Chapter 5 Solutions To Post

Chapter 5 Solutions to Post
EXERCISE 5-2
Acquisition Analysis as at July 1, 2018

Consideration transferred: $290,160
Net fair value of the identifiable

Assets and liabilities acquired:
Share capital $200,000

Retained earnings $80,000
Land $10,000 × (1–0.30) = $7,000
Inventory $2,000 × (1–0.30) = $1,400
Machinery $20,000 × (1–0.30) = $14,000
$302,400
Net fair value acquired 90% × $302,400 = $272,160

Non-controlling interest= 10% × $302,400 = $30,240
Goodwill $18,000
a) Adjustments to the Financial Statements as at July 1, 2018
Goodwill + $18,000
Investment in Rudny -$290,160
Share capital - $200,000
Retained earnings - $80,000
Non-controlling interest* + $30,240
Land + $10,000
Inventory + $2,000
Machinery + $20,000
Deferred tax liability + $9,600 = ($10,000+$2,000+$20,000) × 30%
b) Adjustments to the Financial Statements as at June 30, 2019
Table June 30, 2019

FVA Net income Beg R/E B/S
Land 10,000
Inventory/COGS -2000
Machinery/depn -2000 18,000
Income tax/ deferred income +600+600 -3000-4500
tax
total -2800 19600
goodwill 18000
NCI at acquisition 30240

Net income 20000
FVA (2800)
17200 x .1 1720
31960
c) Full Goodwill Method
Non-controlling interest has a fair value of $31,800
321,960


Land $10,000 × (1–0.30)
Inventory $2,000 × (1–0.30)
Machinery $20,000 × (1–0.30) $302,400
Non-controlling interest (as given) $31,800

Total NCI and Consideration transferred $321,960
Goodwill = $321,960 – $302,400 $19,560
Net fair value acquired = 90% × $302,400 $272,160
Goodwill- attributable to the parent Norilsk $18,000
- attributable to the NCI $1,560
EXERCISE 5-3
(a) Acquisition analysis as at January 1, 2016:
Net fair value of assets and liabilities of Campbell:

Inventory $5,000 × (1–0.30)
Plant $6,000 × (1–0.30)
Equipment $1,000 × (1–0.30)
Accounts Receivable ($1,000) × (1–0.30)
Land $20,000 × (1–0.30)
$181,700
Net fair value acquired= $181,700 × 75%$136,275
Gain on purchase: $12,750

=$123,525 – $136,275
Non-controlling interest: 25% x 181,700 $45,425
(b) Consolidated Financial Statement Adjustments as at December 31, 2019 (3 years after
acquisition):
FVA Net income Beg R/E B/S
Inventory -3500
Plant -2400 -3 x 1200 x .7 = -2520
Equipment/ dep/gain on sale -200 -3 x 200 x .7 = -420 200
A/R +700
Land 20000
Income tax/ deferred income +720+60 -60-6000
tax
Total 1820 -5740 14140
Gain on bargain purchase 12750
Ejez Campbell
R/E 1/1/19 100000 80000
R/E - acq -60000
FVA 12750 -5740
Share of Campbell 10695 X 75% 14260
Consol R/E 1/1/19 123445 X .25
3565
NI Campbell 18000
FVA -1820
16180
X 25%
NCI share of NI 4045

Share of R/E 1/1/19 above 3565
Share of NI above 4045
Share of Dividends 9000 x .25 (2250)
NCI 31/12/19 50785
NCI-
Intragroup transactions:
Interim Dividend Paid
Dividend revenue - $3,750
Dividend paid - $5,000
NCI—dividends - $1,250
75% × $5,000 = $3,750
Dividend payable - $3,000

Dividend declared - $4,000
Dividend receivable - $3,000
NCI—Dividends - $1,000
75% × $4,000 = $3,000
a) Balances in Retained Earnings and NCI

 Retained earnings as above 123445
 NCI
Ending NCI: as above $50,785
EXERCISE 5-5
Acquisition Analysis January 1, 2019:

Consideration transferred:
75% × $400,000 × $1.50 $450,000
Non-controlling interest: $147,000
Total: $597,000
Net fair value of identifiable assets

And liabilities of Delvco:
Other comprehensive income $30,000
$560,000
Goodwill: $37,000
= $597,000 – $560,000
Net fair value acquired by the parent:

75% × $560,000 = $420,000
Goodwill-parent: $30,000
= $450,000 – $420,000
Goodwill—NCI: $7,000
= $37,000 – $30,000
NCI at day of acquisition:
.25 x560,000 + 7,000 = 147,000

X Kandlin
Consolidated statement of
income
For the year ended December 31, 2019
Income:
Sales Revenue 1212800 878,900+388,900-55,000
COS -436800 374400+112400-50000
Gross profit 776,000
Other income 376600 302,100+112,500-30,000-8,000

