Income Statement and Partial Statement of Changes in Equity

For Year Ended 31 December 20x6

Prism Co Silver Co Amber Co
Profit before tax $ 1,600,000.00 $ 1,260,000.00 $ 1,700,000.00
Tax -$ 320,000.00 -$ 264,600.00 -$ 357,000.00
Profit after tax $ 1,280,000.00 $ 995,400.00 $ 1,343,000.00
Dividends declared -$ 50,000.00 -$ 100,000.00 -$ 140,000.00
Retained profit $ 1,230,000.00 $ 895,400.00 $ 1,203,000.00
Retained earnings, 1 Jan 20x6 $ 20,000.00 $ 720,000.00 $ 850,000.00
Retained earnings, 31 Dec 20x6 $ 2,050,000.00 $ 1,615,400.00 $ 2,053,000.00

Statement of Financial Position (Abridged)

As at 31 December 20x6
Prism Co Silver Co Amber Co
Investment in Silver Co $ 1,820,000.00
Investment in Amber Co $ 860,000.00
Amount due to Silver Co -$ 150,000.00
Amount due to Prism Co -$ 35,000.00
Amount due from Prism Co $ 150,000.00
Amount due from Amber Co $ 35,000.00
Other net assets $ 1,254,000.00 $ 2,085,400.00 $ 3,148,000.00
$ 3,819,000.00 $ 2,235,400.00 $ 3,113,000.00

Share capital $ 1,769,000.00 $ 620,000.00 $ 950,000.00

Retained earnings $ 2,050,000.00 $ 1,615,400.00 $ 2,053,000.00
Revaluation reserves $ 110,000.00
$ 3,819,000.00 $ 2,235,400.00 $ 3,113,000.00

Silver Co Amber Co
Date of acquisition 1/1/20x3 1/1/20x4
Ownership interests of Prism Co 90% 30%
Shareholders' equity at acquisition date:
Share capital $ 620,000.00 $ 950,000.00
Retained earnings $ 520,000.00 $ 670,000.00
Revaluation reserves $ 70,000.00
$ 1,140,000.00 $ 1,690,000.00

Revaluation reserves as at 1 Jan 20x6 $ 120,000.00

Fair Value of non-controlling interests as at date of $ 180,000.00
acquisition

Fair and book values of identifiable net assets as at date of acquisition

Silver Co Amber Co
Book value Fair value Book value Fair value
Fixed assets $ 100,000.00 $ 350,000.00
Provision for litigation loss -$ 250,000.00
Other net assets $ 1,040,000.00 $ 1,040,000.00 $ 1,690,000.00 $ 1,690,000.00
Total net assets $ 1,140,000.00 $ 1,390,000.00 $ 1,690,000.00 $ 1,440,000.00
Consolidation Journal Entries for Subsidiary

Calculation of goodwill
Investment in Silver Co $ 1,820,000.00
Non-Controlling Interest $ 180,000.00
Less:
Fair Value of Net Identifiable Asset $ 1,390,000.00
Less: Deferred Tax Liability $ 50,000.00 $ 1,340,000.00
Goodwill $ 660,000.00

CJE1: Elimination of Investment in Silver Co

Dr Share Capital $ 620,000.00
Dr Retained Earnings $ 520,000.00
Dr Fixed Assets $ 250,000.00
Dr Goodwill $ 660,000.00
Cr Deferred Tax Liability $ 50,000.00
Cr Investment in Silver Co $ 1,820,000.00
Cr Non-Controlling Interest $ 180,000.00

CJE2: Past accumulated depreciation of under-valued fixed asset to Opening RE

Dr Opening Retained Earnings $ 33,750.00
Dr Non-Controlling Interests $ 3,750.00
Cr Accumulated Depreciation $ 37,500.00

CJE3: Tax Effect of CJE2

Dr Deferred Tax Liability $ 7,500.00
Cr Opening Retained Earnings $ 6,750.00
Cr Non-Controlling Interest $ 750.00

CJE4: Adjustment of current depreciation of under-valued fixed asset

Dr Depreciation Expense $ 12,500.00
Cr Accumulated Depreciation $ 12,500.00

CJE5: Tax Effect of CJE4

Dr Deferred Tax Liability $ 2,500.00
Cr Tax Expense $ 2,500.00

CJE6: Adjustment of 20x4 unrealised profit from intragroup transactions Working:

Dr Opening Retained Earnings $ 63,000.00 Transfer Price
Dr Non-Controlling Interest $ 7,000.00 Carrying amount
Cr Development Software $ 70,000.00 Profit

