000
------------
------------
Parent's share of goodwill
_5_78,000 2000000-(90%*1580000)
- - ! -- -- - ..-----
--- - -----------
-- --------------------------------------
_Analytic_al chec_k of Non-controlling l_nt_e_resti;:_-----

2,840,0()0
-- - - - - -- -------- - --- --
Unam<Jrti _d( after-tax) balance of intangible _asset 32,000 80%*40K

Less unrealized profit (after-tax) on unsold inventory_
--- (4,000) 80%*5K Unrealized profit (undepreciated balance) on fixed asset
(12,800) 80%*16,000 Adjusted net assets as at 31 Dec 20x5 2,855,200,
NCl's balance as at 31 December 20x5 285,520 10%*2855200

------ ---- --- ---- ----
-- --- ----------------- ------- -
----
c:;_ E1: NCI at date of acquisition _
158,000 •
- _ (4,000)
(;J_E: :_!._dj tment for amCJrtization of intangible_asset
CJE3: Tax effects of past amortization of intangible asset 800

C:JE: : Adjustment for_LJn_r_e_c1li2:edp_r_ofitonfixed assettransfer
(6,4Q0) CJE5: Adjustment for tax on unrealized profit on fixed asset
1,280 :
----·--------- --- ----- --------
I
CJE6: Adjustment for_past excess depreciation on fixed_asset _ 1,600 CJE7:_Adju tment fort o_n CJE6_ _ _ _
_ _ -- _ (32())
C::JE8:Shar of eost:acguisition retained arning_s --- 5_0,000 -- --•--------
CJE9: Dividends re- c-e-iv-e-d--- -- ---- - (20,000) CJ 10: Less unrealized profit fr_ci_rn_be(!il1_Qi11g_i11ve11_tory_
--- (2,ooQL
C:JE11: Tax on unrealized_e ofit in beginnin_g_in_v_e_n_to_rLy _ 400
- ------, ·~ ----
CJE13: Allocate share of current income to NCI 106,160 ·
(1) Difference in the accounting for R&D expenditures on acquisition

Legal entity Economic entity
IAS 38 IFRS 3
At acquisition date
Research to date Expensed off At fair value on acquisition
Development to date
Capitalized if meet At fair value on certain criteria acquisition
Subsequent expenditures At acquisition date Research
Development
Expensed off Expensed off
Capitalized if meet Capitalized if meet certain criteria certain criteria
(2) Consolidation entries for 20x6 CJE1: Elimination of investment Dr Share capital
Dr Retained earnings DrOCI
Dr Intangible asset Dr Goodwill
Cr Deferred tax liability
Cr Investment in Topaz Co Cr Non-controlling interests
NCl's share of goodwill
1,000,000
###
###
1,500,000
###
4,240,000
###
3,600,000
###
4,240,000
###
CJE2: Adjustment for amortization of the intangible asset
Dr Amortization 150,000
Cr Accumulated amortization
150,000
CJE3: Tax effects of CJE2

DrDTL
Cr Tax expense
30,000
30,000
CJE4: Adjustment for unrealized profit on transfer of fixed assets Reinstate to original cost and accumulated depreciation prior to
Dr Non-controlling interests 64,000
Cr Fixed assets
Cr Accumulated depreciation
Shd be What is
400,000
240,000
Adjustmt
Fixed assets, cost 800,000 1,200,000
(400,000)
Accumulated depreciation (240,000) 0 (240,000)
Net book value 560,000 1,200,000 (640,000)
CJE5: Adjustment for tax on unrealized profit on transfer of fixed assets

Cr Opening RE 115,200
Cr NCI 12,800
CJE6: Adjustment of past depreciation on transferred fixed asset
Dr Accumulated depreciation 80,000
Cr NCI 8,000
Depreciation before transfer 560000/4.1/2 70,000
Depreciation after transfer 1200000/4'1/2 150,000
Past over-depreciation to be corrected 640000/4.1/2 (80,000)
Dr ORE 14,400
Dr NCI 1,600
CJEB: Adjustment of current depreciation on transferred fixed asset

Cr Depreciation 160,000
Depreciation before transfer 140,000
Depreciation after transfer 300,0_Q0
Annual over-depreciation to be corrected 640000/4 (160,000)
CJE9: Tax effects on CJEB

CJE10: Allocate share of post-acq RE to NCI

Dr NCI 4,000
Cr Opening RE 4,000
RE at 1 Jan 20x6 480,000
RE at date of acquisition 520,000
Change in RE (40,000)
NCl's share (4,000)
CJE11: Eliminate dividends declared by Topaz Co

Cr Dividends declared 120,000

Dr Income to NCI 184,800
Cr NCI (BS) 184,800
NPATofTopazCo 1,840,000
Less amortization of intangible asset (150,000)
Add tax on amortization 30,000
Add depreciation on gain on sale of FA 160,000
Less tax expense on gain on sale of FA (32,000)
Adjusted NPAT 1,848,000
CJE13: Elimination of sale from P Co to Topaz Co

Dr Sales 360,000
Cr Inventory 32,000
Cr Cost of Sales 328,000
CJE16: Allocation of OCI to NCI
Dr NCI 14,200
CrOCI 14,200
OCI as at 1 Jan 20x6 158,000
OCI as at acquisition date 300,000
Change in OCI (142,000)
CJE17: Allocation of current OCI to NCI
Dr Current OCI 29,200 29,200
Cr NCI
CJE18: Elimination of intercompany payable and receivable

Dr Amount due to Topaz Co 67,000
Cr Amount due from P Co 67,000

(3) Analytical check of Non-controlling Interests:
Book value of net assets as at 31 Dec 20x6 3,650,000
Add unamortized balance of intangible asset 1500000•9110·80%

1,080,000
Less unrealized profit in fixed assets 640000/4'2.5'80% (320,000)
4,410,000
NCl's share 441,000
NCl's share of goodwill Note 1 38,000
NCI at year-end 479,000
Note 1 340000-10%·(1820000+15ooooo-3ooooo)
CJE1: Elimination of investment 340,000
CJE4: Adjustment for unrealized profit on transfer of fixed assets (64,000)

CJE5: Adjustment for tax on unrealized profit on transfer of fixed assets 12,800
CJE6: Adjustment of past depreciation on transferred fixed asset 8,000
CJE7: Tax effects on CJE6 (1,600)
CJE10: Allocate share of post-acq RE to NCI (4,000)
CJE11: Eliminate dividends declared by Topaz Co (12,000)
CJE16: Allocation of OCI to NCI (14,200)
CJE17: Allocation of current OCI to NCI 29,200
(4) Analytical check on consolidated retained earnings
P Co's RE 5,000,000
P's share of Topaz' post-acquisition RE 90%*(2200000-520000 1,512,000
Share of amortization of intangible asset, after tax 90%*80%*150000 (108,000)
Share of unrealized profit on equipment, after tax 90%*320000 (288,000)
Unrealized profit in inventory, after tax, from downstream transfer 80%*32000 (25,600)
Consolidated retained earnings 6,090,400
P Co's RE 5,000,000
Topaz' RE 2,200,000
CJE1: Elimination of investment (520,000)
CJE2: Adjustment for amortization of the intangible asset (150,000)
CJE5: Adjustment for tax on unrealized profit on transfer of fixed assets 115,200
CJE6: Adjustment of past depreciation on transferred fixed asset 72,000
CJE8: Adjustment of current depreciation on transferred fixed asset 160,000
CJE10: Allocate share of post-acq RE to NCI 4,000
CJE11: Eliminate dividends declared by Topaz Co 12,000
CJE12: Allocate share of current income to NCI (184,800)
CJE13: Elimination of sale from P Co to Topaz Co (32,000)
Part (5) If the fair value of remaining inventory was
how would the consolidation adjustment be affected
130,000
6,090,400
Remaining inventory Fair value