Expenses -331200 216,200+115,800-800
Profit before income tax 821,400
Income tax expense (158,740) 112400+50000-1500-2400+240
Profit for the period 662,660
Other comprehensive income:

=124,000-25,000+60,000-
Other components of equity 129,000 30,000
Comprehensive income: 791,660
Profit for the period attributable to:

478000-22500-7500-3500+75% x (223200-
Parent interest 608120 5600+560)
Non-controlling interest 54540 223,200*.25 -1,400+140
662,660
Comprehensive income for the period attributable to:

Parent interest
121,500
Non-controlling interest 7,500 =(30,000*.25)
129,000
Comprehensive income for the period attributable to:
Parent interest 729,620
Non-controlling interest 62,040 =(30,000*.25)+54,540
791,660
Kandlin
Consolidated statement of changes in equity
Share capital Retained earnings Other comprehensive Total: Total

income owners of the parent NCI Equity
Balance, January 1, 2013 1,200,000 112,000 25,000 1,337,000 147,000 1,484,000
Total comprehensive income - 608,120 121,500 729,620 62,040 791,660
Dividends paid - (40,000) - (40,000) (7,500) (47,500)
Dividends declared - (50,000) - (50,000) (2,500) (52,500)

Kandlin
Consolidated statement of financial position
As at December 31, 2019
Assets
Current Assets
Accounts Receivable 407500 320000+175000-7500-80000
280000+20400
Financial assets 484000 0
Inventory 493100 287500+210600-5000
Total Current assets 1,384,600
Non-current assets
4
Other investments 7,000
37
Goodwill ,000
Equipment 592800 400000+200000-8000+800
216500+10800
Land 324500 0
Deferred tax assets 3660 1500+2400-240
Total Non-current assets 1,004,960
Total Assets 2,389,560
Liabilities & Shareholder's

Equity
Current liabilities 213900 177000+124400-7500-80000
Shareholder's Equity
Share capital 1,200,000 1,200,000+$400,000-$400,000
Retained earnings 630,120 per schedule

Cumulative other
comprehensive income 146,500 per schedule
Parent interest 1,976,620
Non-controlling interest 199,040
Total equity
2,175,660
Total liabilities & shareholder's

equity 2,389,560
Beginning
R/E:
112,000+ .75(130,000-130,000)
=$112,000
Ending R/E:
=$500,000+.75($313,200-$130,000)-
$3,500-.75($5,040)
$
630,120
1. The adjustment for the advance must be made. It does not affect NCI.
2. The adjustment for the dividends declared and paid must be made.
a) Dividend paid
Dividend revenue (other income) - 75% × $30,000 = $22,500

NCI-dividends - 25% × $30,000 = $7,500
b) Dividend declared

NCI-Dividends - 25% × $10,000 = $2,500
3. Sale of inventory (downstream)
Sales revenue - $55,000

Cost of sales - $50,000
Inventory - $5,000
Deferred tax asset + $1,500

Income tax expense - $1,500
4. Sale of equipment in current period-upstream
Other income - $8,000

Equipment - $8,000

Equipment + $800
Depreciation expense - $800
(10% × $8,000)
Income tax expense + $240

Deferred tax asset - $240
PROBLEM 5-2
Acquisition analysis as at January 1, 2015:

Net fair value of the identifiable assets

and liabilities of Burran:
Share capital: $30,000
Retained earnings: $6,000
Inventory: decrease $4,000 × (1–0.30)= ($2,800)
Plant: increase $5,000 × (1–0.30)= $3,500
$36,700
Net fair value acquired by Zaldivar:

75% × $36,700 $27,525
Goodwill: $75
The NCI under the partial goodwill method would be 25% × $36,700 = $9,175.
Consolidation adjustments at December 31, 2019
1. Fair value adjustments:
FVA NI Beg R/E B/S
Inventor 2800
y
plant (3500)
Total 700
goodwill 75
2. Non-controlling interest
a) Opening balance in equity—NCI share
R/E 1/1/19 14500
R/E at acquisition (6000)
FVA 8500
Unrealized upstream: (g) (700)
(560)
7240 x .25= 1810
COCI 1/1/19 4000
COCI at acquisition 0
4000 x .25 = 1000
NCI 1/1/19 11985
The NCI is allocated a portion of the opening equity balance of the statement of changes in equity.
c) NCI share of Profit for the period

25% × [$6,500 – $840 + $560] = $1,555
d) NCI—OCI + 25% × [$5,000 – $4,000] = $250

3. Intragroup transactions
e) Dividend paid:
Dividend revenue - $ 75% × $2,400 = $1,800

NCI-dividends - 25% × $2,400 = $600
NCI 31/12/19 11985 + 1555 + 250 – 600 = 13190
f) Sale of inventory (upstream) during the year:

Comprehensive income:
Sales - $19,000
Cost of sales - $19,000 – $1,200 = $17,800
Income tax expense- $360

30% × $1,200
Statement of financial position:

Inventory - $1,200
Deferred tax asset + $360
g) Sale of inventory (upstream) in previous period:
Statement of changes in equity:

Retained earnings—beginning: - $420
$560
Comprehensive income statement:

Cost of sales - $800
h) Bonds payable—No need to adjust for NCI
Other revenue - $250 (interest received from bonds)
Financial expenses - $250
10% Bonds in Burran - $2,500
Bonds payable - $2,500
i) Zaldivar share of consolidated net income
Zaldivar net income $6,050

Less: dividend revenue Burran (1,800)
$4,250
Plus:
Share of Burran net income
75% × [$6,500 – $840 + $560] $4,665
$8,915
j) Beginning retained earnings
Zaldivar beginning retained earnings $19,000

Burran beginning retained earnings $14,500
Burran retained earnings acquisition (6,000) $8,500
Fair value adjustments (700)

Unrealized inventory profit (560)
$7,240
× 75% $5,430
$24,430
Zaldivar
Consolidated Statement of Comprehensive income
Sales revenue 111,000 = $50,000 + $80,000 - $19,000 F
Expenses:
Cost of sales 73,900 = $34,000 + $58,500 - $17,800 F - $800 G
Selling expenses 10,000 = $4,000 + $6,000
Other expenses 3,000 = $1,500 + $1,500
Financial expenses 3,250 = $1,500 + $2,000 - $250 H
Total expenses 90,150
Profit before income tax 20,850
Income tax expense 10,380 = $5,000 + $5,500 - $360 F + $240 G
Net income 10,470
Other comprehensive income 1,000 = $5,000 - $4,000
TOTAL COMPREHENSIVE INCOME 11,470
Net income attributable to:

I
Parent 8,915
C
10,470
Comprehensive income attributable to:

Parent 9,665 = $8,915 + 75%x$1,000
Non-controlling interest 1,805 = $1,555 + 25%x$1,000
11,470
Zaldivar
Consolidated statement of comprehensive income
Share capital Retained earnings COCI Total parents NCI Total equity
Balance at January 1, 2013 40,000 24,430 3,000 67,430 11,985 79,415
J B
Total comprehensive income - 8,915 750 9,665 1,805 11,470
Dividends paid - - - (600) (600)

E
Balance at December 31, 2019 40,000 33,345 3,750 77,095 13,190 90,285
PROBLEM 5-2 (Continued)
Zaldivar
Consolidated statement of financial position
as at December 31, 2019
Assets
Current assets
Cash 14,550 = $14,050 + $500
Financial assets 11,000 = $11,000
Inventory 26,300 = $12,000 + $15,500 - $1,200 F
Total current assets 51,850
Non-current assets
Plant 90,000 = $30,000 + $60,000
Accumulated depreciation (47,500) = $17,000 + $30,500
Deferred tax asset 7,360 = $2,000 + $5,000 + $360 F
10% Bonds 2,400
Goodwill 75
Total non-current assets 52,335
Total assets 104,185
Liabilities & Shareholder's equity
Liabilities
10% Bonds 2,500 = $5,000 - $2,500 H
Income tax payable 11,400 = $8,500 + $2,900
Total liabilities 13,900
Share capital 40,000
Cumulative other comprehensive income 3,750
Retained earnings 33,345
Parent interest 77,095
Total equity 90,285
Total liabilities & Shareholder's equity 104,185

PROBLEM 5-3
Acquisition Analysis as at January 1, 2019:

Net fair value of the identifiable assets and liabilities of Honey:

Goodwill ($25,000)
Inventories $10,000 × (1–40%) = $6,000
Land $20,000 × (1–40%) = $12,000
Plant and equipment $20,000 × (1–40%) = $12,000
Trademark $10,000 × (1–40%) = $6,000
$279,000
Net fair value acquired by Lessard:

80% × $279,000 $223,200
Goodwill: $41,600
Non-controlling interest: 20% × $279,000 $55,800

1. Fair value adjustments
FVA NI R/E - Beginning B/S

Goodwill -25000
Inventories/COGS -10,000 -
Land/gain -20,000 -
P & E/ Depreciation -4,000 - 16,000
Trademark - 10,000
Income tax expense/ 4,000+8,000+1,60 - -6,400-4,000
FITL 0
Total -20400 -9400
Goodwill - - 41,600
2. Non-controlling interest:
Profit for the period 6600 (e) x .2 = 1320

3. Intragroup transactions:
a) Dividend paid:
Dividend revenue—other income - $80% × $10,000 = $8,000
NCI—dividends - 20% × $10,000 = $2,000
b) Dividend declared:
Dividend revenue—other income - $3,200
NCI—dividends - $800
c) Sale of inventory—Honey to Lessard (upstream):
$8,000 sold to Lesssard

$5,000 cost
1/3 still on hand at the end of the year = unrealized profit 3,000/3 = 1,000
Sales - $8,000
Income tax expense - $400

