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1 Topic 8: HOMEWORK SOLUTION (CH.21) Chapter 21 Consolidation: non-controlling interest Review Question 12 - three step approach to NCI If a step approach is used in the calculation of the NCI share of equity, what are the steps involved? There are 3 steps: 1. Share of equity at acquisition date. 2. Share of change in equity between the acquisition date and the beginning of the current period. 3. Share of change in equity in the current period. How to apply the techniques 1. Step 1 involves allocating the pre-acquisition equity – refer to pre-acquisition analysis 2. Step 2 requires determining the change in retained profits and other reserves using the opening balances of the current period 3. Step 3 involves the current period profit and dividend distributions 4. The allocation of profits is after any relevant consolidation adjustments Business School ACCT5942 Corporate Accounting and Regulation Sem1, 2017
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2 Chapter 21 Consolidation: non-controlling interest Practice Question 21.6 - Partial goodwill method, consolidation worksheet Barren Ltd acquired 75% of the shares of Goose Ltd for $191 000 on 1 July 2016. At this date the equity of Goose Ltd consisted of: Share capital General reserve Retained earnings $ 80 000 48 000 32 000 At this date all the identifiable assets and liabilities of Goose Ltd were recorded at amounts equal to their fair values except for: Carrying amount Fair value Plant (cost $156 000) $130 000 $140 000 Inventory 100 000 130 000 Brands 40 000 120 000 The plant was considered to have a further useful life of 10 years. The brands have an indefinite life. The inventory was all sold by 30 June 2017. The tax rate is 30%. Barren Ltd uses the partial goodwill method. An impairment test was conducted in June 2017 resulting in the write off of all the goodwill of Goose Ltd and $20 000 from the brands. Financial information provided by the two companies at 30 June 2019 was as follows: Barren Ltd Goose Ltd Sales $400 000 $64 000 Cost of sales (170 000) (28 000) Gross profit 230 000 36 000 Expenses (60 000) (5 600) Profit before income tax 170 000 30 400 Income tax expense (40 000) (4 000) Profit for the year 130 000 26 400 Retained earnings (1/7/18) 95 000 60 000
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3 Retained earnings (30/6/19) 225 000 86 400 Share capital 300 000 80 000 General reserve 50 000 64 000 Total equity 575 000 230 400 Current liabilities $ 40 000 $ 3 600 Deferred tax liabilities 20 000 6 000 Total liabilities 60 000 9 600 Total equity and liabilities $635 000 $240 000 Plant $340 000 $152 000 Accumulated depreciation – plant (100 000) (19 200) Brands 80 000 40 000 Shares in Goose Ltd 191 000 0 Inventory 124 000 67 200 Total assets $635 000 $240 000 Required Prepare the consolidated financial statements of Barren Ltd at 30 June 2019.
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