Write down
Topaz Co's bks Group
###
###
###
112,000
130,000
CJE13A: Elimination of sale from P Co to Topaz Co

Dr Sales
Cr Inventory
Cr Cost of Sales
CJE14A: Tax effects of CJE13A
Dr Deferred tax asset
Cr Tax expense
360,000
3,600
18,000
342,000
3,600
(1) Consolidation entries for 20x6

CJE1: Elimination of investment in X Co

Dr Retained earnings 120,000
Dr Goodwill 504,000
Cr Deferred tax liability 24,000
Cr Investment in X 1,200,000
1,344,000 1,344,000
CJE2: Depreciation of fixed assets
Dr Opening RE 54,000
Dr Depreciation 12,000

Dr Deferred tax liability 14,400
CJE4: Adjustment for unrealized profit on transfer of fixed assets
Reinstate to original cost and accumulated depreciation prior to transfer
Dr Profit on sale 164,800
Cr Fixed assets 40,000

Shd be What is Adjustmt
Fixed assets, cost 260,000 300,000 (40,000)
Net book value 135,200
0,000 164,800( )
Cr Tax expense
32,960
CJE6: Adjustment of current depreciation of transferred fixed asset
Depreciation before transfer Depreciation after transfer 45,067
Annual over-depreciation to be corrected (20x6) 164800/3
100,0_00
(54,933)

CJEB: Allocate share of post-acq RE to NCI
Dr Opening RE
8,000
Cr NCI (BS) 8,000
RE at 1 Jan 20x6 200,000

Change in RE 80,000
NCl's share 8,000
CJE9: Eliminate dividends declared by X Co
Dr Dividend income
130,500
Dr Non-controlling interests
14,500
Cr Dividend declared 145,000
CJE10: Eliminate downstream sale
Dr Sales
50,000 60%'(50000-53000)
Dr Inventory
1,800
Cr Cost of sales 51,800 Difference
Legal entity Group
NRV
31,800 31,800
Cost 30,000 36,000
LCNRV
30,000 31,800 -1,800
CJE11: Tax effects of CJE1O
Dr Tax expense
360
CrDTL 360

Cr NCI (BS) 59,851
NPAT of X Co 696,000
Less depreciation of fixed assets (12,000)

Add tax on depreciation of fixed assets 2,400
Less profit on transfer of fixed assets (164,800)
Add tax on profit on transfer of fixed assets 32,960
Add correction of excess depreciation 54,933
Less tax on excess depreciation (10,987)
Adjusted NPAT 598,507
CJE13: Elimination of intercompany balances
Dr lntercompany payable 65,000

Cr lntercompany receivable 65,000
(2) Analytical check of Non-controlling interests
Adjustment for unrealized profit on fixed assets (87' 893) 164800/3'2'80%
NCl's share of net assets 126,311
NCl's share of undepreciated fixed assets 3,840
NCl's share of goodwill 38,400
NCI balance as at 31 Dec 20x6 1§_8,551
Note 1: 120000*3/6*4/5*80%*10%
Note 2: 120000-10%*(840000-24000)
CJE1: Elimination of investment in X Co 120,000
CJE2: Depreciation of fixed assets (6,000)

CJE9: Eliminate dividends declared by X Co (14,500)
(3) Analytically derive the following balances

(a) Consolidated fixed assets
Analytical approach
PCo 2,780,000
XCo 1,200,000
Add undepreciated excess of under-valued fixed assets 48,000
Less unrealized profit on transferred fixed assets (109,867)
3,918,133
Compilation of Fixed assets
PCo 2,780,000
X Co 1,200,000
CJE6: Adjustment of current depreciation of transferred fixed asset 54,933
3,918,133
(b) Consolidated Inventory
Analytical approach
P Co 350,000
XCo 200,000
Unrealized profit in inventory Note 1 1,800
551,800
Note 1: 60%*(53000-50000)
Compilation of inventory
P Co 350,000
XCo 200,000
CJE10: Eliminate downstream sale 1,800
551,SOQ
(c) Consolidated retained earnings as at 1 January 20x6
Analytical approach
P Co 1,890,000
Adjustments
Post-acquisition retained earnings attributable to P Co 72000
After-tax depreciation on under-valued fixed assets (Note 2) (43,200)
1,918,800
Note 1: 90%* (200000-120000)

Note 2: (340000-220000)*3/6*80%*90%
The change in useful life affects depreciation for 20x6 onwards
Compilation of retained earnings as at 1 January 20x6
PCo 1,890,000
XCo 200,000
CJE1: Elimination of investment in X Co (120,000)
1,918,800
(d) Consolidated retained earnings as at 31 December 20x6

Analytical approach
PCo 3,590,000
Adjustments relating to P's share
Post-acquisition retained earnings attributable to P Co 567,900
After-tax depreciation on under-valued fixed assets (Note 2) (51,840)
After-tax unrealized profit on fixed assets (Note 3) (79,104)
After-tax unrealized loss in inventory (Note 4) 1,440
4,028,396
Note 1:
Note 2:
Note 3:
Note 4:
90°/4*(751000-120000)
90%*80%*((0.5*120000)+(120000*0.5*0.2)) (300000-260000+124800)/3*2*80%*90% 80%*1800
Compilation of retained earnings as at 31 December 20x6
PCo 3,590,000
XCo 751,000
CJE5: Adjustment for tax on unrealized profit on transfer affixed assets 32,960
CJE9: Eliminate dividends declared by X Co 14,500
CJE10: Eliminate downstream sale 1,800
CJE11: Tax effects of CJE10 (360)
4,028,396
Part (1): Cost of warehouse for the legal and economic entity
Legal entity Economic entity Difference
1 October 20x6 3,500,000 3,500,000
Less capitalized internal interest
After tax
20x5
20x6
Add third party interest
(200,000)
(150,000)
20x5 120,000
20x6 80,000
(i) Cost of warehouse 3,500,000 3,350,000
31 Dec 2Dl Depreciation Oct-Dec 20x6 (43,750) (41,875)
(ii) Net book value 3,456,250 3,308,125 (148,125) (118,500)

Part (2): Consolidation entries for 20x6
CJE1: Elimination of investment in X Co

Dr Goodwill 322,000
Cr Deferred tax liability 24,000
1,342,000 1,342,000
CJE2: Accumulated depreciation
Dr Opening RE 54,000 Note 1
Dr Non-controlling interests 6,000 Note 2
Dr Depreciation 20,000
80,000
Note 1
Note 2
(120000/6•3•90%)
(120000/6'3'0.1)
Dr Deferred tax liability 16,000
CJE4: Adjustment for capitalized interest in fixed assets
Dr Opening RE 180,000 200000•90%
Dr NCI 20,000 200000·10%
Dr Interest income 180,000
Cr Fixed assets 350,000
Cr Interest expense 30,000
CJE5: Adjustment for tax on CJE4
Cr Opening RE 20%·1soooo 36,000
Cr NCI 20%·20000 4,000
Cr Tax expense 20%.150000
30,000
CJE6: Adjustment of current depreciation of transferred fixed asset
Dr Accumulated depreciation 4,375 350000120·114
Dr Tax expense 875
Cr Deferred tax asset 875

