3.

Step 1: Analysis of subsidiary’s net assets (Same as #2)

Jan. 1, Dec. 31, Net

Floyd Co.
20x1 20x1 change
Net assets at carrying
amount 480,000 568,000*
Fair value adjustments
(FVA) 120,000(a) 88,000(b)
Net assets at fair value 600,000 656,000 56,000

* (200K share capital + 50K share premium + 318K retained earnings) = 568K total equity on
12/31/x1

(a) FVA at acquisition date

Carrying Fair Fair value
amount value adjustment (FVA)
Inventory 100,000 110,000 10,000
Building, net 400,000 510,000 110,000
Totals 500,000 620,000 120,000

(b)FVA at acquisition date less subsequent depreciation.

FVA, Depreciati FVA,
Useful life
1/1/x1 on 12/31/x1
Inventor
10,000 N/A * 10,000
y -
Equipmen
110,000 5 yrs. 22,000
t 88,000
Totals 120,000 32,000 88,000

* The entire inventory is assumed to have been sold during the year.

Step 2: Goodwill computation

Consideration transferred (equal to Investment in subsidiary) 560,000
Previously held equity interest in the acquiree -
Total 560,000
Less: Parent’s proportionate share in the net assets
of subsidiary (600,000 x 90%) – Step 1 (540,000)
Goodwill attributable to owners of the parent 20,000
Fair value of NCI 65,000
Less: NCI’s proportionate share in the net assets
of subsidiary (600,000 x 10%) – Step 1 (60,000)
Goodwill attributable to NCI 5,000
Goodwill – Dec. 31, 20x1 25,000

Reconciliation using regular formula:

Consideration transferred (equal to Investment in subsidiary) 560,000

 NCI 65,000
Previously held equity interest -
Total 625,000
Fair value of net identifiable assets acquired (600,000)
Goodwill 25,000

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value – Dec. 31, 20x1 (Step 1) 656,000
Multiply by: NCI percentage 10%
Total 65,600
Add: Goodwill attributable to NCI (Step 2) 5,000
Non-controlling interest in net assets – Dec. 31, 20x1 70,600

Step 4: Consolidated retained earnings (Same as #2)

Parent's retained earnings – Dec. 31, 20x1 1,260,000

Parent's share in the net change in subsidiary's net assets (d) 50,400
Consolidated retained earnings – Dec. 31, 20x1 1,310,400

Net change in Floyd’s net assets (See Step 1)

(d) 56,000
Multiply by: Pink’s interest in Floyd 90%
Pink’s share in the net change in Floyd’s net assets 50,400

Step 5: Consolidated profit or loss (Same as #2)

Profits of Pink & Floyd (270K + 88K) 358,000

Depreciation of FVA (see Step 1) (32,000)
Consolidated profit 326,000

Owners of parent NCI Consolidated

Parent's profit before FVA 270,000 N/A 270,000
Share in Floyd's profit before FVA (e) 79,200 8,800 88,000
Depreciation of FVA (f) (28,800) (3,200) (32,000)
Totals 320,400 5,600 326,000

(e) (88K x 90% = 79,200); (88K x 10% = 8,800).

(f) (32K x 90% = 28,000); (32K x 10% = 3,200).

 Pink Group
Consolidated statement of financial position
As of December 31, 20x1
ASSETS
Cash (620,000 + 120,000) 740,000
Accounts receivable (170,000 + 100,000) 270,000
Inventory (200,000 + 80,000 + 0 FVA net, Step 1) 280,000
Prepaid assets (10,000 + 8,000) 18,000
Investment in subsidiary (Eliminated)
Building, net (1,100,000 + 350,000 + 88,000 FVA net, Step 1) 1,538,000
Goodwill (Step 2) 25,000
TOTAL ASSETS 2,871,000