CJE7: Tax Effect of CJE6 Useful life

Dr Deferred Tax Asset $ 14,000.00 Excess depreciation recorded
Cr Opening Retained Earnings $ 12,600.00
Cr Non-Controlling Interest $ 1,400.00
LCNRV test at year end
CJE8: Adjustment for excess amortisation on transferred software Original Cost
Dr Accumulated Amortisation NRV
Cr Opening Retained Earnings LCNRV
Cr Non-Controlling Interest
Cr Amortisation Impairment loss

CJE9: Tax Effect of CJE8 COS

CJE10: Eliminate of inventory sold to Silver

Dr Sales $ 85,500.00 LCNRV test at year end
Dr Inventory $ 6,000.00 Original Cost
Cr Cost of Sales $ 91,500.00 NRV
LCNRV
CJE11: Tax Effect of CJE10
Impairment loss

COS

CJE12: Allocate share of post-acquisition retained earnings to non-controlling interests

Dr Opening Retained Earnings $ 20,000.00
Cr Non-Controlling Interest $ 20,000.00

CJE13: Eliminate dividends declared by Silver

Dr Dividend Income $ 90,000.00
Dr Non-Controlling Interest $ 10,000.00
Cr Dividend Declared $ 100,000.00

CJE14: Allocate share of current income to NCI

Dr Income to NCI $ 98,540.00
Cr NCI $ 98,540.00

CJE15: Eliminate intercompany transactions

Dr Payable to Silver Co $ 150,000.00
Cr Receivable from Prism $ 150,000.00
Transfer Price $ 350,000.00 (The price that Prism recorded on their books)
Carrying amount $ 280,000.00 (The price that Silver recorded on their books)
$ 70,000.00 (The excess amount that Prism recoded on their books)

10 years
Excess depreciation recorded $ 7,000.00 (Based on the excess amount that Prism recorded on their books)

Group Legal Entity

LCNRV test at year end "What should be" "What is" Difference
Original Cost $ 280,000.00 $ 350,000.00
$ 280,000.00 $ 280,000.00
$ 280,000.00 $ 280,000.00

Impairment loss $ - $ 70,000.00 $ 70,000.00

Group Legal Entity

LCNRV test at year end "What should be" "What is" Difference
Original Cost $ 85,500.00 $ 72,000.00
$ 78,000.00 $ 78,000.00
$ 78,000.00 $ 72,000.00 $ 6,000.00

Impairment loss $ 7,500.00 $ -

$ 72,000.00 $ 85,500.00 $ 13,500.00

Consolidation Journal Entries for Amber

EA1: Recognise share of post-acquisition of Amber Working:

Dr Investment in Amber $ 54,000.00 Retained Earnings of Amber as at 1
Cr Opening Retained Earnings $ 54,000.00 Retained Earnings of Amber at date
Change in Retained Earnings
EA2: Adjustment for provision for litigation loss Share of Amber's change in Retaine
Dr Investment in Amber $ 43,200.00
Cr Opening Retained Earnings $ 43,200.00

EA3: Upstream transfer of inventory

Dr Opening Retained Earnings $ 9,600.00
Dr Non-Controlling Interest $ 2,400.00
Cr Cost of Sale $ 10,000.00
Cr Inventory $ 2,000.00

EA4: Reclasify dividend income as a reduction of investment

Dr Dividend income $ 42,000.00
Cr Investment in Amber $ 42,000.00

EA5: Recognise share of current profit after tax of Amber Working

Dr Investment in Amber $ 513,960.00
Cr Share of profit of Amber $ 513,960.00 LCNRV test at year end
Original Cost
EA6: Recognise change in OCI of Amber NRV
Dr Investment in Amber LCNRV
Cr Other Comprehensive Income
Impairment loss

Profit before tax of Amber

Add: Upstream sale profit
Add: Impairment loss
Adjusted profit before tax of Amber
Share of adjusted prfot before tax o
Earnings of Amber as at 1 Jan 20x6 $ 850,000.00
Earnings of Amber at date of acquisition $ 670,000.00
Retained Earnings $ 180,000.00
Amber's change in Retained Eanings $ 54,000.00

Group Legal Entity

st at year end "What should be" "What is" Difference
$ 7,500.00 $ 10,000.00
$ 8,800.00 $ 8,800.00
$ 7,500.00 $ 8,800.00