CJEB: Recognition of capitalized third party interest in warehouse
Cr Interest expense 80,000

Cr NCI 12,000
CJE9: Tax effects of CJEB
Dr NCI 2,400
CrDTA 40,000
CJE10: Depreciation on capitalized interest
Dr Depreciation 2,500 200000/20"0.25

DrDTA 500
Cr Tax expense 500

Cr NCI (BS) 25,000

RE at 1 Jan 20x6 650,000

NCl's share 25,000
CJE13: Eliminate dividends declared by X Co
CJE14: Unrealized profit at beginning of the year
Dr Opening RE 60%"90%"15000 8,100
Dr NCI 60%"10%"15000 900

Cr COS 50%"15000 7,500
Cr Inventory 10%"15000
1,500
CJE15: Tax on unrealized profit at beginning of the year
Dr Tax expense 20%"7500 1,500

Dr DTA 20%"1500 300
Cr Opening RE 20%"8100 1,620
Cr NCI 20%*900 180

Cr NCI (BS) 57,550

NPATofX Co 640,000
Less current depreciation on fixed asset (20,000)

Add tax on current depreciation 4,000
Less interest income capitalized (150,000)
Add tax on capitalized interest 30,000
Add external interest income capitalized 80,000
Less tax on capitalized interest (16,000)
Add correction of excess depreciation 4,375
Less tax on excess depreciation (875)
Less depreciation on capitalized interest (2,500)
Add tax on depreciation 500
Add realized profit 7,500
Less tax on realized profit (1,500)
CJE17: Elimination of loan payable
Dr Loan payable 1,000,000

Cr Loan receivable 1,000,000
Part (3): Analytical check of Non-controlling interests :
Adjustment for unrealized profit in fixed assets (118,500) Note 1
Adjustment for unrealized profit in inventory (1,200) Note 2
Remaining balance of intangible asset 32,000 Note 3
NCl's share of net assets 161,230
NCl's share of goodwill 18,400 Note 4
Note 1
Note 2
Note 3
Note 4
(350000-200000)'19.75/20'80%
15000*10%*80%
(600000-480000)'80%'2/6 118000-10%'( 1020000-24000)
CJE2: Accumulated depreciation (6,000)
CJE4: Adjustment for capitalized interest in fixed assets (20,000)
CJE5: Adjustment for tax on CJE4 4,000
CJE8: Recognition of capitalized third party interest in warehouse 12,000
CJE9: Tax effects of CJE8 (2,400)
CJE13: Eliminate dividends declared by X Co (9,000)
CJE14: Unrealized profit at beginning of the year (900)
CJE15: Tax on unrealized profit at beginning of the year 180
NCI balance as at 31 Dec 20x6 179,630 0
Part (4): Analytical check on following balances

(i) Consolidated RE at 31 Dec 20x6
Listings approach:
P's RE 2,860,000
X's RE 1,200,000
CJE5: Adjustment for tax on CJE4 66,000
CJE7: Tax effects on CJE6 (875)
CJE9: Tax effects of CJE8 (37,600)
CJE10: Depreciation on capitalized interest (2,500)
CJE11: Tax effects on CJE10 500
CJE13: Eliminate dividends declared by X Co 9,000
CJE14: Unrealized profit at beginning of the year (600)
CJE15: Tax on unrealized profit at beginning of the year 120
3,414,670
Analytical check on consolidated RE as at 31 Dec 20x6
P's RE 2,860,000
P's share of X's post-acquisition RE 720,000 90%.(1200000-400000)
P's share of X's depreciation of undervalued fixed assets, after-t, (57,600) 90%·120000•4w30%
P's share of X's unrealized profit on inventory, after-tax (1,080) 90%.(150000-135000)'10%.80%
P's share of X's unrealized interest income, after-tax (106,650) Note1
Consolidated RE as at 31 Dec 20x6 3,414,670
0
Note1: P's share of (Interest capitalized by P -Interest expense incurred by X with banks)xRemaining life/Useful life x After-tax
90%·(200000+150000-120000-8oooor19.75120·80%
(ii) Consolidated Fixed Assets as at 31 December 20x6

Listings approach
P's fixed assets 3,800,000
X's fixed assets 2,800,000
CJE6: Adjustment of current depreciation of transferred fixed asE 4,375
CJE10: Depreciation on capitalized interest (2,500)
6,491,875
Analytical check on Consolidated Fixed Assets as at 31 December 20x6
P's Fixed Assets 3,800,000

X's Fixed Assets 2,800,000
Remaining balance of under-valued fixed assets 40,000 120000·216
Undepreciated unrealized internal interest (148,125)
6,491,875 0
Note1: (Interest capitalized by P -Interest expense incurred by X with banks)xRemaining life/Useful life
(200000+150000-120000-80000)'19.75/20
(i) Consolidated Inventory as at 31 December 20x6
Listings approach
P's Inventory 554,000
X's Inventory 320,000
CJE14: Unrealized profit at beginning of the year (1,500)
872,500
Analytical check on Consolidated Inventory as at 31 December 20x6
P's Inventory 554,000
X's Inventory 320,000
Unrealized profit as at 31 December 20x6 (1,500)
872,500
Part (1): Consolidation entries for year ended 31 December 20x6
CJE1: Elimination of investments
Dr Share capital 1,000,000
Dr Revaluation reserves 120,000
Dr Goodwill 342,000
Cr Accounts receivable 40,000
Cr Investment in Y Co 1,800,000
2,020,000 2,020,000
CJE2: Adjustment for impairment loss on troubled accounts receivable
Dr Accounts receivable 40,000
Cr Retained earnings 36,000
CJE3: Adjustment for tax on provision for loss

Dr Non-controlling interests 800
CJE4: Adjustment for unrealized profit on transfer of fixed assets Reinstate to original cost and accumulated depreciation prior to
Cr Accumulated depreciation
Shd be
112,500
What is Adjustmt
Fixed assets, cost 300,000 250,000 50,000
Net book value 187,500 250,000 (62,500)
CJE6: Adjustment of current depreciation on transferred fixed asset
Depreciation before transfer 62,500
Depreciation after transfer 83,333
Annual over-depreciation to be corrected 62500/3 (20,833)

CJEB: Allocate share of post-acq RE to NCI
Dr RE 12,000
Cr NCI 12,000
RE at 1 Jan 20x6 670,000
NCl's share 12,000
CJE9: Eliminate dividends declared by Y Co

Cr NCI (BS) 52,667
NPATofYCo 560,000
Less Gain on sale of FA (62,500)
Add tax on gain on sale of FA 12,500
Add depreciation on gain on sale of FA 20,833
Less tax expense on gain on sale of FA {4,167)
CJE11: Change in OCI
Dr Opening OCI 23,000

Dr Current OCI to NCI 5,000
Cr NCI 28,000
CJE12: Elimination of intercompany payable and receivable
Dr Amount due to Y Co 120,000

Cr Amount due from P Co 120,000
CJE13: Elimination of downstream sales
Dr Sales 80,000
Cr Cost of sales 78,000
Cr Inventory 2,000
Group YCo
Ending inventory 28,000 32,000
NRV 30,000 30,000
Loss 0 2,000
DrDTA 400
Cr Tax expense 400
Part (2): Analytical check of Non-controlling Interests:
Less unrealized profit in fixed assets 62500/3'2'80% (33,333)
Adjusted book value 2,496,667
NCl's share 249,667
NCl's goodwill Note 1 16,200
NCI at year-end g6_5,867
Note 1: 180000-(10%'( 1630000+8000))
CJE1: Elimination of investments 180,000

