ACCTING2501 | Financial Accounting | Non-Controlling Interests

1. Consolidation: Non-controlling interests

On 1 July 2016, Poppy Ltd acquired 80% of the issued shares of Sunshine Ltd for $240 000 when the equity of Sunshine Ltd consisted of:

At this date, all identifiable assets and liabilities of Sunshine Ltd were recorded at fair value except for the following.

Half of the inventories were sold by 30 June 2017 and the remainder by 30 June 2018. The plant has a further 3-year life beyond 1 July 2016, with benefits to be received evenly over this period. The land was sold on 1 March 2020 to an external party. Adjustments for the differences between carrying amounts and fair values are to be made in the consolidation worksheet. Poppy Ltd uses the partial goodwill method. The tax rate is 30%.

During the 4 years since acquisition, Sunshine Ltd has recorded the following annual results and declared the following dividends.

Year ended	Profit (loss)	Dividends
	$	$
30 June 2017	15,000	5,000
30 June 2018	20,000	10,000

Dividends were paid within 6 weeks of the end of each period. There have been no transfers to or from the general reserve since the acquisition date.

2. Investment in associates

On 1 July 2016, Pandini Ltd acquired 25% of the shares of Amani Ltd for $400,000. The acquisition of these shares gave Pandini Ltd significant influence over Amani Ltd. At this date, the equity of Amani Ltd consisted of:

At 1 July 2016, all the identifiable assets and liabilities of Amani Ltd were recorded at amounts equal to their fair values except for:

The plant was considered to have a further useful life of 5 years. The land was revalued in the records of Amani Ltd and the revaluation model applied in the measurement of the land. The tax rate is 30%.

At 30 June 2018, Amani Ltd reported the following information:

	$
Profit before tax	720,000
Income tax expense	(300,000)
Profit after tax	420,000
Retained earnings at 1 July 2017	820,000
	1,240,000
Dividends paid	(40,000)
Dividends declared	(50,000)
Transfer to general reserve	(30,000)
	(120,000)
Retained earnings at 30 June 2018	1,120,000
Share capital	640,000
General reserve	150,000
Asset revaluation surplus	310,000
Total equity	2,220,000

3. Accounting for foreign currency transactions

Soul Ltd is an Australian company that makes and sells small electronic goods and its financial year ends on 30 June. On 1 February 2018, a customer from the United States ordered some goods from Soul Ltd at an invoice cost of US$400,000 on terms FOB destination. On 30 April 2018, the goods were delivered to the customer. The agreed payment arrangements are that 30% of the total amount owing would be paid on delivery, 20% three months after delivery, and the remaining 50% four months after delivery. The end of the reporting period for Soul Ltd is 30 June. The following exchange rates are applicable.

1 February 2018	A$1 = US$0.77
30 April 2018	A$1 = US$0.75
30 June 2018	A$1 = US$0.70
31 July 2018	A$1 = US$0.74
31 August 2018	A$1 = US$0.78

Amani Ltd also reported other comprehensive income relating to gains on revaluation of land of $10,000.

Answer:

1. Preparation of Acquisition analysis (Partial Acquisition) as on 1 July, 2016

Particulars		Amount ($)
Share Capital		160,000
General Reserve		10,000
Retained Earnings		59,000
Fair value: Inventories		2,800
Fair value: Plant		6,300
Fair value: Land		11,900
Fair value of net assets acquired in Sunshine Ltd.		250,000
Ownership percentage		80%
Equivalent fair value of assets acquired in Sunshine Ltd.		200,000
Consideration transferred for ownership		240,000
Goodwill (excess of consideration paid over fair value of net assets acquired)		40,000

