chap 21 KẾ TOÁN QUỐC TẾ 2

Solutions Manual
to accompany

Company Accounting 10e
prepared by

Ken Leo
John Hoggett
John Sweeting
Jeffrey Knapp
Sue McGowan

© John Wiley & Sons Australia, Ltd 2015


Chapter 21: Consolidation: non-controlling interest

Chapter 21 – Consolidation: non-controlling interest
REVIEW QUESTIONS
1.

What is meant by the term “non-controlling interest” (NCI)?

NCI is the term used for the ownership interest in a subsidiary other than the parent.
It is defined in AASB 127 as:
The equity in a subsidiary not attributable, directly or indirectly, to a parent.

2.

Explain whether the NCI is better classified as debt or equity.

The main argument for the NCI being classified as equity is that it better fits the definition of
equity. The subsidiary has no present obligation in relation the NCI so the NCI does not meet
the definition of a liability.
Some writers argue that NCI should be disclosed separately from equity an liabilities – the
“mezzanine” treatment. This argumentrelates to the utility of financial statements in relation to
the user group, the parent shareholders. It is argued that this form of presentation provides more
relevant information to the parent shareholders.

3.

Explain whether the NCI is entitled to a share of subsidiary equity or some other amount.

If the NCI is classified as equity, it is entitled to a share of consolidated equity. Note that
consolidated equity is basically subsidiary equity adjusted for the effects of intragroup
transactions – that is, realised subsidiary equity.
If it were classified as a liability of the subsidiary then the calculation of the NCI would be
based on the obligation held by the subsidiary.

4.

How does the existence of an NCI affect the business combination valuation entries?

There is no effect.
However if the full goodwill method is used, the recognition of the subsidiary’s goodwill is
made via a BCVR entry. In contrast, where the partial goodwill method is used, goodwill is
recognised in the pre-acquisition entry.
Why?
The 3BCVR
entries,
apart from that

for goodwill,
are prepared
because at
of fair
the requirement
of AASB
to show
the identifiable
assets
and liabilities
of the acquiree
value. The
determination of fair value is not affected by the parent’s ownership in the subsidiary.

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Solutions manual to accompany Company Accounting 10e

5.

How does the existence of an NCI affect the pre-acquisition entries?

The pre-acquisition entry eliminates the investment account recorded by the parent and the preacquisition equity of the subsidiary, as well as recognising any gain on bargain purchase.
The consideration transferred reflects the amount paid by the parent for its share of the equity of
the subsidiary. The first effect then on the pre-acquisition entry is that the equity eliminated is
only the parent’s share. The second effect is that the gain on bargain purchase recognised is
only that relating to the parent’s share of the equity of the subsidiary.

6.

Why is it necessary to change the format of the worksheet where a NCI exists in the
group?

The AASB require the disclosure of the equity of the group, as well as the relative proportions
of the parent and the subsidiary. For a wholly owned subsidiary situation, the final column in
the worksheet represents the group position which is also the parent’s position, as there is no
NCI. Where an NCI exists, having determined the group position, the equity must be divided
into parent share and the NCI share. Hence, the worksheet must have additional columns to
divide the group equity into the relative shares of the parent and the NCI. This is done by
calculating the NCI share and subtracting it from the group equity so that the final column is
then the parent entity’s share.

7.

Explain how the adjustment for intragroup transactions affects the calculation of the NCI
share of equity.

The NCI does not affect the adjustment itself, as the full effects of the intragroup transaction are
adjusted for on consolidation. However, where the subsidiary records profit which is unrealised
to the group, this affects the calculation of the NCI. The NCI is entitled only to a share of
consolidated equity rather than subsidiary equity. Hence, where the subsidiary has recorded
unrealised profit, the NCI share of the recorded profit of the group must be adjusted for any of
that profit which is unrealised. In the Step 2 & Step 3 calculations of the NCI share of equity,
this is a share of recorded equity. As adjustments are made for intragroup transactions, where
these transactions reflect adjustments for unrealised subsidiary profit, an adjustment is also
made to the NCI share of profit. The net result is then that the NCI gets a share of realised
subsidiary equity.

8.

Explain whether an NCI adjustment needs to be made for all intragroup transactions.

An NCI adjustment does NOT need to be made for all intragroup transactions.
An NCI adjustment only needs to be made where the adjustment is for unrealised profit
recorded by the subsidiary. Hence the transaction must be an upstream – subsidiary to parent –
transaction in order for an NCI adjustment to be made. Further the upstream transaction must
relate to unrealised subsidiary profit.
9.

What is meant by ‘realisation of profit’ ?