CJE2: Adjustment for impairment loss on troubled accounts receivable 4,000
CJE3: Adjustment for tax on provision for loss (800)
CJE9: Eliminate dividends declared by Y Co (10,000)
CJE11: Change in OCI 28,000 0
3 (a): Consolidated fixed assets as at 31 December 20x6
Compilation approach
P Co 3,200,000
YCo 2,900,000
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6,058,333
Analytical approach
PCo 3,200,000
YCo 2,900,000
Adjust unrealized profit as at 31 Dec 20x6 Note 1 (41,667)
6,058,333
Note 1 62500'2/3
3 {b): Consolidated inventory as at 31 December 20x6
PCo 600,000
YCo 400,000
CJE13: Elimination of downstream sales (2,000)
998,000
Analytical approach
PCo 600,000
YCo 400,000
Adjustment to ending inventory (2,000)
Consolidaetd inventory 998,000
Group YCo
Difference
Ending inventory 28,000 32,000
NRV 30,000 30,000

Loss 0 2,000
LCNRV 28,000 30,000 (2,000)
3 (c) : Consolidated RE balance at as 1 January 20x6
P Co's RE 1,450,000
S Co's RE 670,000
CJE1: Elimination of investments (550,000)
CJE3: Adjustment for tax on provision for loss (7,200)
1,586,800
Analytical approach P Co's RE
1,450,000
P's share of post-acquisition RE of S 108,000

P's share of past amortization of troubled AR, after tax 28,800
1,586,800 0
3 {d): Consolidated RE balance as at 31 December 20x6
P Co's RE 2,930,000
S Co's RE 1,130,000
CJE1: Elimination of investments (550,000)
CJE3: Adjustment for tax on provision for loss (7,200)
CJE5: Adjustment for tax on unrealized profit on transfer of fixed asset: 12,500
CJE9: Eliminate dividends declared by Y Co 10,000
CJE13: Elimination of downstream sales (2,000)
CJE14: Tax effects of CJE13 400
Consolidated retained earnings as at 31 Dec 20x6 3,449,200

Analytical check on consolidated retained earnings as at 31 Dec 20x6
P Co's RE 2,930,000
P's share of post-acquisition RE of S 522,000
P's share of past amortization of troubled AR, after tax 28,800
P's share of unrealized profit in equipment, after tax (30,000)
Unrealized profit in downstream transfer of inventory, after tax (1,600)
Consolidated retained earnings as at 31 Dec 20x6 3,449,200

f'art_ (1):<:;011so_licf,a!ion_a,djustments .
CJE1: Elimination of investment in Silver Co
----- ' ------ - ' ' --

Dr Retained earnings -- - ··---
Dr Inventory' 50,000
or·G-oodwill
6s6;oilo
(;rDeferredtcixlia 1ity .. · · ------
Cr Investment in Silver Co
--, ---
.-10,000,
2,200,000
Cr Non-controlling interns_ts _
2,430,000
-------- --------- --- ------ ---------- --------------
-. 220,000 .. ,-
- 2,430 (}00
N_C -s- a_re__c,f g_c,odl,\lill -· ----- .... _i6,Cl(}Q.. 220000-10%·(11soooo-(20%·sooo0Jl_..
-------- --------·--------------- --- --- --- - ---- ---- ---
G_.Jg_?:_ dLu_strr,_e_r1to_fea5.tC,O,§_an_d_cu_rrent impairment loss of under-valued inv_e11tory_
Dr Openin!) F<E -- -- 40,500 9o%·9o%·soooo
Dr Non-controllin_g interests _ 4,50_()
IJrlrnpairment loss ·-- .. -- _.....3.0_00
_---- ·- _
_gr Inventory ---·•·-- ---····· 4 ,000
Group Legal
Carrying amount - ·--- .... -----23-000 18,006_..
NRv·
20000 20,000
LCNRV - -- - ·20000- T8,000
lmj)ciirment loss 3000 0
- C--J--E--3-:--T--a-x---e--ffects of CJE2
Dr DTA 9,600_20%•4aooo
Cr Tax expe=ns=e ---·e------.L----
-- 600
Cr Opening RE_
Cr_Non-_c:0_17trollin_g interests
....................... 8,100,
900
---- -- --- ---- -

CJE4: Adjustment for unrealized profit in development properties
DrOpe,ning RE ..- -- - .. ·--- 1 so-:-000 9% •20 0000
[)rJ\lo_n-confroTiing intere'st[ ----- 2Cl,O_OQ 1Clo/(20()000 .....
........········ _ .......
Cr Development properties 200,0...0 0
CJES: Adjustment for tax on unrealized profit on CJE4 · ·
Cr Opening RE
Sr Non-controlling interests
-- ------------
36,00()
.. 4,000
f.Jf:6_:f3djustment of current_unre liz_ecl_pi:_ofit il1_develo,:,rr1_entpro_pe_rties
Dr Construction revenue , _.. .. ...... . .. . .... 850,000...
Cr Construction costs
----
Cr Development properties ............ _

_ !_50,000'
100 ,00 0
.. . .. ,. ...... . ····--- I
--- - - - ------- --------

' - -- -- - - -------
Adju_stment of tax_or1__c:u_rre.n. t unreali_zed pr_ofit in construction WIP

Dr Deferred tax asset 20,000 20%·100000.............
g_r1 ax experis_e
---
_20,000_
----- .. --- ----- ----·--- -
CJEB: Adjustment of cost of sales ofdevelopmentproperties...
Dr Developme_nt pro_perties 180,000 6o%·3oClooo
Cr C_ost_ofsales ....,- 180,000
Dr Tax expense
Cr Deferred tax asset
36,000
36,000

Dr Op_e,_ning....E..... ....52,000.
Ci't'-JC:l(BS) 52,000
RE at 1 Jan 20x6 1,320,000
RE atdate of acquJs_ ion 800,000
Change in RE 52(),000
NCl's share ' 52,000 , ..
...
------------- ·----- - ·-·----·--

CJE11: Eliminate dividends declared by Silver Co ....
Dr Non-controlling interests ...............9,000 Cr Dividend declared
90,000
...l.------------- ---
CJE12: Adjustment for unrealized profit on upstream transfer of inventory ---
Dr -------7,200 9o%·4oo/.-20000 ........
Dr NCI 800
Cr Cost ot sales---------- Cr lnvenlc)ry
........6,000.30%·20000 ..............
2,00_0 10%·20000 -----
Dr Tax expense 1,200!
DrDTA
-----
- C r ORE---
.... 400'
.._ ..
.1,440
Cr NCI
-------
160
-- --c -- ---------- - -----------

ciNcf(ssj i .... . -140:24·0
NPAT ofSJlve.rCo -- .. -·-
-..
..........--- - ·······•................ 1,3_36,ooo..
Less unrealized construction profit . .. . (100,000)
Add tax on unrealized profii - .. ........ ..- - .. -- .-... ..... 20,000 ]..
f,ddreEilize,cJJirofitoncJeveloprne11tsales __ - ·- 180,0oo;
Less tax on realized profit (36,000)
Add back excess cost of sales ---- .... 6,00,0 .. ·· .. ......
------ ----- --........ - (1,200)
Less tax on excess cost of sales
·-
L.e. s.s_..irnpairment loss on und_ervalued inventory_ ..... _vVorkings
Add tax on impairment loss on undervalued inventory Adjusted NF'AT - .
(3,000)
-- --------- === = = = = = 1 ,4 0 2, 40 0
Workings: Impairment loss Legal entity Group entity E11cJini6alEa_nce ofundervaiue_d inVEl111Dry
FV of undervalued inventory 20,000 20,000
0
lm afrmeni7oss -- o------ : 3,ooQ
CJE15: Elimination of intercompany balances
Dr lntercompany payable
Cr lntercompany_l'eceivable
.....500,000 500,00Q
---------- --- - ---- --- -- . - --- -- -- - ----- ----- - ---- --- -- ---------
Part (2): Analytical check on Non-controlling interests:

-Book valueof net assets at 31- ec-20x6 ..... ----- ..
Add _r_ernainin_g undervalued inventory, Elfte,r tax
3,466 000
.......1,600_ .-.
. LElS8._llnrealized pro..fit in_ n_ventory, after tax Adjustment for unrE>Eilized profit in building _ Adjusted net assets as at 31 D
80%*10%*20000
300000*80%*40%
.............. ·-···
###
###
3,370,000
----------------- . ------ -----

NCl's share
..... 337',000 _
Add NCl's goodwill 220000-10%.(1750000-(20%.50000))
--- -
4 6, o_oo_ .........
383,000
220,000
2016 © All rights reserved, McGraw Hill Education (Asia)

C:J.E: :.J\..djustrnent.of past COS and.curren.t imp rrn .nt loss under-valued (4,500). CJE3: Tax effects of CJE2
900
----. - --------· -- - -- -- -- -- ---- --------
C:JE4: Adjustment for unrealized profit in develoi:>_ment properties ....(20,000)

C: E5: Adjustment for tc1x_o.n.LJ.ni:.ec1lized profit on CJE4 .. 4,000 CJE10:
Allocate share of post-acq RE to NCI 52,000
tJET'l:Eliminate dividends dE;claied by Silver Co (9,000) .... . ..
CJE12: Adjustment for ur1reaiized.profit on upstream transfer of inventory.. .. (800). CJET3: Tax effecis
oTcJt:12-· .. . .. . . ............. ....... f50
CJE14: Allocate share of current income t..o N·G-·I 140,240 .
--- -- ----------- ----------- ------- ·- --------- -- -- -- ----

0 383,000
f>.a_rt{3): AnalyUcal .£he_ck on consolidationJetained earninr,s ·"---
.................
Listings or compilation approach:
P's Retai_ned_ ea_rn_ings as at 31 Dec 20x6
Jl,000,000
S' Retained earnings as at 31 Dec 20x6
2,5(,6,000 --
_(? E1: Elimination_9f in stmentJ!:l_§ilver Co (800_,_Q 91.
CJE2: tment of past COS and current impairment loss of under-valued iny -! 'X- (43,500)
CJE3: Tax effects of CJE2 _ .. 8,7.00
CJE4: Adjustment for unrealized profit i_ - lopment properties (18(),QOQ) ...
36,000
g § _:_ dj _stment for tax on unrealized profit on CJE4
CJE6: Adjustmen_t of_current unreali p 9 t in develo men_t P! P r:!! -----·-- - 100!_900) ; _
CJE?.: stment of tax_on curre t r llzed profit in construction WIP 20,000 _
c;J.E_8:.Adjustment of cost of sales of development properties 1 000i 0
0
c;J l=9: Tax effects.of c;JE8..- -- ·---------- ... (36,000)

CJE10: Allocate share of post-acq RE to NCI .......... ......... ..(52,000).,
_g_ §-½- _inate dividen _declared by Silver_go ----- - QQ_Q_ . CJE12: Adjus ment
for un lize profit o!1y st . Jr sfer of inventory _ _ (..1_( _9_Q_) , _ CJE13: Tax..effects of CJE12
----- ---- 240
........... ....................... ·- (140,240)
7,467,000
- -. ----- -- ----.. ---- ----- -- ------
P's Retained earnings as.at31 Dec ox5. _ 6,000,000
---·--------------- ----
P's share of S' post-tax cumulative amortization of FV-El'{_differential
.J34,560)'
l''.s hare.o..f cons!rLtctio.n_erofitin_upstream transfe,r 96000'90% (s§:400)·.···..

P's share of unrealized profi!iriui:,streamtransf . 16.00'90o/'... (1,440)'
····· ------- .- ......

................ ---- 7,467,000
.................... L------'-·-······················ 1----- 0

···· -- .................. , ....
I
1
P's share of S's post-acquisition RE as at 31 Dec 20x6

·····················•······1,589
I
I
2016 © All rights reserved, McGraw-Hill Education (Asia)
Part (1): Consolidation and equity accounting entries_for 20x4 CJE1: Elimination of investment in X Co
DrShare_ capital
--- 500,000
Dr Retained earnings 3 -5--0-,-0--0--0-·
Dr lntangil)leassets ---- 50,000
Dr Goodwill
210,000
Cr D,e_f_erred tax Uability 10,_000
Cr Non-controlling interests
100,000
1,110,000
1,110,000_ _ _ _
I
CJE2: Past accumula_ted amortization to opening_F?_E_(20x1,20x2,2_0x3Land_cur,:en_t(2_0_x 4) -------

D_r_Opening RE 36,000 90%.((50000•3/5)+100001 '
Dr Non-controlling interests _
_4,000 10%• 50000•3/5t11J000) - ' _
Dr Amortizatio n
- -- _5,000 =10000,::/2=------
Cr Accumulated amortization
45000.00
Legalentity (3rouflen_t_ity ------
"'_ecoverable amount as at 31 Dec 20x3 110,000 1Hl.,_000
Remaining ne_t_book 11a ue ---· 1 00 0_(){)_._ _
0 120,000 Impairment loss
oi 10000.00 10000.00!
New carrying amount _

_ _100,000 ----- 110000.00 10000.00'

- -- -------- --- -
f)rDeferred taxHability 9,000 20%.45000
Cr Opening RE 7200.00 20%.36000

------
Cr_Non-controlling interests 800.00 20%.4000
Cr Tax expense 1,000 20%.5000

CJE4: Ad.{ustment of unre_a}! '} - '!E -on transfer of inventorr,_
l)r()f)eflingRE ... 10,800 90%.40%.30000
Dr NCI ............. 1,200 10%.40%.30000
Cr Cost of sales 9,000 30%.30000

Cr Inventory 3,000 10%.30000
------•----- _ 12,000, 12,000
CJE:.5: A_djustment for tax on unrealized profit on trans_f1:r_<Jf inventory_

Dr_Tax_1:xp_er1se __ _ __ 1.., 00.20%•9000 Dr Deferred tax
asset 600 20%.3000
Cr C)pening RE: _
2,1'302_Q%·1osoo
Cr NCI 240 20%·1200
CJE6: Allocate share of post-acg RE to NCI

Cr NCI (BS)
17,000_
RE at 1 Jan 20x4 520,000
--------------------- -··················
R_E at date of acquisition
350,000 Change in RE
170,000
NCl's share
17,000 ---
CJE7: Eliminate dividends declared b)l X Co
2016 © All rights reserved, McGraw Hill Education (Asia}

