indirect non-controlling interests is to distinguish between: Pre-acquisition equity of the subsidiary These amounts are only allocated to the DNCI (STEP 1) AND Post acquisition movements of equity of the subsidiary These amounts are allocated to the DNCI and the INCI (STEPS 2 & 3) Note that any pre-acquisition movements occurring in steps 2 or 3 are allocated to the DNCI only
Sequential acquisition: DNCI & INCI Lecture example: P Ltd. acquired 70% interest in S Ltd. on 1 July 2014 for $70,000 when the equity of S Ltd comprised: Share capital 60,000 Retained earnings 33,000 $93,000 On that same day, S Ltd acquired 60% interest in T Ltd for $35,000, when the equity of T Ltd comprised: Share capital 35,000 Retained earnings 15,000 $50,000
Sequential acquisition: DNCI & INCI Lecture example: The equity of S Ltd and T Ltd on 30 June 2015 and 30 June 2016 are summarised below S Ltd 30/6/15 30/6/16 Share capital $60,000 60,000 Retained earnings 45,000 55,000 105,000 115,000 T Ltd 30/6/15 30/6/16 Share capital $35,000 35,000 General reserve 5,000 5,000 Retained earnings 18,000 23,000 58,000 63,000
Sequential acquisition: DNCI & INCI Lecture example: •At acquisition S Ltd held inventory which was recorded at $10,000 below fair value. All of this inventory was sold by 30 June 2015•At acquisition T Ltd had plant which was recorded at $5,000 below fair value. The plant has a remaining useful life of 5 years•During the year ended 30 June 2016, S Ltd made a profit of $18,000 and paid a dividend of $8,000•During the year ended 30 June 2016, T Ltd made a profit of $30,000 and paid a dividend of $25,000.•The profit of $30,000 in T Ltd’s books includes an unrealised profit of $10,000 on the sale of inventory to P Ltd. Total inter-entity sales during the year were $25,000.Required: •Prepare the consolidation journals as at 30 June 2016 for the P Ltd group
Example – acquisition analysis P’s inv. in S S’s inv. in T Consideration transferred 70,000 35,000 Book value of net assets - Share capital 60,000 35,000 - Retained earnings 33,000 15,000 Total BV of net assets 93,000 50,000 FV (BCVR) adjustments - Inventory 7,000 - - Plant - 3,500 Total fair value adjustments 7,000 3,500 FVINA 100,000 53,500 X %age acquired 70% 70,000 60% 32,100 2,900 Note that a separate acquisition analysis is required for each subsidiary. The analysis is based on the ownership by the immediate parent Sequential acquisition: DNCI & INCI Note also the partial goodwill method is used in this example
Sequential acquisition: DNCI & INCI Example – Y/E 30 June 2016 – BCVR entries DR Plant 5,000 CR DTL 1,500 CR BCVR 3,500 DR Dep’n expense 1,000 DR Ret. earnings (1/7/16) 1,000 CR Accum depreciation 2,000 DR DTL 600 CR ITE 300 CR Retained earnings (1/7/16) 300 (i)
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