Profit is realised when the group transacts with an entity external to the group.
The point of realisation depends then on identifying when the external entity is involved.
With inventory (and other sale) transactions the point of realisation is easily identified as it is
the point of sale when the external entity is involved. It is at this point that the group recognises

© John Wiley and Sons Australia, Ltd 2015

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Chapter 21: Consolidation: non-controlling interest

profit on sale, being the excess of the sale proceeds over the cost to the group of the item being
sold.
With assets not sold but used by the group – see 10. below.
With intragroup services, see the answer to 11. below.

10.

When is profit realised on an intragroup transaction involving a depreciable asset?

See the answer to 9. above.
With assets used by the group such as depreciable assets, the group does not interact with an
external entity. It is then impossible to determine a point of realisation based on direct
involvement of the group with an external entity. The point of realisation is then based on
indirect involvement.
The depreciable asset is used by the group to assist in its interaction with external entities eg by
making inventories for sale to external entities. The depreciation charge measures the extent of
that involvement in any one year as the depreciation charge is based on para 60 of AASB 116
which notes that the depreciation charge reflects the pattern of benefits consumed by the entity.
Realisation of profit then occurs as the asset is used up or consumed by the entity. Realisation is
then in proportion to the depreciation charge made on the asset.

11.

When is profit realised on an intragroup transaction involving the parent renting a
warehouse from the subsidiary?

With such a transaction, the subsidiary records revenue, which increases subsidiary profit. This
profit is not recognised by the group. However, no adjustment is made to the NCI share of
equity as a result of this transaction. This is because of the difficulty of determining a point of
realisation as no external entity is ever involved in this transaction.

12.

If a step approach is used in the calculation of the NCI share of equity, what are the steps

involved?

There are 3 steps:
1. Share of equity at acquisition date.
2. Share of change in equity between the acquisition date and the beginning of the current
period.
3. Share of change in equity in the current period.

13.

What are two events that could occur between the acquisition date and the beginning of
the current period that could affect the calculation of the NC I share of retained earnings?




14.

Changes in the assets & liabilities recognised via the BCVR entries eg sale of the
inventory on hand in the subsidiary at the acquisition date.
Movements in equity eg transfers to/from general reserve, prior period dividends

For what line items i n the financial statements is it necessary to provide a break-down into
parent entity share and NCI share?

© John Wiley and Sons Australia, Ltd 2015

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Solutions manual to accompany Company Accounting 10e

Statement of Profit or Loss and Other Comprehensive Income:
AASB 101 para 83: Disclose both NCI and parent share of profit/loss for the period
AND share of total comprehensive income for the period
Statement of Financial Position:
AASB 101 para 54 (q) and (r): NCI share of equity, and share capital and reserves
attributable to parent
Statement of Changes in Equity:
AASB 101 para 106 (a): total comprehensive income for the period, showing that
attributable to the parent and that attributable to the NCI.

© John Wiley and Sons Australia, Ltd 2015

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Chapter 21: Consolidation: non-controlling interest

CASE STUDY QUESTIONS
Case Study 1

Equity classification

Len Inn is the accountant for Wallaby Trucks Ltd. This entity has an 80% holding in the entity
Tyres-R-Us Ltd. Len is concerned that the consolidated financial statements prepared under
AASB 10 may be misleading. He believes that the main users of the consolidated financial
statements are the shareholders of Wallaby Trucks Ltd. The key performance indicators are
then the profit numbers relating to the interests of those shareholders. He therefore wants to
prepare the consolidated financial statements showing the non-controlling interest in Tyres-RUs Ltd in a c ategory other than equity in the statement of financial performance, and for the

statement of changes in equity to show the profit numbers relating to the parent shareholders
only.
Required
Discuss the differences that would arise in the consolidated financial statements if the noncontrolling interests were classified as debt rather than equity, and the re asons the standard
setters have chosen the equity classification in AASB 10.

1.

Prime users:
There is nothing in either AASB 101 or AASB 127 that indicates who the prime users of the
consolidated financial statements are.
In the income statement there is no preference given to the parent over the NCI, although in the
balance sheet, the NCI is limited to a one-line disclosure.
The Framework also gives no preference to either the parent or the NCI.

2.

NCI as equity or liability:
The main argument for the NCI being classified as equity is that it better fits the definition of
equity. The subsidiary has no present obligation in relation to the NCI so the NCI does not meet
the definition of a liability.
Some people argue that the NCI should be disclosed separately from equity and liabilities – the
“mezzanine” treatment. This argumentrelates to the utility of financial statements in relation to
the user group, the parent shareholders. It is argued that this form of presentation provides more
relevant information to the parent shareholders.

3.

Disclosure requirements:
Statement of Profit or Loss and Other Comprehensive Income:

AASB 101 para 83: Disclose both NCI and parent share of profit/loss for the period
AND share of total comprehensive income for the period
Statement of Financial Position:
AASB 101 para 54 (q) and (r): NCI share of equity, and share capital and reserves
attributable to parent
Statement of Changes in Equity:
AASB 101 para 106 (a): total comprehensive income for the period, showing that
attributable to the parent and that attributable to the NCI.