Inventory - $1,000
d) Transfer of plant-Honey to Lessard (upstream) on January 1, 2019:
Carrying amount = $10,000

Transfer price = $15,000
Gain = $5,000
5 year remaining useful life

Comprehensive Income Statement
Other income - $5,000

Other expense - $1,000

Statement of Financial Position
Plant - net - $4,000 (5,000 – 1,000)

Deferred income tax asset + $1,600 (2,000 – 400)
e) Lessard share of consolidated net income
Lessard net income $50,000

Less – dividend revenue Honey ($11,200)
Honey net income $30,000
FVA: (20,400)
Intra-group profits
Inventory ($600)
Plant ($2,400)
$6,600
× 80%
$5,280
$44,080
Plant (3,000 – 600) (2,400)
271,600
X 20%
$54,320
Lessard
Consolidated statement of income
Sales Revenue 364,000 = $200,000 + $172,000 - $8,000

Other income 83,800 = $85,000 + $35,000 - $11,200 - $5,000 - $20,000(1)
447,800
Cost of sales 293,000 = $162,000 + $128,000 + $10,000(1) - $7,000(C)

Other expenses 87,000 = $53,000 + $31,000 + $4,000(1) - $1,000(D)
380,000
Income before tax 67,800
Income tax expense 22,400 = $20,000 + $18,000 - $13,600(1) - $400(C) - $2,000(D) + $400(D)
Net income 45,400
Attributable to parent 44,080 E

Attributable to NCI 1,320 2
45,400
Lessard
Share capital Retained earnings Total parent NCI Total equity

Balance, January 1, 2019 300,000 30,000 330,000 55,800 385,800
Total comprehensive income - 44,080 44,080 1,320 45,400
Dividend paid - (12,000) (12,000) (2,000) (14,000)
Dividend declared - (6,000) (6,000) (800) (6,800)
Balance, December 31, 2019 300,000 56,080 356,080 54,320 410,400

B)
D
Balance of property and equipment (net) 12,000 = ($20,000 - $4,000) - ($5,000 - $1,000)
inventory (1,000) C
Goodwill 41,600 Determined at the acquisition date
Non-controlling interest 54,320 55800+1320-2800
C) Issuance of additional shares such that Lessard now ones 75% versus 80%, decrease of 5%
Cash received 37,750 = $50,000 x .75
Net assets transferred: 284,000 = $250,000 + $34,000

FVA-equipment 9,600
trademark 6,000
goodwill (25,000)
274,600
Unrealized upstream inventory profit (600) 1000 x .6
Unrealized upstream gain on plant (2,400) (5000 - 1000) x .6
271,600
PROBLEM 5-6

Accounts receivable: ($2,000) × (1–0.30) (1,400)
Inventory: $4,000 × (1–0.30) 2,800
Vehicles: $1,000 × (1–0.30) 700
Plant: $4,000 × (1–0.30) 2,800
Goodwill: ($3,500)
$173,400
Net fair value acquired by Kundi:
70% × $173,400 $121,380
Bargain purchase: $2,000

NCI does not receive any share of the bargain purchase

30% x 173,400
Consolidation adjustments at December 31, 2019:
I/S R/E beginning B/S
A/R - 1,400
Inventory -800 -2,240
Vehicles -200 -560
Plant -500 -1400 1500
Goodwill -3500
Tax exp/ FITL +60+150+24 -450
0
total 1050 -2800 -2450
Gain on bargain 2,000
purchase
b) Opening balance in equity
Share of R/E below 600
NCI 1/1/19 52620
Share of profit below 6165
Share of dividends (7200)
NCI 12/31/19 51585
c) Profit for the period

30% × ($21,600-1050) = $6,165
3. Intragroup Transactions
Dividend paid
Dividend Revenue - 70% × $8,000 = $5,600
NCI—dividends - 30% × $8,000 = $2,400
Dividend declared
Dividend receivable - 70% × $16,000 = $11,200
Dividend payable - 70% × $16,000 = $11,200
Dividend revenue - 70% × $16,000 = $11,200

NCI—dividends - 30% × $16,000 = $4,800
Beginning R/E:
Kundi Eagle
R/E 1/1/19 55600 76800
R/E -72000
acquisition
FVA 2000 -2800
Share of R/E 1400 X 70% 2000
R/E 1/1/19 59000 X 30%
NCI share 600
Kundi share of consolidated net income
Net income-Kundi 25,200

(1
Less: dividend revenue 5600+11200 6,800)
8,400
Net income-Eagle 21,600
(1,
Fair value adjustments 050)
20,55
Total Net income 0
x 70% 14385
Parent 22,785
R/E 1/1/19 59,000

Net income 22,785
Dividends (25,000)
R/E 31/12/19 56,785
Kundi
Consolidated statement of changes in Equity
Retained
Share capital earnings Total Parent NCI Total equity
Balance as at January 1, 2019 200,000 59,000 259,000 52,620 311,620
Comprehensive income - 22,785 22,785 6,165 28,950
Dividends paid - (15,000) (15,000) (2,400) (17,400)
Dividends declared - (10,000) (10,000) (4,800) (14,800)
Balance as at December 31,

