The pre acquisition equity is Share capital Retained earnings Reserves

The pre acquisition equity is share capital retained

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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
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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 $38,000. Example (b) Partial goodwill method: Acquisition analysis 52
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$ $ 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
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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 .
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