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Solutions manual to accompany Company Accounting 10e

If the NCI were classified as debt, any dividends would be disclosed as an expense, while the
NCI would not receive a share of profit.
In the statement of financial position the NCI would be shown under liabilities, while in the
statement of changes in equity there would be no NCI information.

© John Wiley and Sons Australia, Ltd 2015

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Chapter 21: Consolidation: non-controlling interest

Case Study 2

Adjustment for the NCI share of equity

The consolidated financial statements of Whale Submarine Works Ltd are being prepared by
the group accountant, Raz Putin. He is currently in dispute with the auditors over the need to
adjust for the NCI share of equity in relation to intragroup transactions. He understands the
need to adjust for the effects of the intragroup transactions, but believes that it is unnecessary to
adjust for the NCI share of equity. He argues that the NCI group of shareholders has its interest
in the subsidiary and as a result is entitled to a share of w hat the subsidiary records as equity.
He also disputes with the auditors about the notion of ‘realisation’ of profit in relation to the
NCI. If realisation requires the involvement of an external entity in a transaction, then in
relation to transactions such as intragroup transfers of vehicles and services such as interest
payments, there is never any external party involved. Those transactions are totally within the
group and never involve external entities. As a r esult, the more appropriate accounting is to give
the NCI a share of subsidiary equity and not be concerned with the fictitious involvement of
external entities.
Required
Write a report to Raz convincing him that his argument is fallacious.

1. The need to adjust for the NCI share of equity in relation to intragroup transactions:
If the NCI is classified as equity, it is entitled to consolidated equity. Note that consolidated
equity is basically subsidiary equity adjusted for the effects of intragroup transactions – that is,
realised subsidiary equity.
If it were classified as a liability of the subsidiary then the calculation of the NCI would be
based on the obligation held by the subsidiary.
2. Vehicles
Profit&isservices:
realised when the group transacts with an entity external to the group.
The point of realisation depends then on identifying when the external entity is involved.
With inventory (and other sales) transactions the point of realisation is easily identified as it is
the point of sale when the external entity is involved. It is at this point that the group recognises

profit on sale, being the excess of the sale proceeds over the cost to the group of the item being
sold.
With assets used by the group such as depreciable assets, the group does not interact with an
external entity. It is then impossible to determine a point of realisation based on direct
involvement of the group with an external entity. The point of realisation is then based on
indirect involvement.
The depreciable asset is used by the group to assist in its interaction with external entities eg by
making inventories for sale to external entities. The depreciation charge measures the extent of
that involvement in any one year as the depreciation charge is based on para 60 of AASB 116
which notes that the depreciation charge reflects the pattern of benefits consumed by the entity.
Realisation of profit then occurs as the asset is used up or consumed by the entity. Realisation is
then achieved in proportion to the depreciation charge made on the asset.

services, the
With transactions
such
subsidiary
records revenue,
which increases
subsidiary
profit.
This profit is
notas
recognised
by the
group. However,
no adjustment
is made to
the NCI
share of equity as a result of this transaction. This is because of the difficulty of determining a

point of realisation as no external entity is ever involved in this transaction.

© John Wiley and Sons Australia, Ltd 2015

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Solutions manual to accompany Company Accounting 10e

Case Study 3

The step approach

In December 2016, Frog Ltd acquired 60% of the shares of Kovrov Ltd. The accountant for
Frog Ltd, Nikki Romanov, is concerned about the approach she should take in preparing the
consolidated financial statements for the newly established group. In particular, she is
concerned about the calculation of the NCI share of equity, particularly in the years after
acquisition date. She has heard accountants in other companies talking about a ‘step’ approach,
and in particular how this makes accounting in periods after the acquisition date very easy as it
is then necessary to prepare only one step.
Required
Prepare a report for Nikki, e xplaining the step approach to the calculation of NCI and the
effects of this approach in the years after acquisition date.

The 3 steps are:
1. Share of equity at acquisition date.
2. Share of the change in equity between the acquisition date and the beginning of the current
period.
3. Share of change in equity in the current period.
In preparing the consolidated financial statements at, say, 30 June 2018, the consolidation worksheet

prepared at 30 June 2017 will contain Steps 1 and 2 for the 2018 worksheet:
- Step 1 journal entry never changes
- Step 2 for 2008 is the combination of Steps 2 and 3 for 2017.
Hence in 2018, the only new calculations relate to Step 3, namely the share of changes in equity for
the 2017-18 period.