2019 200,000 56,785 256,785 51,585 308,370
PROBLEM 5-8
Acquisition Analysis as at January 1, 2017:


Assets and liabilities of Lalli:
Plant: $10,000 × (1–0.30) 7,000
Land: $40,000 × (1–0.30) 28,000
$235,000
Net fair value acquired by Prado:

80% × $235,000 $188,000
Goodwill: $10,000
NCI 20% x 235000 = 47000

I/S R/E Beginning B/S
Plant/ depn -2,000 -2,800 4,000
Land/gain -40,000 -
Tax exp/ 600+12,000 -1,200

FITL
Total -29400 -2800 2800
Goodwill 10,000
a) Opening balance in equity
NCI at acquisition 47,000
R/E 1/1/19 88,000
R/E acquisition (50,000)
FVA (2,800)
Unrealized profit (e) (140)
Unrealized profit (g) (5,833) x 20% 5,845
NCI 1/1/19 52,845
b) Profit for the period

see below
3) Intragroup transactions:
c) Dividends paid:
$30,000 × 20% = $6,000
d) Dividends declared:
$20,000 × 20% = $4,000
e) Prior period sale of inventory (upstream)

Retained earnings—beginning - $140

Cost of sales - $200
Unrealized profit was 10% × $2,000 = $200

$8,000 – $6,000 = $2,000
f) Current period sale of inventory (upstream)

Sales - $35,000
Income tax expense - $900
$32,000 original cost to Lalli (seller) + $3,000 profit = $35,000 sales

$35,000 – $32,000 = $3,000 × 30% = $900

Inventory - $3,000
g) Prior period sale of plant (upstream)—sale occurred on January 1, 2018

Retained earnings—beginning - $5,833
($10,000 × 70% - $1,667 × 70%) = $5,833

Depreciation expense - $1,667
$10,000/6 years remaining = $1,667 depreciation expense

$1,667 × 30% = $500 income tax expense

Plant-net - $6,666
$10,000 – $1,667 × 2 = $6,666

$3,000 – $500 × 2 =$2,000
A)
Prado
Consolidated statement of comprehensive
income
1,66
Sales revenue 5,000 =$920,000+$780,000-$35,000
=$65,000+$82,000-$40,000-
Other income 67,000 $40,000
1,73
2,000
1,16 =$622,000+$580,000-$200-
Cost of sales 9,800 $32,000
3 =$223,000+$162,000+
Other expenses 85,333 $2,000-$1,667
1,55
5,133
1
Income tax expense 57,060 =$30,000+$40,000-$12,600+$60-$900+$500

1
Net income 19,807
Attributable to the parent 109,846 110000-40000+.8(80000-29400+140-2100+1167)

Attributable to the NCI 9,961 20% x (80,000-29400+140-2,100+1167)
1
19,807
Beginning R/E:
=$80,000+80%($29,227 above)=$103,382
Prado
Consolidated statement of changes in
equity
Share Retained Total

capital earnings Parent NCI Equity
25
Balance, January 1, 2019 100,000 103,382 203,382 52,845 6,227
11
Comprehensive income - 109,846 109,846 9,961 9,807
(6,000 (2
Dividends paid - (20,000) (20,000) ) 6,000)
(4,000 (2
Dividends declared - (25,000) (25,000) ) 9,000)
32
Balance, December 31, 2019 100,000 168,227 268,227 52,806 1,034
B) Cash received by Prado: $20,000
Net assets transferred:

Book value ($150,000 + $118,000) $268,000
FVA—Plant ($7,000/5 years × 2 years left) $2,800
Total assets transferred $270,800
Upstream unrealized profits (4,667)

(2,100)
264,033
Percentage transferred × 15% ($39,605)
Loss to equity $19,605

PROBLEM 5-9
Acquisition analysis as at January 1, 2016:

Total of above: $163,100
Net fair value of the identifiable assets

And liabilities of Hudson:
Plant $5,000 × (1–0.40)= $3,000
Land $8,000 × (1–0.40)= $4,800
$147,800
Goodwill:
$163,100 – $147,800 $15,300
Net fair value acquired by Spider:

80% × $147,800 $118,240
Goodwill Spider: $13,360

Goodwill NCI: 20% × 147,800 $29,560
Consideration transferred $31,500 $1,940
$15,300
1) Fair value adjustments
I/S R/E Beginning B/S

Plant -500 -900 3,000
Land -4800 -
Tax exp/ FITL 200 -1,200

Total -300 -5700 1800
Goodwill 15,300
2. Non-controlling interest: see calculation below
A) NCI share of Opening balance in equity

= $32,420
B) NCI share of profit for the period

= $3,060
C) NCI share of other comprehensive income (OCI)

