The pre acquisition equity is share capital retained

 The pre-acquisition equity is:
 Share capital
 Retained earnings
 Reserves (including any BCVR)
Lecture example
 P Ltd acquired a 60% interest in S Ltd on 1 July 2014 for $60,000.
 On the same date, the balance of shareholders’ equity of S Ltd comprised:
 All assets are recorded at their fair values except for an item of plant, which had a fair value of
$200,000 and a carrying amount of $180,000 (original cost $250,000). The remaining useful life
of the plant at the date of acquisition is 5 years.
 The fair value of the NCI in S Ltd on 1 July 2014 was $38,000.
51

Example (a) Full goodwill method: Acquisition analysis
Example (a) Full goodwill method: BCVR entries
DR Accum. Depn 70,000
CR Plant 50,000
CR DTL 6,000
CR BCVR 14,000
DR Goodwill 19,000
CR BCVR 19,000
Example (a) Full goodwill method: Pre-acquisition entry
DR Share capital 24,000
DR General reserve 1,200
DR Retained earnings 12,000
DR BCVR 19,800
DR Goodwill 3,000
CR Investment in S Ltd 60,000
Example (a) Full goodwill method: Step 1 NCI Entry
DR Share capital 16,000
DR General reserve 800
DR Retained earnings 8,000
DR BCVR 13,200
CR NCI 38,000
The CR to the NCI account is equal to the fair value of the NCI as per the acquisition analysis.
Lecture example
 P Ltd acquired a 60% interest in S Ltd on 1 July 2014 for $60,000.
 On the same date, the balance of shareholders’ equity of S Ltd comprised:
 All assets are recorded at their fair values except for an item of plant, which had a fair value of
$200,000 and a carrying amount of $180,000 (original cost $250,000). The remaining useful life
of the plant at the date of acquisition is 5 years.
 The fair value of the NCI in S Ltd on 1 July 2014 was $38,000.
Example (b) Partial goodwill method: Acquisition analysis
52

$ $
Cost of acquisition 60,000
Book value of net assets:
Share capital 40,000
General reserve 2,000
Retained earnings 20,000
Total book value of net assets 62,000
Fair value adjustments:
After tax increase in plant 14,000
FVINA 76,000
X% age acquired 60% 45,600
Goodwill on acquisition 14,400
Example (b) Partial goodwill method: BCVR entries
DR Accum. Depn 70,000
CR Plant 50,000
CR DTL 6,000
CR BCVR 14,000
Example (b) Partial goodwill method: Pre-acquisition entry
DR Share capital 24,000
DR General reserve 1,200
DR Retained earnings 12,000
DR BCVR 8,400
DR Goodwill 14,400
CR Investment in S Ltd 60,000
Example (b) Partial goodwill method: Step 1 NCI Entry
DR Share capital 16,000
DR General reserve 800
DR Retained earnings 8,000
DR BCVR 5,600
CR NCI 30,400
The CR to the NCI account is equal to 40% of FVINA per acquisition analysis.
21.3.3 NCI share of equity subsequent to acquisition date
NCI Step 2 allocation
 The purpose of Step 2 in the NCI allocation process is to allocate a share of all movements in
equity from the date of acquisition to the end of the previous reporting period (beginning of
the current period).
 Such movements are found in:
 Opening post-acquisition retained earnings; and
 Reserves
 Post-acquisition retained earnings are adjusted for the consequential effect of any
fair value entries
53

Example
S Ltd recorded a profit of $40,000 for the year ended 30/6/2017 and paid a dividend of $10,000 on
1/1/2017 .