© John Wiley and Sons Australia, Ltd 2015

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Chapter 21: Consolidation: non-controlling interest

Case Study 4

Effects of intragroup transactions

Because the Moth Cement Works Ltd has a number of subsidiaries, Star Lin is required to
prepare a set of consolidated financial statements for the group. She is concerned about the
calculation of the NCI share of e quity particularly where there are intragroup transactions. The
auditors require that when adjustments are made for intragroup transactions the effects of
these transactions on the NCI should also be adjusted for. Star has two concerns. First, w hy is it
necessary to adjust the NCI share of equity for t he effects of intragroup transactions? Second, is
it necessary to make NCI adjustments in relation to all intragroup t ransactions?
Required
Prepare a report for Star, explaining these two areas of concern.

Why is it necessary?
Under Australian accounting standards, the NCI is classified as equity, mainly because the NCI does
not fit the definition of a liability.

If the NCI is classified as equity, it is entitled to a share of consolidated equity. Consolidated equity is
determined after adjusting for the effects of intragroup transactions. Consolidated equity for the NCI
is then subsidiary equity adjusted for the effects of those intragroup transactions affecting subsidiary
equity– that is, realised subsidiary equity.

Is it necessary to make NCI adjustments in relation to all intragroup transactions?
The NCI does not affect the adjustment itself, as the full effects of the intragroup transaction are
adjusted for on consolidation. However, where the subsidiary records profit which is unrealised to the
group, this affects the calculation of the NCI. The NCI is entitled only to a share of consolidated
equity rather than subsidiary equity. Hence, where the subsidiary has recorded unrealised profit, the
NCI share of the recorded profit of the group must be adjusted for any of that profit which is
unrealised. In the Step 2 & Step 3 calculations of the NCI share of equity, this is a share of recorded
equity. As adjustments are made for intragroup transactions, where these transactions reflect
adjustments for unrealised subsidiary profit, an adjustment is also made to the NCI share of profit.
The net result is then that the NCI gets a share of realised subsidiary equity.
However, an NCI adjustment does NOT need to be made for all intragroup transactions.
An NCI adjustment only needs to be made where the adjustment is for unrealised profit recorded by
the subsidiary. Hence the transaction must be an upstream – subsidiary to parent – transaction in order
for an NCI adjustment to be made. Further the upstream transaction must relate to unrealised
subsidiary profit.

© John Wiley and Sons Australia, Ltd 2015

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Solutions manual to accompany Company Accounting 10e

PRACTICE QUESTIONS
Question 21.1

Full and partial goodwill methods

On 1 July 2016, Rainbow Ltd acquired 80% of the issued shares of Lorikeet Ltd for $165 000.
At this date, the equity of Lorikeet Ltd was:
Share capital
General reserve

$ 100 000
40 000

Retained earnings

50 000

At acquisition date all the identifiable assets and liabilities of Lorikeet Ltd were recorded at
amounts equal to fair value. At 30 June 2018, the equity of Lorikeet Ltd consisted of:
Share capital
General reserve
Retained earnings

$ 100 000
50 000
80 000

During the 2017–18 year Lorikeet Ltd recorded a profit of $15 000.
Required
Prepare the consolidated worksheet entries at 30 June 2018 for Rainbow Ltd assuming:
A.
At 1 July 2016, the fair value of the non-controlling interest was $40 000 and Rainbow Ltd

adopts the full goodwill method.
B.
Rainbow Ltd adopts the partial goodwill method.

A. Full Goodwill Method

At 1 July 2016:
Fair value of identifiable assets and
liabilities of Lorikeet Ltd
(a) Consideration transferred
(b) NCI in Lorikeet Ltd
Aggregate of (a) and (b)
Goodwill

Goodwill of Lorikeet Ltd
Fair value of Lorikeet Ltd
Fair value of INA of Lorikeet Ltd
Goodwill of Lorikeet Ltd
Goodwill of Rainbow Ltd
Goodwill acquired
Goodwill of Lorikeet Ltd
Control premiumparent
–

=
=
=
=
=
=

=

$100 000 + $40 000 + $50 000
$190 000
$165 000
$40 000
$205 000
$205 000 - $190 000
$15 000

=
=
=

$40 000/0.2
$200 000
$190 000

=

$10 000

= $15 000
= $10 000
= $5 000

Consolidation worksheet entries at 30 June 2018:
1. Business combination valuation entries

© John Wiley and Sons Australia, Ltd 2015

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Chapter 21: Consolidation: non-controlling interest

Goodwill
Business combination valuation reserve
(Goodwill of subsidiary)

Dr
Cr

10 000

Retained earnings (1/7/17)
Share capital
General reserve
Business combination valuation reserve