LIABILITIES AND EQUITY

Accounts payable (50,000 + 90,000) 140,000
Total liabilities 140,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 350,000
Retained earnings (Parent only – Step 4) 1,310,400
Owners of parent 2,660,400
Non-controlling interest (Step 3) 70,600
Total equity 2,731,000
TOTAL LIABILITIES AND EQUITY 2,871,000

Pink Group
Statement of profit or loss
For the year ended December 31, 20x1

Sales (600,000 + 200,000) 800,000

Cost of goods sold (200K + 60K + 10K dep’n. of FVA on inventory) (270,000)
Gross profit 530,000
Depreciation expense (100K + 50K + 22K dep’n. of FVA on bldg.) (172,000)
Distribution costs (30,000 + 2,000) (32,000)
Profit for the year 326,000

Profit attributable to:

Owners of the parent (Step 5) 320,400
Non-controlling interests (Step 5) 5,600
326,000
PROBLEM 3: EXERCISES

1.
Sunny Group
Consolidated statement of financial position
As of January 1, 20x1
ASSETS
Cash (80,000 + 50,000) 130,000
Inventory (400,000 + 80,000 fair value) 480,000
Investment in subsidiary (Eliminated)
Land (600,000 + 250,000 fair value) 850,000
Goodwill (see computations below) 120,000
TOTAL ASSETS 1,580,000

LIABILITIES AND EQUITY

Accounts payable (200,000 + 80,000) 280,000
Total liabilities 280,000
Share capital (Parent only) 1,000,000
Retained earnings (Parent only) 180,000
Owners of parent 1,180,000
Non-controlling interest (see computations below) 120,000
Total equity 1,300,000
TOTAL LIABILITIES AND EQUITY 1,580,000

Consideration transferred (equal to Investment in subsidiary) 300,000

NCI (300K x 40%) 120,000
Previously held equity interest -
Total 420,000
Fair value of net identifiable assets (250K + 50K) (300,000)
Goodwill 120,000
2.

Hammer Group
Consolidated statement of financial position
As of January 1, 20x1
ASSETS
Cash (160,000 + 10,000) 170,000
Accounts receivable (200,000 + 110,000) 310,000
Inventory (400,000 + 100,000 fair value) 500,000
Investment in subsidiary (Eliminated)
Building (1,000,000 + 400,000 fair value) 1,400,000
Goodwill (see computations below) 40,000
TOTAL ASSETS 2,420,000

LIABILITIES AND EQUITY

Accounts payable (100,000 + 20,000) 120,000
Total liabilities 120,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 300,000
Retained earnings (Parent only) 880,000
Owners of parent 2,180,000
Non-controlling interest (see computations below) 120,000
Total equity 2,300,000
TOTAL LIABILITIES AND EQUITY 2,420,000

Consideration transferred (equal to Investment in subsidiary) 520,000

NCI (600K x 20%) 120,000
Previously held equity interest -
Total 640,000
Fair value of net identifiable assets (a) (600,000)
Goodwill 40,000

(a) (200K share cap. + 100K share prem. + 180K ret. earnings + 20K FVA on inventory + 100K FVA on

building) = 600K
3.
Step 1: Analysis of subsidiary’s net assets

Jan. 1, Dec. 31, Net

Walk Co.
20x1 20x1 change
Net assets at carrying
amount 480,000 568,000*
Fair value adjustments
(FVA) 120,000(a) 90,000(b)
Net assets at fair value 600,000 658,000 58,000

* (200K share capital + 100K share premium + 268K retained earnings) = 568K total equity on
12/31/x1

(a) FVA at acquisition date

Carrying Fair Fair value
amount value adjustment (FVA)
Inventory 80,000 100,000 20,000
Building, net 300,000 400,000 100,000
Totals 380,000 500,000 120,000

(b)FVA at acquisition date less subsequent depreciation.

FVA, Depreciati FVA,
Useful life
1/1/x1 on 12/31/x1
Inventor
20,000 N/A * 20,000
y -
Equipmen
100,000 10 yrs. 10,000
t 90,000
Totals 120,000 30,000 90,000

* The entire inventory is assumed to have been sold during the year.