Consolidation Worksheet Entries as at 1 July, 2016

Particulars	Dr./Cr.	Amount ($)
Fair valuation of Plant
Accumulated Depreciation	Dr.	130,000
To Plant	Cr.	121,000
To Deferred tax liability	Cr.	2,700
To Business Combination Valuation Reserve	Cr.	6,300
Fair valuation of Inventories
Inventories	Dr.	4,000
To Deferred tax liability	Cr.	1,200
To Business Combination Valuation Reserve	Cr.	2,800
(fair valuation of Inventory)
Fair valuation of Land
Land	Dr.	17,000
To Deferred tax liability	Cr.	5,100
To Business Combination Valuation Reserve	Cr.	11,900
(fair valuation of Land)
Goodwill on business combination
Goodwill	Dr.	40,000
To Business Combination Valuation Reserve	Cr.	40,000
Pre Acquisition entry as on 1 July, 2016
Share Capital	Dr.	128,000
Retained Earnings	Dr.	47,200
General Reserve	Dr.	8,000
Business combination valuation reserve*	Dr.	56,800
To Investment in Sunshine Ltd.	Cr.	240,000
(acquisition of subsidiary)
Non Controlling Interest in equity entry as on 1 July, 2016
Share Capital	Dr.	32,000
Retained Earnings	Dr.	11,800
General Reserve	Dr.	2,000
Business combination valuation reserve	Dr.	4,200
To Non Controlling Interest	Cr.	50,000

*(40,000+ 21,000*80%)

Consolidation Worksheet Entries as at 30 June, 2018

Particulars	Dr./Cr.	Amount ($)
Fair valuation of Plant
Accumulated Depreciation	Dr.	130,000
To Plant	Cr.	121,000
To Deferred tax liability	Cr.	2,700
To Business Combination Valuation Reserve	Cr.	6,300
(fair valuation of Plant)
Depreciation expense on fair valuation of Plant
Depreciation expense	Dr.	3,000
Retained earnings (1/7/17)	Dr.	3,000
To Accumulated Depreciation	Cr.	6,000
Income tax liability on above depreciation expense
Deferred tax liability	Dr.	1,800
To Income tax expense	Cr.	900
To Retained earnings (1/7/17)	Cr.	900
Fair valuation of land
Land	Dr.	17,000
To Deferred tax liability	Cr.	5,100
To Business Combination Valuation Reserve	Cr.	11,900
Goodwill on business combination
Goodwill	Dr.	40,000
To Business Combination Valuation Reserve	Cr.	40,000
50% sale of inventory on 30 June, 2017
Retained earnings (1/7/17)	Dr.	2,000
To Retained earnings (1/7/17)	Cr.	600
To Transfer from business combination valuation reserve	Cr.	1,400
Transfer from BCVR to BCVR
Transfer from business combination valuation reserve	Dr.	1,400
To Business combination valuation reserve	Cr.	1,400
Remaining 50% sale of inventory on 30 June, 2018
Cost of sales	Dr.	2,000
To Income tax expense	Cr.	600
To Transfer from business combination valuation reserve	Cr.	1,400
Pre Acquisition entry as on 30 June, 2018
Share Capital	Dr.	128,000
Retained Earnings	Dr.	48,320
General Reserve	Dr.	8,000
Business combination valuation reserve	Dr.	55,680
To Investment in Sunshine Ltd.	Cr.	240,000
Transfer from BCVR to BCVR
Transfer from business combination valuation reserve	Dr.	1,400
To Business combination valuation reserve	Cr.	1,400
Non Controlling Interest in equity entries as on 30 June, 2018
Share Capital	Dr.	32,000
Retained Earnings	Dr.	12,080
General Reserve	Dr.	2,000
Business combination valuation reserve	Dr.	3,920
To Non Controlling Interest	Cr.	50,000
(Non Controlling Interest share)
Dividend paid on Non Controlling Interest on 30 June, 2017
Non Controlling Interest	Dr.	1,000
To Dividend paid	Cr.	1,000
Dividend payable on Non Controlling Interest on 30 June, 2018
Non Controlling Interest	Dr.	2,000
To Dividend payable	Cr.	2,000
Non Controlling Interest share in profit - 30 June, 2017
Non Controlling Interest share of profit **	Dr.	2,580
To Non Controlling Interest	Cr.	2,580
Non Controlling Interest share in profit - 30 June, 2018
Non Controlling Interest share of profit ***	Dr.	3,300
To Non Controlling Interest	Cr.	3,300
Elimination entries as on 30 June, 2018 for Dividend
Dividend income	Dr.	4,000
To Dividend paid	Cr.	4,000
Dividend payable	Dr.	8,000
To Dividend receivable	Cr.	8,000