Dr
Dr
Dr
Dr

40 000
80 000
32 000
8 000

Goodwill
Shares in Lorikeet Ltd

Dr
Cr

5 000

Dr
Dr
Dr
Dr
Cr

10 000
20 000
8 000
2 000

Dr
Dr
Cr

6 000
2 000

Dr
Cr

3 000

10 000

2. Pre-acquisition entries

165 000

3. NCI share of equity 1/7/16

Retained earnings (1/7/17)
Share capital
General reserve
Business combination valuation reserve
NCI
(20% of equity at 1/7/16)

40 000

4. NCI share of equity from 1/7/16 – 30/6/17

Retained earnings (1/7/17)*
General reserve**
NCI
* 20% of change in RE of $30 000
** 20% of change in GR of $10 000

8 000

5. NCI share of equity 1/7/17- 30/6/18

NCI share of profit
NCI
(20% x $15 000)

3 000

B. Partial Goodwill Method

At 1 July 2016:
Fair value of identifiable assets and
liabilities of Lorikeet Ltd
(a) Consideration transferred
(b) NCI in Lorikeet Ltd
Aggregate of (a) and (b)
Goodwill of Rainbow Ltd

=
=
=
=
=
=
=
=

$100 000 + $40 000 + $50 000
$190 000
$165 000
20% x $190 000
$38 000

$203 000
$203 000 - $190 000
$13 000

© John Wiley and Sons Australia, Ltd 2015

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Solutions manual to accompany Company Accounting 10e

1. Business combination valuation entries

There is no BCVR entry as only parent goodwill is recognised
2. Pre-acquisition entries

Retained earnings (1/7/17)
Share capital
General reserve
Goodwill
Shares in Lorikeet Ltd

Dr
Dr
Dr
Dr

40 000
80 000
32 000

13 000

Cr

165 000

3. NCI share of equity 1/7/16

Retained earnings (1/7/17)
Share capital
General reserve
NCI
(20% of equity at 1/7/16)

Dr
Dr
Dr
Cr

10 000
20 000
8 000
38 000

Entries 4-5 are the same as for the full goodwill method

© John Wiley and Sons Australia, Ltd 2015

21.12

Chapter 21: Consolidation: non-controlling interest

Question 21.2

Full goodwill and partial goodwill methods

Swamp Ltd acquired 90% of the shares ( cum div.) of Tortoise Ltd on 1 July 2015 for $237 000.
At this date, the equity of Tortoise Ltd consisted of:
Share capital
Asset revaluation surplus
Retained earnings

$ 125 000
30 000
80 000

At acquisition date all the identifiable assets and liabilities of Tortoise Ltd were recorded at
amounts equal to fair value. Tortoise Ltd had recorded a dividend payable of $10 000, which
was paid in August 2015, and goodwill of $5000.
At 30 June 2017, the e quity of Tortoise Ltd consisted of:
Share capital
Asset revaluation surplus
Retained earnings

$ 100 000
40 000
110 000

During the 2016–17 year Tortoise Ltd recorded a profit of $20 000.

Required
Prepare the consolidated worksheet entries at 30 June 2017 for Swamp Ltd assuming:
A. At 1 July 2015, the fair value of the non-controlling interest was $25 000 and Swamp Ltd
adopts the full goodwill method.
B. Swamp Ltd adopts the partial goodwill method.

A. Full Goodwill Method

At 1 July 2015:
Fair value of identifiable assets and
liabilities of Tortoise Ltd

(a) Consideration transferred
(b) NCI in Tortoise Ltd
Aggregate of (a) and (b)
Goodwill

Goodwill of Tortoise Ltd
Fair value of Tortoise Ltd
Fair value of INA of Tortoise Ltd
Goodwill of Tortoise Ltd
Goodwill recorded
Non-recorded goodwill
Goodwill of Swamp Ltd
Goodwill acquired
Goodwill of Tortoise Ltd
Control premiumparent
–
=

=
=
=
=
=
=
=
=

$125 000 + $30 000 + $80 000 (equity)
- $5 000 (goodwill)
$230 000
$237 000 – 90% x $10 000 (div. payable)
$228 000
$25 000
$253 000
$253 000 - $230 000
$23 000

=
=

$25 000/0.1
$250 000

=
=
=
=

$230 000
$20 000
$5 000
$15 000

= $23 000
= $20 000
$3 000

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Solutions manual to accompany Company Accounting 10e

Consolidation worksheet entries at 30 June 2017:
1. Business combination valuation entries

Goodwill
Business combination valuation reserve
(Unrecorded goodwill of subsidiary)

Dr
Cr

15 000

Dr
Dr

Dr
Dr
Dr
Cr

72 000
112 500
27 000
13 500
3 000

Dr
Dr
Dr
Dr
Cr

8 000
12 500
3 000
1 500

Dr
Dr
Cr

3 000
1 000

Dr

Cr

2 000

15 000

2. Pre-acquisition entries

Retained earnings (1/7/16)
Share capital
Asset revaluation surplus
Business combination valuation reserve
Goodwill
Shares in Tortoise Ltd