Step 2: Goodwill computation

Consideration transferred (equal to Investment in subsidiary) 520,000
NCI (600K x 20%) 120,000
Previously held equity interest -
Total 640,000
Fair value of net identifiable assets acquired (600,000)
Goodwill 40,000

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value – Dec. 31, 20x1 (see Step 1) 658,000
Multiply by: NCI percentage 20%
Non-controlling interest in net assets – Dec. 31, 20x1 131,600
Step 4: Consolidated retained earnings

Parent's retained earnings – Dec. 31, 20x1 1,300,000

Parent's share in the net change in subsidiary's net assets (d) 46,400
Consolidated retained earnings – Dec. 31, 20x1 1,346,400

Net change in Walk’s net assets (See Step 1)

(d) 58,000
Multiply by: Run’s interest in Walk 80%
Run’s share in the net change in Walk’s net assets 46,400

Step 5: Consolidated profit or loss

Profits of Run & Walk (420K + 88K) 508,000

Depreciation of FVA (see Step 1) (30,000)
Consolidated profit 478,000

Owners of parent NCI Consolidated

Parent's profit before FVA 420,000 N/A 420,000
Share in Walk's profit before FVA (e) 70,400 17,600 88,000
Depreciation of FVA (f) (24,000) (6,000) (30,000)
Totals 466,400 11,600 478,000

(e) (88K x 80% = 70,400); (88K x 20% = 17,600).

(f) (30K x 80% = 24,000); (30K x 20% = 6,000).

 Run Group
Consolidated statement of financial position
As of December 31, 20x1
ASSETS
Cash (750,000 + 258,000) 1,008,000
Accounts receivable (260,000 + 50,000) 310,000
Inventory (200,000 + 20,000 + 0 FVA net, Step 1) 220,000
Investment in subsidiary (Eliminated)
Building, net (950,000 + 250,000 + 90,000 FVA net, Step 1) 1,290,000
Goodwill (Step 2) 40,000
TOTAL ASSETS 2,868,000

LIABILITIES AND EQUITY

Accounts payable (80,000 + 10,000) 90,000
Total liabilities 90,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 300,000
Retained earnings (Parent only – Step 4) 1,346,400
Owners of parent 2,646,400
Non-controlling interest (Step 3) 131,600
Total equity 2,778,000
TOTAL LIABILITIES AND EQUITY 2,868,000

Run Group
Statement of profit or loss
For the year ended December 31, 20x1

Sales (800,000 + 200,000) 1,000,000

Cost of goods sold (200K + 60K + 20K dep’n. of FVA on inventory) (280,000)
Gross profit 720,000
Depreciation expense (50K + 50K + 10K dep’n. of FVA on bldg.) (110,000)
Distribution costs (130,000 + 2,000) (132,000)
Profit for the year 478,000

Profit attributable to:

Owners of the parent (Step 5) 466,400
Non-controlling interests (Step 5) 11,600
478,000
4.
Step 1: Analysis of subsidiary’s net assets (Same as #3)

Jan. 1, Dec. 31, Net

Walk Co.
20x1 20x1 change
Net assets at carrying
amount 480,000 568,000*
Fair value adjustments
(FVA) 120,000(a) 90,000(b)
Net assets at fair value 600,000 658,000 58,000

* (200K share capital + 100K share premium + 268K retained earnings) = 568K total equity on
12/31/x1

(a) FVA at acquisition date

Carrying Fair Fair value
amount value adjustment (FVA)
Inventory 80,000 100,000 20,000
Building, net 300,000 400,000 100,000
Totals 380,000 500,000 120,000

(b)FVA at acquisition date less subsequent depreciation.

FVA, Depreciati FVA,
Useful life
1/1/x1 on 12/31/x1
Inventor
20,000 N/A * 20,000
y -
Equipmen
100,000 10 yrs. 10,000
t 90,000
Totals 120,000 30,000 90,000

* The entire inventory is assumed to have been sold during the year.