Dr Non-controlling_interests Cr Dividend declared 4,000
40 0_00
0
CJEB: Adjustunrea/ized loss on_downstream sale
Dr Fixed Assets 5 0 ,000---1-2-00- 00---7--0000

-- - --
Cr Accumulllled depreciation
Cr Loss on sale
--- 40,000 lncludesimpairmentloss
10,000 80000-70000
50,000
50,000 _ -- --------- _ ----- ----
Dr Tax ex_pense
CrDTL
2,000
2,000
c_.J_E_!o_:_11_djustment of depreciation on unrealized loss

Dr Depreciation _
C::rAccumulated depreciation
500 10000/10*1/2
500'
C-·J-E-11: Tax effects ofC_,J,E_1-0--- - -----
-1
DrDT L
- ---- ---
, -- ------
100
Cr Tax_e_x_pense -----------·----- 100

- ---- - ---- - ---------------------
Dr Income to NCI
------ -----· ,.
Cr NCI (BS)_! NPAT of X Co ,,_ ----
Less depreciation
Add tax on depreciaQon
i\dd re,alized profit on transfer of invento_ry_ _ ---
Less tax on profitontrar1sfer_of inventory_

Adjusted NPAT
_64,320,----
640,000 : _
, (5,000),
1,000 i
_ ----- ----- _ _ _ -------•------ 9,000 _
-------- (1,800)_ 643,200
c_JEE13: E_limin_;,tion of intercompany bala_nces
Dr Amount due to X Co
100,000, 100,000 ---
Cr Amount due from P Co

f>art(2): Analr_t{cal check on _N9 n-controlling_ir1terefltfl:
- ----------------- ---- --- -- - ------ --------- - --
Remaining balance_ ofJnt_a_n_gible asset (n_e_t of tax)

1,620,000 I
_4,000 Note 1 _
i\djustrnent for unrealizecl !lrofit_in inventory
(2,400) Note_ _2_
Adjusted net assets as at 31 Dec 20x4
. - ------
NCl's share of net assets

1,621,600
162,160-----
NCl's share of goodwill 11,000 Note 3

173,160
Note 1:
Note 2:
Note 3:
-- ---- - - - ------------ -- ------ - --- -
(110000-100000)/2*80%
30000*10%*80%
------------ ----
1Q0000-10%*(910000:(20%*60000))
Listings approach
g ? _f_ - -t-- -9 - - -! _t_ -- -f!l_?_r:ti !i_o_n_ t_ ?E - -i- -- - (_?_Q _1_ ,_?.Q_ ,3-q _ (4,000)
_)_ -i:1-
CJE3: Tax _c !!_ _of_t_
effects CJE--2 --- ---- ------ 800
CJE4: Adjustment of unrealized profit on.transfer of inventory (1,200).
CJE:§_:"'djustmen_t fortax.onunrealized jlrofito_n tr,insfer of inventory 240
CJE6: Allocate share.of post-acq RE to NCI -_ ------ 17,000_ - .... ······ ---
_GJE7: Eliminate dividends_de l1!recl_by_X_Co . -·-···-···-··· (4,000)_
64,320 '
- -- --- --- ----- ------- -- - -- --- - -- ----
0 173,160
Part (3): Consolidated Retained Earnings as at 31 Dec 20x4

f''sretained_ea_rning as at 31 DEJc20x4 _ _ _
3,_1:w,_000 l"'s share_of X Co' post acq RE to 31 Dec 20x4 .90%.( 1120000-350000)_
_693,000
P's shar _ of a_rnortization of intangible assets 90%*80%*45000

(32,400)
P's share of unrealized
. Upstrea111 _s_a_lEJ _ -- 0_%.8CJ'1/?1_Do/,'.3oooo
(2 160) Downstream sale ao%·10000110•9,5
7,600
- ----- ---------- 3,786,040

- ,. _
Listings approach:
f''sRetained Earnin9s as at 31 Dec_:20x4_ _ _:3,_1_20,000

S _Belained Earning_s a_s_a_t_3J Dec 20x4-------- 1,120,0QO ----
CJ-E1: Elimination of investment in X Co (350,000) --
,- - -··---- --- - - -- ----
C:JE_2c_F'a_ilt_a_CC_LJ111_Ulat -a_111_c>rti_zation to openirigR_E_(?_O_x_1_,20x2,20x3)_ and current(20x4) (41,000)

------- -------- ----------------
C:JE4:,l\djustment of unrealizederCJfiton transfer_of_invem_tory_ --- (1,800)

-----------
CJE5: Adj_ust_ment for tax on unrealized profit on transfer of inventory _ 360
CJ_E§: Allocate share of_p_c>st:a_cg RE _tel_NCI_ _ -- (17,000) CJE7: Elimina

dividends d clared by X Co ___ _ _ 4,00Qj C: l::?c_!l jLJ_sl_unrealized loss_on downstrea
sale 10,000
CJE9: Tax effects of CJE8- ----c -- --------- _ _ (2,000)
CJE10: ,l\_djust_n,entCJfdeprElciati_c>n_CJnunrealized los_s
-- (500)
_ CJE11: Tax effects of CJE10 10
C- JE12: Allocate share of current income to NCI --- - -- (64,3
.- ' - ------- ---

0.00 3,786,040
----

P_art (1): Consolidatic,11adjustments
Dr Share capital
[)rf<EJtained earnin_gs
Qr_lnl/entory _ . Dr Goodwill
_1,000,000.
aoo,ooo _
30,000
1,696,000
Cr Deferred tax liability Cr Investment in Silver Co

_
---·6,000
,200,_()00 . --
Cr Non-ccmtrolling intEJrEJs_ts
###
' =---,--- ------------------------------ ---

.320,000
_3,5_26,000
(;_J_E_2:_ Adjustment of COS of under-valued im1ento,y _ ·-------- -
Dr Openin!J RE
Dr_Non-controlling interests
_ 16,200_9o%·6o%'30000
---1&00 10%·60%•30000
Dr Cost of sales ............ ··- ........... _9,000· 30%•30000
Cr Inventory 27,000 i
---
-C--JE3: Tax ef-f-e--cts o- f CJE2
DrDTA
5,400_20%·21000 -------- --
Cr Tax expense
Cr Opening RE
-----------
Cr Non-controlling interests
---- - --
CJE4: Adjustment for unrealized profit in buildings
1,800
3,240 _
-------3-6-0-- -
Dr·opening-RE- - ------ - -- 22,5()0 90%.(0.03-0.025)'10_Q00000·112- - -

Dr Non-controlling interest 2,500 .10%·(0.03-0.025)'10000000·112
Cr Building -- - ........ -
-- -.-
25,000'
1
-----
CJE_5: P._djus_tment for tax on unrealized pr0Jit_ 11_f_J_E_4
Dr Deferred tax asset .
_ _ ······--- ................5,000
- - -- ----- ------------ -------
Cr Opening,_R_E----- ---
C::r Non-controlling interests
---- 4,500
###
CJE6: Adjustment of current unrealized profit in buildings
Dr Interestrevenue - if
0
iOOOOOOIJ'.3/4_---225,ClOO-
Cr Interest expense 2.5%·10000000•314 .... _ .
. _
-187,500
Cr Building
----------- -
37,5()0;-..-------
- -- - - ----- - - ------•---
_CJE7: Adjustment c,_f_tax on cunent unrealized profit in buildings
Dr Deferred tax asset 7,500 20%•37500
Cr I ax expense
------- -- ----
. 7,500
CJEB: Adjustment of excess depreciati_on in building _ __ _
Dr Accumulated depreciation 1_,563 62500/1_0_·0_.2_5
C::r_Qepreciation exp_en_sEl 1,563
- - - -- - -- -- -- --- - - ------ -- - ---- -------