228 000

3. NCI share of equity 1/7/15

Retained earnings (1/7/16)
Share capital
Asset revaluation surplus
Business combination valuation reserve
NCI
(10% of equity at 1/7/15)

25 000

4. NCI share of equity from 1/7/15 – 30/6/16

Retained earnings (1/7/16)
Asset revaluation surplus
NCI

4 000

5. NCI share of equity 1/7/16- 30/6/17

NCI share of profit
NCI
(10% x $20 000)

2 000

B. Partial Goodwill Method

At 1 July 2015:
Fair value of identifiable assets and
liabilities of Tortoise Ltd

(a) Consideration transferred
(b) NCI in Tortoise Ltd

=
=
=
=
=
=

$125 000 + $30 000 + $80 000
- $5 000 (goodwill)
$230 000
$237 000 – 90% x $10 000 (div. payable)
$228 000
10% x $230 000
$23 000

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Chapter 21: Consolidation: non-controlling interest

Aggregate of (a) and (b)
Goodwill of Swamp Ltd

= $251 000
= $251 000 - $230 000
= $21 000
Goodwill recorded –parent share
= 90% x $5 000
= $4 500
Unrecorded goodwill –parent share = $16 500
1. Business combination valuation entries

There are no BCVR entries for goodwill. Under the partial goodwill method only the
parent’s share of goodwill is recognised. This is done in the pre-acquisition entry.
2. Pre-acquisition entries

Retained earnings (1/7/17)
Share capital
Asset revaluation surplus
Goodwill
Shares in Tortoise Ltd

Dr
Dr
Dr
Dr
Cr

72 000
112 500
27 000
16 500

Dr
Dr
Dr
Cr

8 000
12 500
3 000

228 000

3. NCI share of equity 1/7/15

Retained earnings (1/7/16)
Share capital
Asset revaluation surplus
NCI
(10% of equity at 1/7/15)

23 500

Entries (4) and (5) are the same as in Part A.

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Solutions manual to accompany Company Accounting 10e

Question 21.3

Partial goodwill method, gain on bargain purchase

Black Ltd acquired 90% of the shares of Swan Ltd for $107 600 on 1 July 2016. At this date the
equity of Swan Ltd consisted of:
Share capital
Retained earnings

$ 80 000
40 000

At acquisition date all the identifiable assets and liabilities of Swan Ltd were recorded at
amounts equal to fair value.
At 30 June 2017, the equity of Swan Ltd consisted of:
Share capital
General reserve
Retained earnings

$ 80 000
10 000
60 000

During the 2016–17 year Swan Ltd recorded a profit of $15 000. The transfer to general reserve
was from retained earnings existing at 1 July 2016.
Required
Prepare the consolidated worksheet entries at 30 June 2017 for Black Ltd assuming Black Ltd
adopts the partial goodwill method.

Partial Goodwill Method

At 1 July 2016:
Fair value of identifiable assets and
liabilities of Swan Ltd
(a) Consideration transferred
(b) NCI in Swan Ltd
Aggregate of (a) and (b)
Gain on bargain purchase

=
=
=

=
=
=
=
=

$80 000 + $40 000
$120 000
$107 600
10% x $120 000
$12 000
$119 600
$120 000 - $119 600
$400

1. Business combination valuation entries

There is no BCVR entry as a gain on bargain purchase occurred.
2. Pre-acquisition entries

Retained earnings (1/7/16)
Share capital
Gain on bargain purchase
Shares in Swan Ltd
* 90% x $40 000

Dr
Dr
Cr
Cr

36 000
72 000

General reserve
Transfer to general reserve
(90% x $10 000)

Dr
Cr

9 000

© John Wiley and Sons Australia, Ltd 2015

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107 600

9 000

21.16


Chapter 21: Consolidation: non-controlling interest

3. NCI share of equity 1/7/16

Retained earnings (1/7/16)
Share capital
NCI

(10% of equity at 1/7/16)

Dr
Dr
Cr

4 000
8 000

NCI share of profit
NCI
(10% x $15 000)

Dr
Cr

1 500

General reserve
Transfer to general reserve
(10% x $10 000)

Dr
Cr

1000

12 000

4. NCI share of equity from 1/7/16 – 30/6/17

© John Wiley and Sons Australia, Ltd 2015

1 500

1 000

21.17


Solutions manual to accompany Company Accounting 10e

Question 21.4

Full goodwill method, multiple years

On 1 July 2016, Huntsman Ltd acquired 90% the issued shares of Spider Ltd for $140 300. At
this date the equity of Spider Ltd consisted of $100 000 share capital and $50 000 retained
earnings. All the identifiable assets and liabilities of Spider Ltd were recorded at amounts equal
to fair value except for plant for which the carrying amount of $80 000 (net of accumulated
depreciation of $40 000) was $3000 less than the fair value. The plant was estimated to have a
further 3-year life. The fair value of the non-controlling interest was $15 500. Huntsman Ltd
uses the full goodwill method.
The following annual results were recorded by Spider Ltd following the business combination:
Year ended