Step 2: Goodwill computation

Consideration transferred (equal to Investment in subsidiary) 520,000

Previously held equity interest in the acquiree -
Total 520,000
Less: Parent’s proportionate share in the net assets
of subsidiary (600,000 x 80%) – Step 1 (480,000)
Goodwill attributable to owners of the parent 40,000
Fair value of NCI 130,000
Less: NCI’s proportionate share in the net assets
of subsidiary (600,000 x 20%) – Step 1 (120,000)
Goodwill attributable to NCI 10,000
Goodwill – Dec. 31, 20x1 50,000
Reconciliation using regular formula:

Consideration transferred (equal to Investment in subsidiary) 520,000

NCI 130,000
Previously held equity interest -
Total 650,000
Fair value of net identifiable assets acquired (600,000)
Goodwill 50,000

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value – Dec. 31, 20x1 (Step 1) 658,000
Multiply by: NCI percentage 20%
Total 131,600
Add: Goodwill attributable to NCI (Step 2) 10,000
Non-controlling interest in net assets – Dec. 31, 20x1 141,600

Step 4: Consolidated retained earnings (Same as #3)

Parent's retained earnings – Dec. 31, 20x1 1,300,000

Parent's share in the net change in subsidiary's net assets (d) 46,400
Consolidated retained earnings – Dec. 31, 20x1 1,346,400

Net change in Walk’s net assets (See Step 1)

(d) 58,000
Multiply by: Run’s interest in Walk 80%
Run’s share in the net change in Walk’s net assets 46,400

Step 5: Consolidated profit or loss (Same as #3)

Profits of Run & Walk (420K + 88K) 508,000

Depreciation of FVA (see Step 1) (30,000)
Consolidated profit 478,000

Owners of parent NCI Consolidated

Parent's profit before FVA 420,000 N/A 420,000
Share in Walk's profit before FVA (e) 70,400 17,600 88,000
Depreciation of FVA (f) (24,000) (6,000) (30,000)
Totals 466,400 11,600 478,000

(e) (88K x 80% = 70,400); (88K x 20% = 17,600).

(f) (30K x 80% = 24,000); (30K x 20% = 6,000).

 Run Group
Consolidated statement of financial position
As of December 31, 20x1
ASSETS
Cash (750,000 + 258,000) 1,008,000
Accounts receivable (260,000 + 50,000) 310,000
Inventory (200,000 + 20,000 + 0 FVA net, Step 1) 220,000
Investment in subsidiary (Eliminated)
Building, net (950,000 + 250,000 + 90,000 FVA net, Step 1) 1,290,000
Goodwill (Step 2) 50,000
TOTAL ASSETS 2,878,000

LIABILITIES AND EQUITY

Accounts payable (80,000 + 10,000) 90,000
Total liabilities 90,000
Share capital (Parent only) 1,000,000
Share premium (Parent only) 300,000
Retained earnings (Parent only – Step 4) 1,346,400
Owners of parent 2,646,400
Non-controlling interest (Step 3) 141,600
Total equity 2,788,000
TOTAL LIABILITIES AND EQUITY 2,878,000

Run Group
Statement of profit or loss
For the year ended December 31, 20x1

Sales (800,000 + 200,000) 1,000,000

Cost of goods sold (200K + 60K + 20K dep’n. of FVA on inventory) (280,000)
Gross profit 720,000
Depreciation expense (50K + 50K + 10K dep’n. of FVA on bldg.) (110,000)
Distribution costs (130,000 + 2,000) (132,000)
Profit for the year 478,000

Profit attributable to:

Owners of the parent (Step 5) 466,400
Non-controlling interests (Step 5) 11,600
478,000
5.

