B407F Week 4 Tutorial Solution

B407F Week 4 Tutorial Solution - B407F Week 4 Tutorial...

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B407F Week 4 Tutorial Solution-Consolidated Financial Statements (1) Question 1 (a) Where a holding company does not acquire the whole issued capital of a subsidiary, the interest owned by other shareholders is known as “non- controlling interest” (NCI). NCI is the portion of the net assets of a subsidiary attributable to equity interest that are not owned by the parent. Non-controlling interests are classified as a contributor of equity to the group and it is presented and identified within equity separately from the parent’s equity. (b) HKFRS 3 allows (as an option) a non-controlling interest to be valued at its proportionate share of the acquired subsidiary’s identifiable net assets. Its effect on the statement of financial position is that the resulting carrying value of purchased goodwill only relates to the parent’s element of such goodwill and as a consequence the non-controlling interest does not reflect its share of the subsidiary’s goodwill. The alternative method of valuing the non-controlling interest at its fair value would (normally) increase the value of the goodwill calculated on acquisition. This increase reflects the non-controlling interest’s ownership of the subsidiary’s goodwill and has the effect of ‘grossing up’ the goodwill and the non-controlling interests in the statement of financial position (by the same amount). Question 2 (Head and Shoulder) (i) (a) Goodwill in Shoulder: Fair value approach $m $m Cost of investment: Shares issued (320/2 x $3) 480 Cash (320 x $0.5) 160 Total consideration 640 Equity shares of Shoulder 400 Pre-acquisition reserves 300 700 x 80% 560 Parent’s share of goodwill 80 Fair value of NCI at date of acquisition 80 shares at $2 160 1 (b) Net asset approach
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NCI share of Shoulder’s net asset at date of acquisition 700 x 20% 140 NCI share of goodwill 20 Total goodwill 100 OR $m $m Cost of investment: Shares issued (320/2 x $3) 480 Cash (320 x $0.5) 160 Total consideration 640 Fair value of NCI at date of acquisition 80 shares at $2 160 800 Equity shares of Shoulder 400 Pre-acquisition reserves 300 700 Total goodwill 100 (ii) Consolidated journal entries Debit (m) Credit(m) Share Capital - Shoulder 320 Retained Earnings - Shoulder 240 Goodwill arising on consolidation 80 Investment in Shoulder 640 Share Capital - Shoulder 80 Retained Earnings - Shoulder 60
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This note was uploaded on 02/24/2012 for the course ACT 407 taught by Professor Mshui during the Fall '11 term at The Open University.

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B407F Week 4 Tutorial Solution - B407F Week 4 Tutorial...

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