30 June 2017
30 June 2018
30 June 2019
30 June 2020

Profit/(loss)

Other items of
comprehensive
income
$2 000
3 000
4 000
5 000

$8 000
9 000
10 000
11 000

The other items of comprehensive income relate to the gains on land of Spider Ltd that are
recorded at fair value under the revaluation method of measurement. The group transfers the
revaluation reserves to retained earnings when an asset is sold or fully consumed.
The tax rate is 30%.
Required
Prepare the consolidation worksheet entries for the preparation of consolidated financial
statements of Huntsman Ltd for each of the years ending 30 June 2017 –20.

90%
Huntsman Ltd

Spider Ltd
Huntsman Ltd 90%
NCI

10%

Acquisition analysis

1 July 2016
Net fair value of identifiable assets
and liabilities of Spider Ltd
=

(a) Consideration transferred
(b) Non-controlling interest
Aggregate of (a) and (b)
Goodwill

=
=
=

($100 000 + $50 000) (equity)
+ $3 000 (1 – 30%) (plant)
$152 100
$140 300
$15 500

=
=
=

$155 800
$155 800 – $152 100

$3 700

Goodwill of Spider Ltd
Fair value of Spider Ltd
Fair value of INA of Spider Ltd
Goodwill of Spider Ltd
Goodwill of Huntsman Ltd

=
=
=
=

$15 500/0.1
$155 000
$152 100
$2 900

© John Wiley and Sons Australia, Ltd 2015

21.18


Chapter 21: Consolidation: non-controlling interest

Goodwill acquired
Goodwill of Spider Ltd
Control premium

=

=
=

$3 700
$2 900
$800

1. Consolidation Worksheet Entries - 1 July 2016
1. Business combination valuation entries

Accumulated depreciation - plant
Plant

Dr
Cr

40 000
37 000

Deferred tax liability
Business combination valuation reserve

Cr
Cr

900
2 100

Goodwill
Business combination valuation reserve

Dr
Cr

2 900

Dr
Dr
Dr
Dr
Cr

45 000
90 000
4 500
800

Dr
Dr
Dr
Cr

5 000
10 000
500

2 900

2. Pre-acquisition entries

Retained earnings (1/7/16)
Share capital
Business combination valuation reserve
Goodwill
Shares in Spider Ltd

140 300

3. NCI share of equity at 1 July 2016

Retained earnings (1/7/16)
Share capital
Business combination valuation reserve
NCI
(10% of balances at 1 July 2016)

2.

15 500

Consolidation Worksheet Entries - 30 June 2017

1. Business combination valuation entries

Accumulated depreciation - plant
Plant
Deferred tax liability
Business combination valuation reserve

Dr

Cr
Cr
Cr

40 000

Depreciation expense
Accumulated depreciation - plant
(1/3 x $3 000 p.a.)

Dr
Cr

1 000

Deferred tax liability
Income tax expense

Dr
Cr

300

Dr

2 900

Goodwill

© John Wiley and Sons Australia, Ltd 2015

37 000
900
2 100

1 000

300

21.19


Solutions manual to accompany Company Accounting 10e

Business combination valuation reserve

Cr

2 900

2. Pre-acquisition entry

Retained earnings (1/7/16)
Share capital
Business combination valuation reserve
Goodwill
Shares in Spider Ltd

Dr
Dr

Dr
Dr
Cr

45 000
90 000
4 500
800

Dr
Dr
Dr
Cr

5 000
10 000
500

Dr
Cr

730

Dr
Cr

200

140 300

3. NCI share of equity at 1 July 2016

Retained earnings (1/7/16)
Share capital
Business combination valuation reserve
NCI

15 500

4. NCI share of equity: 1 July 2016 - 30 June 2017

NCI share of profit
NCI
(10% [$8000 – ($1 000 - $300))
Asset revaluation surplus
NCI
(10% x $2 000)

3.