Step 1: Analysis of subsidiary’s net assets

Jan. 1, Dec. 31, Net

Axion Co.
20x1 20x1 change
Net assets at carrying
amount 290,000* 310,000
Fair value adjustments
(FVA) 10,000(a) 40,000(b)
Net assets at fair value 300,000 350,000 50,000

* (250K share capital + 40K retained earnings)

(a) FVA at acquisition date

Carrying Fair Fair value
amount value adjustment (FVA)
Inventory 120,000 80,000 (40,000)
Building, net 200,000 250,000 50,000
Totals 320,000 330,000 10,000

(b)FVA at acquisition date less subsequent depreciation.

FVA, Depreciati FVA,
Useful life
1/1/x1 on 12/31/x1
Inventor
(40,000) N/A (40,000)
y -
Equipmen
50,000 5 yrs. 10,000
t 40,000
Totals 10,000 (30,000) 40,000

Step 2: Goodwill computation

Consideration transferred 300,000
NCI (300K x 40%) 120,000
Previously held equity interest -
Total 420,000
Fair value of net identifiable assets acquired (Step 1) (300,000)
Goodwill 120,000

Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value – Dec. 31, 20x1 (see Step 1) 350,000
Multiply by: NCI percentage 40%
Non-controlling interest in net assets – Dec. 31, 20x1 140,000
Step 4: Consolidated retained earnings

Parent's retained earnings – Dec. 31, 20x1 243,000

Parent's share in the net change in subsidiary's net assets (d) 30,000
Consolidated retained earnings – Dec. 31, 20x1 273,000

Net change in Axion’s net assets (See Step 1)

(d) 50,000
Multiply by: 60%
Joy’s share in the net change in Axion’s net assets 30,000

Step 5: Consolidated profit or loss

Profits of Joy & Axion (63K + 20K) 83,000

Depreciation of FVA (see Step 1) 30,000
Consolidated profit 113,000

Owners of parent NCI Consolidated

Parent's profit before FVA 63,000 N/A 63,000
Share in Axion's profit before FVA (e) 12,000 8,000 20,000
Depreciation of FVA (f) 18,000 12,000 30,000
Totals 93,000 20,000 113,000

(e) (20K x 60% = 12,000); (20K x 40% = 8,000).

(f) (-30K x 60% = 18,000); (-30K x 40% = 12,000).

Joy Group
Consolidated statement of financial position
As of December 31, 20x1
ASSETS
Cash (143,000 + 60,000) 203,000
Inventory (440,000 + 160,000 + 0 FVA net, Step 1) 600,000
Investment in subsidiary (Eliminated)
Building, net (560,000 + 160,000 + 40,000 FVA net, Step 1) 760,000
Goodwill (Step 2) 120,000
TOTAL ASSETS 1,683,000

LIABILITIES AND EQUITY

Accounts payable (200,000 + 70,000) 270,000
Total liabilities 270,000
Share capital (Parent only) 1,000,000
Retained earnings (Parent only – Step 4) 273,000
Owners of parent 1,273,000
Non-controlling interest (Step 3) 140,000
Total equity 1,413,000
TOTAL LIABILITIES AND EQUITY 1,683,000
 Joy Group
Statement of profit or loss
For the year ended December 31, 20x1

Sales (300,000 + 120,000) 420,000

Cost of goods sold (165K + 72K - 40K dep’n. of FVA on inventory) (197,000)
Gross profit 223,000
Depreciation expense (40K + 10K + 10K dep’n. of FVA on bldg.) (60,000)
Distribution costs (32,000 + 18,000) (50,000)
Profit for the year 113,000

Profit attributable to:

Owners of the parent (Step 5) 93,000
Non-controlling interests (Step 5) 20,000
113,000

6.
Step 1: Analysis of subsidiary’s net assets (Same as #5)

Jan. 1, Dec. 31, Net

Axion Co.
20x1 20x1 change
Net assets at carrying
amount 290,000* 310,000
Fair value adjustments
(FVA) 10,000(a) 40,000(b)
Net assets at fair value 300,000 350,000 50,000

* (250K share capital + 40K retained earnings)

(a) FVA at acquisition date

Carrying Fair Fair value
amount value adjustment (FVA)
Inventory 120,000 80,000 (40,000)
Building, net 200,000 250,000 50,000
Totals 320,000 330,000 10,000

(b)FVA at acquisition date less subsequent depreciation.