Dr Tax exp_ense 313 20%.1563
Cr Deferred tax asset 313
CJE_1_0_: Elimination of interest durinrJ ?0x6

-- -- --------------
Dr Interest incom-
e
·--- -----------
135,000(3o/,•12o_ooll0_0·114)+!3%·2000000·s112) --
Cr Interest expense
1----- :,,. ----------
(;_J_E_1_1: J_lc,_c ateshare ofpost-acq RE_to NCI
Dr Op_eninQ RE 80,000
2016 © All rights reserved, McGraw-Hill Education {Asia)
135,000
Cr NCIJBSL
RE at 1 Jan 20x6
- --- ----- ---------
REat dflte of acgulsi_tion

<;h_ange in RE NCl's share
------ -- -- - ---- -- -.
........ ..... .. 80,000_
.•....... 1,600,000
###
800,000
-·· _ -- 80,_()00'
(;_J_E12: Eliminate dividends declared by 5_ilve_r (;_.o
Dr Dividend income
Dr.Non-con_tr_olling inte_res.ts
Cr Dividend declared
90,000
1_0,000
-- _1_00,000 .
CJ_E13: Adjustment for artificial pr_ofit on ups_tr eam transfer of inventory
Dr Sales 80,000'
, -- --·
--------
1:{e_ nstate inventory-tCJ_fair value froma_rtificiallY low TP _ _ ·----- ....
... . ..
_ . ·-· .
1
Note 1: COS (S) --· _ -···· -- 40,000

cos (P) _-48 ,_oo_o _
----- --·--,-----
.. Pifferencein mpairment loss (8,000) Total COS 80,000'
Legaen_tity Group entity-
Difference
- --------- - - --------
QC 32,000
NRV ... . ·- . 30,000
40,000
30,000
----------- ·-
LCNRV 30,000 , 30_,_000 0
1
l_m_eflirment loss 2,000 • 10,000 ,

-- _J ---- -- --------
8,000 ·-·· .
C---J- E---1-5-: -A--lloc--a-t-e--s-h-a-re--o-f· c--u-rrent income to NCI
Dr Income to NCI Cr NCI (_BS )
.156,405
156,-40_5 _
NPAT of Silver Co
l_ess unrealized interest profit Less tax on unre fllize d_profit
-·· -·· 1,600,000
• -- • ··i·-················ ............. ······· ... (37,500)
-- 7,50Q.
l',dd.bflc _cle_preciation e_xpense
. 1,563
Less tax on depreciation exeense
_(3_13). _
l_ess COS on under-valuationC>f_inventory -- (9,000),
P,cJd tax on COS on under-valuation of im1en_tory

1,800
Adjusted NPAT
-- -- --- - - -------·---- - --- -
1-2_6j.,()50
i-
CJE16: Elimination of intercompany balances .. _
Dr Loan payable 12,000,000
Cr Loan rece ivable ·--·---- ·'·······--- ....... 12,000,00Q _
-·- --- -·-------- ----
Part(21:J3.n_alyticaf_check_CJfN_on-controlling interes_ts:
Bo-o--k--v--a--lu- e of net ass-e--t-s--a--s--a-t--31 Dec 20x6
-·-- ---··-·- ------------- -----
41_00,_()Q0
Add remaining (FV-BV) of inventory, after tax. 10%·80%•30000
_?,4_Di)
_)\_dj_LJ_s_tment for unrealize d profit in building .
Adjusted net assets as at 31 Dec 20x6
-- --- -·-
NCl's share
625oo·ao%·9.75/10
###
###
_ 405,365!
Add- J's__g o_o_dw_ill _
..320000·10%.(1830D_0D_j20%.30000))_ 137,600'
542,965
- - ----------
C---J--E--1--:--E- l_im,, inatio-n-o-f·in v e s-tm--e-nt in Silver Co

· ·- -
CJE2: Adjustment of COS of under-valued inventory

..320,000i
(1,800)'
CJE3: Tax effects of CJE2---- --- - , _ .
·--- ,
360
CJE4: Adjustmentforunrealized profit in buildings CJE5,Adjllstmen_tfcir ax on unr_e_fllize,cJprCJfitonCJE4 CJE11: AHocate share of

CJE12: Eliminate dividends declared by Silver Co
2016 © All rights reserved, McGraw Hill Education (Asia)
(2,500):
. -500 '
'-• •
80,000 •
(10,000)

15_6,405
--- - - ----------------- --------- -- ---- - - ---- --- -- - -- ---- -
0 542,965
------------------
Consolidated retained earnings

-- - -- ----------- - -- - -- -- ----------
P's_Retc1ine_d earnings as at31Qecernber ?0x6
S's Retained earnings_ as at 31 December 20x6
CJE-1: Elim--ina-tio-n-o-f in--v-e--s-t-m- en-t--in-S- ilver Co---- ---
CJE2: Adjustment of COS of under-valued inventory

CJE3: Tax effects of CJE2 ---
###
---- 3,100,000•
###
_(25,,200) ----t
5,040
cCJJEE4s::Adjustment for unrealized profit in buildings. (22,500)· ·
CJE6:Adjustmentofcurrent unrealized profit in buildings -- - (37,500) --- -
CJE7: Actjustmentcifiax on current unreaffzedprofitin uildings- -- -· -- -- ------ --- -- fsof _

CJE8: Adjustment of excess depreciation in building 1,563;
cJEi:l:Tax effects of CJEB - .. . ----- - -(31-3 )---
CJE1J:111fo_c_a!fl_ share ofpos_t:acq R_E_tc>t-J I-= -=:-_ _
-- _(§0,000)-- -- --
g E12: Eliminate dividends declared by Silver Qo _ _ 10,000
gJE13: Adjustment for artificial profit on upstream transfer of inventory CJE15: Allocate share of currenUnc_CJrne to NCI
P's RE as at 31 Dec 20x6
----------------- ------ ------ ----•----- ------ ------- -----
F''s share of S'sJJ_ost-acquisition RE as at 31 Dec 20x6 _

_, _ __ 0
(156,40=5--)
###
7,Gao,o_o_o_
2,070,000
------------------ - -------- -- -------- ------- -- - -------1