$ - $ 1,200.00 $ 1,200.00

ore tax of Amber $ 1,700,000.00

ream sale profit $ 12,000.00
airment loss $ 1,200.00
profit before tax of Amber $ 1,713,200.00
djusted prfot before tax of Amber $ 513,960.00
Book value of net assets as at 31 Dec 20x6 $ 2,235,400.00
Un-depreciated balance of under-valuation of fixed asset $ 160,000.00
Adjustment for unrealised profit from intragroup transaction
Adjusted net assets as at 31 Dec 20x5 $ 2,395,400.00
NCI's share of net assets $ 239,540.00
NCI's share of goodwill $ 46,000.00
NCI balance as at 31 December 20x6 $ 285,540.00

CJE1: Elimination of Investment in Silver $ 180,000.00

CJE2: Past accumulated depreciation to opening retained earnings -$ 3,750.00
CJE3: Tax effect of CJE2 $ 750.00
CJE6: Unrealised profit from intragroup transaction -$ 7,000.00
CJE7: Tax effect of CJE6 $ 1,400.00
CJE8: Adjustment for excess amortisation on transferred software
CJE9: Tax effect of CJE8
CJE12: Allocate share of post-acquisition retained earnings to non-controlling interest $ 20,000.00
CJE13: Eliminate dividends declared by Silver -$ 10,000.00
CJE14: Allocate share of current income to non-controlling interest $ 98,540.00
NCI balance as at 31 December 20x6 $ 279,940.00
Book value of shareholders' equity of Amber
Less: Adjustment for unrealised profit in inventory

Prism's share of Amber's identifiable net assets

Implicit goodwill in investment in Amber:

Investment in Amber $ 860,000.00
Book value of net assets of Amber at acquisition $ 1,690,000.00
Less: Provision for impairment loss (after-tax)
Fair value of net assets at acquisition $ 1,690,000.00
Less: Share of fair valur of net assets of Amber at acquisition $ 507,000.00
Goodwill in Amber implicit in the investment in Amber

Investment in Amber, at cost

EA1: Recognise share of post-acquisition retained earnings of Amber
EA2: Adjustment for provision for litigation loss
EA3: Adjust for unrealised profit on inventory
EA4: Reclassify dividend income as a reduction of investment
EA5: Recognise share of current profit after tax of Amber
EA6: Recognise share of current profit after tax of Amber
Investment in Amber as at 31 December 20x6
 $ 3,113,000.00
-$ 9,600.00
$ 3,103,400.00
$ 931,020.00

$ 353,000.00

$ 1,284,020.00

$ 860,000.00
$ 54,000.00
$ 43,200.00

-$ 42,000.00
$ 513,960.00

$ 1,429,160.00
Analytical approach

Closing retained earnings

Prism $ 2,050,000.00
Prism's share of Silver's retained earnings $ 985,860.00
Prisim's share of Amber's retained earnings $ 414,900.00

Prism's share of depreciation of under-valued fixed asset -$ 33,750.00

Prism's share of unrealised profit in intragroup transaction -$ 63,000.00
Prism's share of provision for litigation loss $ 12,960.00
Prism's share of unrealised profit in unsold inventory -$ 9,600.00
Prism's share of unrealised loss in inventory
$ 3,357,370.00

Listing approach
Retained earnings as at 31 December 20x6
Prism $ 2,050,000.00
Silver $ 1,615,400.00
CJE1: Elimination of Investment in Silver Co -$ 520,000.00
CJE2: Past accumulated depreciation of under-valued fixed asset -$ 33,750.00
CJE3: Tax effect of CJE2 $ 6,750.00
CJE6: Adjustment of 20x4 unrealised profit from intragroup transactions -$ 63,000.00
CJE7: Tax effect of CJE6
CJE8: Adjustment for tax on unrealised profit on transfer of software
CJE9: Tax effect of CJE8
CJE12: Allocate share of post-acquisition retained earnings to non-controlling interests -$ 20,000.00
CJE13: Eliminate dividends declared by Silver
CJE14: Allocate share of current income to NCI
CJE10: Eliminate of inventory sold to Silver
CJE11: Tax effect of CJE10
EA1: Recognise share of post-acquisition of Amber $ 54,000.00
EA2: Adjustment for provision for litigation loss $ 43,200.00
EA3: Upstream transfer of inventory -$ 9,600.00
EA4: Reclasify dividend income as a reduction of investment -$ 42,000.00
EA5: Recognise share of current profit after tax of Amber $ 513,960.00
$ 3,594,960.00