FVA, Depreciati FVA,
Useful life
1/1/x1 on 12/31/x1
Inventor
(40,000) N/A (40,000)
y -
Equipmen
50,000 5 yrs. 10,000
t 40,000
Totals 10,000 (30,000) 40,000
Step 2: Goodwill computation
Consideration transferred 300,000
Previously held equity interest in the acquiree -
Total 300,000
Less: Parent’s proportionate share in the net assets
of subsidiary (300,000 x 60%) – Step 1 (180,000)
Goodwill attributable to owners of the parent 120,000
Fair value of NCI 132,000
Less: NCI’s proportionate share in the net assets
of subsidiary (300,000 x 40%) – Step 1 (120,000)
Goodwill attributable to NCI 12,000
Goodwill – Dec. 31, 20x1 132,000

Reconciliation using regular formula:

Consideration transferred 300,000

NCI 132,000
Previously held equity interest -
Total 432,000
Fair value of net identifiable assets acquired (Step 1) (300,000)
Goodwill 132,000
Step 3: Non-controlling interest in net assets

Subsidiary's net assets at fair value – Dec. 31, 20x1 (Step 1) 350,000
Multiply by: NCI percentage 40%
Total 140,000
Add: Goodwill attributable to NCI (Step 2) 12,000
Non-controlling interest in net assets – Dec. 31, 20x1 152,000

Step 4: Consolidated retained earnings (Same as #5)

Parent's retained earnings – Dec. 31, 20x1 243,000

Parent's share in the net change in subsidiary's net assets (d) 30,000
Consolidated retained earnings – Dec. 31, 20x1 273,000

Net change in Axion’s net assets (See Step 1)

(d) 50,000
Multiply by: 60%
Joy’s share in the net change in Axion’s net assets 30,000

Step 5: Consolidated profit or loss (Same as #5)

Profits of Joy & Axion (63K + 20K) 83,000

Depreciation of FVA (see Step 1) 30,000
Consolidated profit 113,000

Owners of parent NCI Consolidated

Parent's profit before FVA 63,000 N/A 63,000
Share in Axion's profit before FVA (e) 12,000 8,000 20,000
Depreciation of FVA (f) 18,000 12,000 30,000
Totals 93,000 20,000 113,000

(e) (20K x 60% = 12,000); (20K x 40% = 8,000).

(f) (-30K x 60% = 18,000); (-30K x 40% = 12,000).

 Joy Group
Consolidated statement of financial position
As of December 31, 20x1
ASSETS
Cash (143,000 + 60,000) 203,000
Inventory (440,000 + 160,000 + 0 FVA net, Step 1) 600,000
Investment in subsidiary (Eliminated)
Building, net (560,000 + 160,000 + 40,000 FVA net, Step 1) 760,000
Goodwill (Step 2) 132,000
TOTAL ASSETS 1,695,000

LIABILITIES AND EQUITY

Accounts payable (200,000 + 70,000) 270,000
Total liabilities 270,000
Share capital (Parent only) 1,000,000
Retained earnings (Parent only – Step 4) 273,000
Owners of parent 1,273,000
Non-controlling interest (Step 3) 152,000
Total equity 1,425,000
TOTAL LIABILITIES AND EQUITY 1,695,000

Joy Group
Statement of profit or loss
For the year ended December 31, 20x1

Sales (300,000 + 120,000) 420,000

Cost of goods sold (165K + 72K - 40K dep’n. of FVA on inventory) (197,000)
Gross profit 223,000
Depreciation expense (40K + 10K + 10K dep’n. of FVA on bldg.) (60,000)
Distribution costs (32,000 + 18,000) (50,000)
Profit for the year 113,000

Profit attributable to:

Owners of the parent (Step 5) 93,000
Non-controlling interests (Step 5) 20,000
113,000