**((15000-3000+900)*20%)

***((20000-3000+900-2000+600)*20%)

2. Preparation of Acquisition analysis (Joint Venture) as on 1 July, 2016

Particulars	Amount ($)	Calculation basis
Share Capital	660,000
Retained Earnings	440,000
General reserve	100,000
Fair value: Plant	70,000	((11,00,000-1,000,000)*(1-30%))
Fair value: Land	280,000	((1,600,000-1,200,000)*(1-30%))
Fair value of net assets acquired	1,550,000
% holding in Amani Ltd.	25%
Fair value of net assets acquired	387,500
Consideration paid for shares in Amani Ltd.	400,000
Goodwill (excess of consideration paid over fair value of net assets acquired)	12,500

Consolidation Worksheet Entries as at 30 June, 2018

Particulars	Dr./Cr.	Debit ($)	Calculation basis
Recording Gain on revaluation of Land
Investment in Amani Ltd.	Dr.	70,000	(400,000(1-30%)25%)
To Retained earnings (1/7/17)	Cr.	70,000
Recording Gain on revaluation of Plant
Investment in Amani Ltd.	Dr.	17,500	(100,000(1-30%)25%)
To Retained earnings (1/7/17)	Cr.	17,500
Recording Depreciation impact on above fair valuation of Plant
Retained earnings (1/7/17)	Dr.	14,000	(100,000/5*(1-30%))
Share of profit or loss of associates and joint ventures	Dr.	14,000
To Investment in Amani Ltd.	Cr.	28,000
Recording share in Profit of prior years
Investment in Amani Ltd.	Dr.	95,000	((820,000-440,000)*25%)
To Retained earnings (1/7/17)	Cr.	95,000
Recording share in Profit of current year
Investment in Amani Ltd.	Dr.	105,000	(420,000*25%)
To Share of profit or loss of associates and joint ventures	Cr.	105,000
Recording Dividend received
Dividend Revenue	Dr.	10,000	(40000*25%)
To Investment in Amani Ltd.	Cr.	10,000
Recording share in OCI
Investment in Amani Ltd.	Dr.	1,750	(10,000(1-30%)25%)
To Share of profit or loss of associates and joint ventures	Cr.	1,750

3. Soul Ltd.

Journal entries for the year ending 30 June 2018

Date	Particulars	Dr./Cr.	Amount ($)	Calculation basis
	Sale of product
01-Feb-18	Accounts receivable	Dr.	519,481	(400,000/0.77)
	To sales	Cr.	519,481
	Receipt of 30% payment
30-Apr-18	Cash	Dr.	160,000	(400,000*30%/0.75)
	To Accounts receivable	Cr.	155,844	(400,000*30%/0.77)
	To Foreign exchange gain	Cr.	4,156
	Reinstate the value of AR at the end of year
30-Jun-18	Accounts receivable	Dr.	36,364	((400,000*70%)/(0.77-0.70))
	To Unrealized foreign exchange gain	Cr.	36,364
	Receipt of 20% payment
31-Jul-18	Cash	Dr.	108,108
	Foreign exchange loss	Dr.	6,178
	To Accounts receivable	Cr.	114,286	((400,000*20%)/0.70)
	Receipt of balance 50% payment
31-Aug-18	Cash	Dr.	256,410
	Foreign exchange loss	Dr.	29,304
	To Accounts receivable	Cr.	285,714	((400,000*50%)/0.70)
	Transfer of amount recorded
31-Aug-18	Unrealized foreign exchange gain	Dr.	36,364
	To Foreign exchange gain	Cr.	36,364

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