POM acquired 80% of the share of SOM for $26,550 on 1 Jan 2011, the date of acquisition (DOA). At this date, the equity of SOM consisted of share...
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POM acquired 80% of the share of SOM for $26,550 on 1 Jan 2011, the date of

acquisition (DOA). At this date, the equity of SOM consisted of share capital of $15,000 and retained earnings of $12,250. At 1 Jan 2011, all the identifiable assets and liabilities of SOM were recorded at fair value except for the following:

Plant (cost $11,000) carrying amount $7500 Fair value $10,000


The plant has a remaining useful life of 5 years with depreciation based on the straight-line method. The fair value of the non-controlling interest (NCI) in SOM on DOA was $6,000.


On 1 Jan 2013, POM held inventory of $2500 purchased from SOM during the year ended 31 Dec 2012. The inventory had been manufactured by SOM at a cost of $1,600. The inventory was sold by POM for $3,000 on 30 May 2013.


In 2013, SOM sold inventory costing $6000 to POM for $9,000 and 35% of this inventory was still on hand at 31 Dec 2013


An extract of the financial statements of the three companies for the year ended 31 Dec 2013 is shown below:

POM SOM

$ $

Sales 80,000 35,750

Cost of goods sold (55,000) (24,500)

Other income(including dividend revenue

and gains on sale of non-current assets) 3,700 -

Depreciation expense (8,000) (1,700)

Interest expense (5,900) (1,600)

Other expenses (3,800) (4,200)

Profit for the year 11,000 3,750

Retained earnings (1/1/2013) 44,000 22,500

Dividends appropriation (3,500) (1,250)

Retained earnings (31/12/2013) 51,500 25,000

Share capital 30,000 15,000

Total equity 81,500 40,000


Account payable 75,000 20,000

Total liability and equity 156,000 60,000


Plant 53,000 24,000

Accumulated depreciation (10,000) (5,000)

Investment in SOM 26,500 -

Other investments 28,200 1,250

Inventory 41,250 20,000

Receivables 10,000 11,000

Cash 7,500 8,750

Total Assets 156,500 60,000


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