P's share of S's cumulative amortization of FV-BV differential (19,440)
-7 - -- ---·----- ------------------- ------ -- - -- --- -------------- ---
P's shareof unrealized profit in buildings, aftertal<,_in_upstre<Jm transfer (43,875) ------
0 9,686,685
,------------ -----
---"------------
Non-controlling
r Building-·---
_
-~~
)
(70,000)
_ _(4 40Q)
0
(5?,0Q0)
185 50
j<l1,25Q)
144,00_Q_
(17,760)
,000)
60
800
-------------------------
36,000
00
6,000
00)
8,000
38,400
able ........ 18-
6,400
,604,_200
_ Note 2 ....
(70,000)
--------------------
buildin(Js _
Q00
ildi11gs_.
50 :25000£Qc _
0*02
250
5,000
1<_ 4Qk)
1 00-10Q_01_
_ .. _:_3
on RE to NCI
30,000
- -- - - ---- ------
30,000
_
jn inven_tory
0 Q_r l\J_on-
_ 1,000
- 5-,_()_00
36,000
..(40%*40K) _ _
800
200
-- _ 1,600
..
4,084,850
Q)
1,600
551,100
110,220
110,220
_
4o,_o_o
o
270,000
8,000
902,QO_
O
00 4.(b) .
n _
§CJCJ,QOO
641,875
_ 1,731,250
1,089,375
641,875
7QCJ,Cl()O
152,000
(6,000)
. (5,120)
840,880
840,880
00. With the change in the remaining useful life,t_he revised depreciation for half:yea_r20x_5. _
t 143
100,000
Less
----·- _··-·
on-
_ ·- _
Cr Non-
_
Cr
0x4 _ __
_
(20,000)
(2,000}J
400 i
ec 20x5
327,520
------------- -----
set
_ _ _ _
(2,ooQL
ulated depreciation prior to transfer Dr Opening RE 576,000
1,200,000
(400,000)
0 (240,000)
,000 (640,000)
0
70,000
150,000
(80,000)
140,000
300,0_Q0
(160,000)
480,000
520,000
(40,000)
(4,000)
1,840,000
(150,000)
30,000
160,000
(32,000)
1,848,000
158,000
300,000
(142,000)
3,650,000
1,080,000
(320,000)
4,410,000
441,000
38,000
479,000
340,000
(64,000)
12,800
8,000
(1,600)
(4,000)
(12,000)
184,800
(14,200)
29,200
479,000
5,000,000
1,512,000
(108,000)
(288,000)
(25,600)
6,090,400
5,000,000
2,200,000
(520,000)
(150,000)
30,000
(576,000)
115,200
72,000
(14,400)
160,000
(32,000)
4,000
12,000
(184,800)
(32,000)
6,400
justmt
0,000)
(124,800)
45,067
100,0_00
(54,933)
200,000
120,000
80,000
8,000
ference
-1,800
696,000
(12,000)
2,400
(164,800)
32,960
54,933
(10,987)
598,507
800/3'2'80%
2,780,000
1,200,000
48,000
(109,867)
3,918,133
2,780,000
1,200,000
120,000
(72,000)
(164,800)
54,933
3,918,133
350,000
200,000
800
1,800
350,000
200,000
1,800
551,SOQ
1,890,000
72000
(43,200)
1,890,000
200,000
(120,000)
(54,000)
10,800
(8,000)
1,918,800
3,590,000
567,900
(51,840)
(79,104)
1,440
4,028,396
(118,500)
0-400000)
w30%
135000)'10%.80%
eful life x After-tax

0
ulated depreciation prior to transfer Dr Gain on sale 62,500

90,000
aiue_d inVEl111Dry 18 01)() .... 23,0Q_O -
usted net assets as at 31 Dec 20x6
210,000 ..
_ _ _
I
Impairment loss
Dr Deferred tax
.90%.( 1120000-350000)_
7,600
3,786,040
0,000
d current(20x4) (41,000)
360
CJE7: Eliminate
alized loss_on downstream
10,000 .
_s
-- (500)!
100 '
--- - -- (64,320)
.- ' - ------- -----

0.00 3,786,040 '
80,000'
CJE11: AHocate share of post-acq RE to NCI
15_6,405
- ---- --- -- - -- ---- -
0 542,965
------------------
_CJrne to NCI
576,000

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Advanced Financial

CQ5.1 TRUE Balances with associates are not eliminated

------------------.--- ------- --- --·----- -- --- ------ --- - ---------- -- - - -

-in either a higher cost of sales or higher inventory

--- -=:=-=--- jnot understateme-nt) of group pro fits· ' -'---=----

CQ5_5 TRUE Risks and rewards must be transferred from the

CQ5.7 FALSE NCI is not affected in a downstream sale transaction

CQ5.11 c .If the unrealized loss is reversed,_tili,9roup's_ depreciation will be increased_

reclassified impairment loss

fc1irvalu of NClc1tacguisJtion date 84000

------ - - --- -----

- ------------------- ------- ---

(;_J_ 5:Attributing_ pos_t:a_c_g i5E_to_ NCI

RE at 1.1.20x3 100,000, -- ---------- ---

CJE6: Elimina-ti-o--n--o--f-d--iv- idends

Dr Dividend income 21,000- - - ------ ---- ---

5CrJREE7: A-d-ju(isDt %fo*r 3u2nKrefa-li-s--ed--pr-o-f-it-o-n u-pstr-e-am sale of inventory in 20x2

CJEB: Adjust for tax effects of CJE7

----------- - - ----------------------- ...... ·--·-····· - •--·---

S.§!e_s_eroceeds .. -··· . .......... . ......... _ ... 64,000

Net book value _ _ 32,000 -'--

Profit on sale 32,000

CJE10: Adjustment for the tax effects on CJE 9

CrRE ---- -- ----· 4,000 _

CJE12: Adjust for tax on CJE11

Cr Deferred tax asset 1,600

CJE13: Adjustment for unrealised profit on downstream sale of inventory in 20x3

or break into two parts_

CJE15:Assigf1 curreT1t profit to NCI

Dr Income to NCI (PL) 17,760

..(.4.,00-0)-,---... ......- ---·--------1

fUan1aim1paired bal·ance of goo-dw-il-l 38,400

NCl's share @ 30% 99,240

FIRE WALL Dr Cr Cons-o--li-d--a-t-e--d-

- D-ivid-end incom-e---------- ----21,000 21,000

-- - - --------- -•---------------- --------- ------------- -----------------

Depreciation _ _ . (-40,QQ0) (30,Q00) 4,000 4,000 (70,000)

Other expen_s_El (12,000) 1 (-4Q,000). _ (5?,0Q0)

NPBT 164,250 60,000 _ 800 185 50

NPAT 131,4QQ 48,0Q_0 _

Income to NCI --- _ _ 17,760 _

Deferred tax asset

Investment in Wal-l-- 196,000 J

§hare capital _ --· 240,000 _1_6Cl,D_0_() 160,000 240,000

1,137,800 651,200 534,160 349,360 1,604,_200

Upstream sale from20x2 .... Note 1

. Downstream sale (unrealizt'ld J)Orti_c,n) Note 3 (72,000) 60%*120000

4(b) Consolidateddepreciation expense

4(c) Consoliclc1tecl inventory balance

--------- -F-ir-e------------- _ .. 330,000

Note 1: Bala_nce un olcl("l'o) = <12000/96000 = 43. 75% ---- ---

Share of impairment loss on goodwill -- (6,720) 70%*20%*48000

Sare of after-tax depreciation-ofu der:valuation

Fair _value of nCJn contr_o inginJ.erests 112500

Considerationpaidat acquisition date 450000

Fair value of identifiable net assets of Opal Ltd 4-2-0--000 Goodwill

(;_,11=_1 Elimination of investmer,tin ()pa/Ltcl

C:r_f\Jon controllinginterests ...... --·---· 112,500

Cr Goodwill on consolidation 90,000

(;_.J_1=_4_ dj11_s_t111_e11_tof u11re_alise_d_pr()f_its in c/osing_inventories _

(;_J_E!_ No_ _c_CJn_trolli11_g_i11te_r_ests' share o_fpro_fit afer tax for 2Q)(2_

l)r Non-controlling interei_sts_(PjlJ 16,960

Cr_Non-contrCJll nginteres_ts,1B/S) .. 16,!J60

Share of impairment loss on goodwill -- (6,720) 70%20%48000