NCI—OCI + $2,400
3. Intragroup transactions
A) Dividends paid
$10,000 × 80% = $8,000
B) Dividends declared
NCI—dividends - $1000
$5,000 × 80% = $4,000
C) Sale of inventory—current period-upstream

Comprehensive income statement
Sales - $60,000
Statement of financial position

Inventory - $5,000
D) Sale of inventory-prior period-downstream-no NCI adjustment necessary
Statement of changes in equity
Retained earnings—beginning = [$2,500 × 60%] = $1,500

Income tax expense + $1,000
E) Sale of plant and machinery-prior period-upstream

Statement of changes in equity
[$5,000 × 60% – 1 × $1,000/2 × 60%] = $2,700

Depreciation expense - $1,000
$5,000/5 years = $1,000 per year × 40% = $400
Statement of financial position

Plant and machinery-net - $3,500
[$5,000 × 60%] – [$1,500 × 60%] = $2,100
F) Management and consulting fees

Manufacturing expenses - $2,800
Other expenses - $2,200
Management and consulting fees - $5,000
G) Bonds issued
Bonds in Hudson - $100,000
Debentures - $100,000
Financial Interest expense - $5,000
Bond Interest revenue - $5,000
H) Spider share of consolidated net income
Net income Spider $38,000

Less: dividend Hudson ($12,000)
Plus: Realized inventory profit $1,500
$27,500
Net income Hudson $18,000
FVA ($300)
Realized profit plant $600
Unrealized profit inventory ($3,000)
$15,300
× 80% $12,240
$39,740
I) NCI :
NCI at acquisition 31,500

Share of R/E – below (680)
Share of COCI:
COCI 1/1/19 8,000
COCI acquisition 0 X .2 1,600
NCI 1/1/19 32,420
NCI share of NI 15,300 x 20% 3,060

NCI share of OCI 12,000 x 20% 2,400
NCI share of dividends (3,000)
NCI 31/12/19 34,880
Spider Hudson
R/E 1/1/19 50,000 45,000
R/E Acqui (40,000)
FVA (5,700)
Unreal (D) (1,500)
Unreal E (2,700)
Share (2,720) x .8 (3,400) X .2 = 680 NCI
R/E 1/1/19 45,780

Spider
Consolidated statement of comprehensive income
for the year ended December 31, 2019
Sales revenue 474,500 = $314,500 + $220,000 - $60,000 C

Other revenue:
Bond interest - = $5,000 - $5,000 G
Management and consulting fees 1,500 = $6,500 - $5,000 F
Total revenues 476,000
Cost of sales 157,500 = $130,000 + $85,000 - $55,000 C - $2,500 D

Manufacturing expenses 147,200 = $90,000 + $60,000 - $2,800 F
Depreciation on plant 29,500 = $15,000 + $15,000 + $500 1 - $1,000 E
Administrative 23,000 = $15,000 + $8,000
Financial 11,000 = $11,000 + $5,000 - $5,000 G
Other expenses 23,800 = $14,000 + $12,000 - $2,200 F
Total expenses 392,000
Income tax expense 41,200 = $25,000 + $17,000 - $200 1 - $2,000 G + $1,000 D + $400 E
Net income 42,800
Other comprehensive income 65,000 = $63,000 + $20,000 - $10,000 - $8,000
Total comprehensive income 107,800
NI Attributable to the parent 39,740 H

Attributable to NCI 3,060 2B
42,800
COCI attributable to the parent 62,600 = $53,000 + 80% x ($12,000)
COCI attributable to NCI 2,400 = 20% x ($12,000)
65,000
Spider
Share Capital Retained Earnings COCI Total Parent NCI Total Equity
Balance at January 1, 2019 300,000 45,780 16,400 362,180 32,420 394,600
Comprehensive income - 39,740 62,600 102,340 5,460 107,800
Dividends paid - (13,000) - (13,000) (2,000) (15,000)
Dividends declared - (10,000) - (10,000) (1,000) (11,000)

Ending
Beginning COCI: COCI:
Balance at December 31, 2019 300,000 62,520 79,000 441,520 34,880 476,400 10,000 Spider 63,000
6,400 Hudson = 80% x $8,000 16,000
16,400 79,000
Ending R/E
= $65,000 + 80%($48,000 - $40,000) - $4,800 - $1,680 - $2,4
62,520
ASSETS
Current assets
Financial assets 110,000 = $50,000 + $60,000

Inventory 169,500 = $89,500 + $85,000 - $5,000 C
Total current assets 279,500
Non-current assets
Plant-net 101,500 = $55,000 + $47,000 + $3,000 1 - $3,500 E
Other depreciable assets-net 66,000 = $36,000 + $30,000
Goodwill 15,300
Land 258,000 = $201,000 + $57,000
Deferred tax asset 119,300 = $85,900 + $30,000 + $2,000 C + $1,400 E
Total non-current assets 560,100
Total assets 839,600
LIABILITIES & SHAREHOLDER'S EQUITY

Current liabilities
Current tax liability 42,000 = $25,000 + $17,000

Dividend payable 11,000 = $10,000 + $5,000 - $4,000 B
Total current liabilities 53,000
Non-current liabilities
Debentures 200,000 =$200,000+$100,000-$100,000 G
Deferred tax liability 8,200 = $7,000 + $1,200 1
Other liabilities 102,000 = $90,000 + $12,000
Total non-current liabilities 310,200
Total liabilities 363,200
Share capital 300,000
Retained earnings 62,520
COCI 79,000
Total equity-parent 441,520
NCI 34,880
Total Shareholder's equity 476,400
Total Liabilities & Shareholder's equity 839,600

WRITING ASSIGNMENT 5-1
Because IFRS 10 Consolidated Financial Statements adopts the entity concept

of consolidation, the full effects of transactions within the group are adjusted on
consolidation. The adjustments for intragroup transactions are the same
regardless of whether the subsidiary is wholly or partly owned by the parent.
The NCI is considered as a contributor of capital to the group. Therefore, the

calculation of the NCI is based on a share of consolidated equity and not equity
as recorded by the subsidiary. Consolidated equity is determined as the total of
the equity of the parent and the subsidiary’s after making adjustments for the
effects of intragroup transactions. The NCI share of that equity must, therefore,
be based on subsidiary equity after adjusting for intragroup profits that affect the
subsidiary’s equity.
The NCI share of equity is adjusted for the effects of intragroup transactions.
However, the NCI share of consolidated equity is essentially based on a share of
the subsidiary’s equity. Only intragroup transactions that affect the subsidiary’s
equity need to be taken into consideration. The NCI share of the equity recorded
by the subsidiary is calculated based on the recorded subsidiary equity—equity
that includes the intragroup transactions.
In determining the transactions that require an adjustment for the NCI, it is

important to determine which transactions involve unrealized profit. The test to
determine realization is the presence of the involvement of a party that is external
to the group. Profits arising from transactions within the group are unrealized
because no external entity is involved. Once the profits/losses from an intragroup
transaction are realized, the NCI share of equity no longer needs to be adjusted
for the effects of an intragroup transaction because the profits/losses recorded by
the subsidiary are now all realized.
CASE 5-2
Acquisition of Mac Enterprises on November 1, 2019
This is a new type of acquisition for Naya Ltd. as only 80% was acquired, as
opposed to normally acquiring 100%. However, control was still obtained and a
business combination still occurred. It will therefore be necessary to present non-
controlling interest within the shareholder’s equity section separately, as well as
the non-controlling interest’s share of the net income separately.
As no value for the non-controlling interest was given, we will assume that the
partial goodwill method is used. However, if it is determined that a value for the
non-controlling interest was available or that the full goodwill method would be
used, we would need to determine this and account for it accordingly. Under the
full goodwill method, goodwill is recognized in the fair value adjustments and
shared between the parent and the non-controlling interest (but not necessarily
proportionately). Under the partial goodwill method, the existence of the non-
controlling interest has no effect on the goodwill amount.
There have been no intragroup transactions in the two months since acquisition,
however if there are intragroup transactions in the future, the adjustments can
also affect the calculation of the non-controlling interest’s share of the equity. It is
important to note, that it is not the intragroup transaction itself that would be
adjusted for the non-controlling interest, but rather the adjustment itself for the
intragroup transaction that affects the calculation of the non-controlling interest of
the share of the equity. Since the non-controlling interest is entitled to a share of
consolidated equity rather than the recorded equity of the subsidiary, where an
intragroup transaction affects the equity of the subsidiary (in this case Mac
Enterprises), adjustments to non-controlling interest are required. If they are
upstream transactions, there will be an adjustment required for the non-
controlling interest and if they are downstream transactions no adjustment to the
non-controlling interest will be required.
It will be necessary to prepare an acquisition analysis for the transaction as

follows:
Acquisition analysis as at November 1, 2019:

Consideration transferred $575,000
Net fair value of the identifiable assets and
Liabilities acquired:
Inventory $10,000
PP&E $50,000 $485,000
Net fair value acquired by Naya Ltd.:

80% × $485,000 $388,000
Goodwill: $187,000
A. Consolidation Adjustments as at December 31, 2019:

 As the inventory was completely sold by December 31, 2019, it will
decrease net income for the period and therefore retained earnings. The
increase in fair value was $10,000. Therefore it will decrease the net
income and retained earnings of Mac Enterprises for the year ended
December 31, 2019. The NCI portion is 20% × $10,000 = $2,000 which
will decrease the NCI.
 The property, plant and equipment had a remaining useful life of 5 years
at the acquisition date. As two months have passed during the year, it will
be necessary to recognize an increase in depreciation expense for Mac
Enterprises for the period.
= $50,000/5 years = $10,000 per year, for two months = $1,667 increase
in depreciation expense and corresponding decrease to the value of
PP&E. The NCI share of this will be $1,667 × 20% =$333.
 The net income for Mac Enterprises for the two months ended December
31, 2019 is $125,000. Naya Ltd. Only has the rights to the income earned
since the acquisition date of November 1, 2019. However, there is also the
non-controlling interest component that must be factored into, which would
be $125,000 × 20% = $25,000.
1. 10% sale of Icebreaker Inc. on December 31, 2019
On December 31, 2019 10% of this company was sold of the original 100% that
was owned. As Naya Ltd. Has retained control over Icebreaker Inc., they are
deemed to not have sold any interest. In substance, net assets have been
transferred from Naya Ltd. To a non-controlling interest.
It will be necessary for Naya Ltd. To adjust the carrying amounts of the non-
controlling interest to reflect the change in its relative interests in Icebreaker Inc.
Any difference between the amount by which the non-controlling interest is
adjusted and the fair value of the consideration paid is recognized in
consolidated equity.
Cash Received by Naya Ltd $45,000

Net assets transferred:
Book value= $385,303
FVA—PPE* $ 70,000
Total $455,303
Percentage transferred 10% ($45,530)
Loss-to equity- retained earnings $ (530)
The consolidated financial statement should show a decrease of $530 in equity

and there will be a non-controlling interest based on the new ownership of 90%
and the non-controlling interest’s share of 10% the financial statements show that
Naya has not yet recorded the sale so the cash account will need to increase
$45,000.
*PP&E: $100,000/10 years = $10,000 per year, 3 years elapsed = $30,000,
remaining $70,000 to increase carrying value of PP&E.
**: For Icebreaker Inc. the acquisition adjustments are as

follows:
Acquisition price $400,000
Share capital ($100,000)
Retained earnings ($125,000)
Inventory increase ($20,000)
PP&E Increase ($100,000)
Goodwill $55,000
Inventory is recognized within retained earnings as was sold
PP&E, 2 years depreciation is recognized within retained

earnings
The transfer will be reflected in the Statement of Changes in
Equity in retained earnings and the NCI column. The ending
NCI will show 20% for Mac and 10% for Ice
Overall Conclusion
Based on the adjustments and analysis performed, the consolidated financial
statements of Naya Ltd. will now conform to IFRS. This is necessary given that
they are a publicly traded company.
A non-controlling interest, this will need to be presented separately and will show
less net income attributable to the parent-Naya Ltd.

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Acquisition Analysis as at July 1, 2018

Net fair value of the identifiable

Share capital $200,000

Net fair value acquired 90% × $302,400 = $272,160

a) Adjustments to the Financial Statements as at July 1, 2018

b) Adjustments to the Financial Statements as at June 30, 2019

Table June 30, 2019

NCI at acquisition 30240

Net fair value of the identifiable

Share capital $200,000

Non-controlling interest (as given) $31,800

Net fair value of assets and liabilities of Campbell:

Net fair value acquired= $181,700 × 75%$136,275

Gain on purchase: $12,750

NCI at acquisition 45425

75% × $5,000 = $3,750

Dividend payable - $3,000

a) Balances in Retained Earnings and NCI

Acquisition Analysis January 1, 2019:

Net fair value of identifiable assets

Net fair value acquired by the parent:

NCI at day of acquisition:

.25 x560,000 + 7,000 = 147,000

Gross profit 776,000

Other income 376600 302,100+112,500-30,000-8,000

Profit before income tax 821,400

Income tax expense (158,740) 112400+50000-1500-2400+240

Profit for the period 662,660

Other comprehensive income:

Comprehensive income: 791,660

Profit for the period attributable to:

Comprehensive income for the period attributable to:

Non-controlling interest 7,500 =(30,000*.25)

Comprehensive income for the period attributable to:

Parent interest 729,620

Non-controlling interest 62,040 =(30,000*.25)+54,540

Share capital Retained earnings Other comprehensive Total: Total

Total comprehensive income - 608,120 121,500 729,620 62,040 791,660

Dividends paid - (40,000) - (40,000) (7,500) (47,500)

Dividends declared - (50,000) - (50,000) (2,500) (52,500)

Total Current assets 1,384,600

Total Non-current assets 1,004,960

Total Assets 2,389,560

Liabilities & Shareholder's

Share capital 1,200,000 1,200,000+$400,000-$400,000

Retained earnings 630,120 per schedule

Parent interest 1,976,620

Non-controlling interest 199,040

Total liabilities & shareholder's

Dividend revenue (other income) - 75% × $30,000 = $22,500

Dividend receivable - $7,500

3. Sale of inventory (downstream)

Sales revenue - $55,000

Deferred tax asset + $1,500

Other income - $8,000

Deferred tax asset + $2,400

Income tax expense + $240

Acquisition analysis as at January 1, 2015:

Net fair value of the identifiable assets

Net fair value acquired by Zaldivar:

Consideration transferred: $27,600