730

200

Consolidation Worksheet Entries - 30 June 2018

Accumulated depreciation - plant
Plant
Deferred tax liability
Business combination valuation reserve

Dr
Cr
Cr
Cr

40 000

Depreciation expense
Retained earnings (1/7/17)
Accumulated depreciation - plant
(1/3 x $3 000 p.a. for 2 years)

Dr
Dr
Cr

1 000
1 000

Deferred tax liability

Dr

600

Income tax expense
Retained earnings (1/7/17)
Goodwill
Business combination valuation reserve

37 000
900
2 100

2 000

Cr
Cr

300
300

Dr
Cr

2 900

Dr

45 000

2 900

2. Pre-acquisition entry

Retained earnings (1/7/17)

© John Wiley and Sons Australia, Ltd 2015

21.20


Chapter 21: Consolidation: non-controlling interest

Share capital
Business combination valuation reserve
Goodwill
Shares in Spider Ltd

Dr
Dr
Dr
Cr

90 000
4 500
800

Dr
Dr
Dr

5 000
10 000
500

140 300

3. NCI share of equity at 1 July 2016

Retained earnings (1/7/17)
Share capital
Business combination valuation reserve
NCI

Cr

15 500

4. NCI share of equity: 1 July 2016 - 30 June 2017

Retained earnings (1/7/17)
Asset revaluation surplus
NCI
(RE: 10% ($8 000 – [$1 000 - $300])
ARS: 10% x $2 000

Dr
Dr
Cr

730
200
930

This entry is the combination of the previous year’s entries for NCI for 1/7/16 – 30/6/17

5. NCI share of equity: 1 July 2017 - 30 June 2018

4.

NCI share of profit
NCI
(10% ($9 000 – [$1 000 - $300])

Dr
Cr

830

Asset revaluation surplus
NCI
(10% x $3000)

Dr
Cr

300

Dr
Cr
Dr

1 000

830

300

Consolidation Journal entries - 30 June 2019

1. Business combination valuation entries

Depreciation expense - plant
Income tax expense
Retained earnings (1/7/18)
Transfer from business combination
valuation reserve
Goodwill
Business combination valuation reserve

300
1 400

Cr

2 100

Dr
Cr

2 900

Dr
Dr
Dr
Dr

45 000

90 000
4 500
800

2 900

2. Pre-acquisition entry

Retained earnings (1/7/18)
Share capital
Business combination valuation reserve
Goodwill

© John Wiley and Sons Australia, Ltd 2015

21.21


Solutions manual to accompany Company Accounting 10e

Shares in Spider Ltd
Transfer from business combination reserve
Business combination valuation reserve

Cr

140 300

Dr
Cr

1 890

Dr
Dr
Dr

5 000
10 000
500

1 890

3. NCI share of equity at 1 July 2016

Retained earnings (1/7/17)
Share capital
Business combination valuation reserve
NCI

Cr

15 500

4. NCI share of equity: 1 July 2016 - 30 June 2018

Retained earnings (1/7/17)
Asset revaluation surplus
NCI
RE: 10% ($8 000 + $9 000 – $1 400 plant)

ARS: 10% ($2 000 + $3 000)

Dr
Cr
Cr

1 560
500
2 060

This entry is the combination of the previous year’s entries (no. 4 & 5) for NCI for 1/7/16 – 30/6/18

5. NCI share of equity: 1 July 2018 - 30 June 2019

NCI share of profit
NCI
(10% [10 000– ($1000 - $300)])
Transfer from business combination
valuation reserve
Business combination valuation reserve
(10% x $2 100 plant)
Asset revaluation surplus
NCI
(10% x $4 000)
5.

Dr
Cr

930

Dr
Cr

210

Dr
Cr

400

Dr

2 900

930

210

400

Consolidation Journal entries - 30 June 2020

1. Business combination valuation entries

Goodwill
Business combination valuation reserve

Cr

2 900

2. Pre-acquisition entry

Retained earnings (1/7/19)
Share capital
Business combination valuation reserve
Goodwill
Shares in Spider Ltd

Dr
Dr
Dr
Dr
Cr

© John Wiley and Sons Australia, Ltd 2015

46 890
90 000
2 610
800
140 300

21.22


Chapter 21: Consolidation: non-controlling interest

3. NCI share of equity at 1 July 2016

Retained earnings (1/7/19)
Share capital
Business combination valuation reserve
NCI

Dr
Dr
Dr
Cr

5 000
10 000
500

Dr
Cr
Cr

2 700
900

15 500

4. NCI share of equity: 1 July 2016 - 30 June 2019

Retained earnings (1/7/19)
Asset revaluation surplus
NCI
RE: 10% ($8 000 + $9 000 + $10 000)

ARS: 10% ($2 000 + $3 000 + $4000)

3 600

This entry is the combination of the previous year’s entries (no. 4 & 5) for NCI for 1/7/16 – 30/6/19

5. NCI share of equity: 1 July 2019 - 30 June 2020

NCI share of profit
NCI
(10% x $11 000)

Dr
Cr

1 100

Asset revaluation surplus
NCI
(10% x $5 000)

Dr
Cr

500

© John Wiley and Sons Australia, Ltd 2015

1 100

500

21.23


Solutions manual to accompany Company Accounting 10e

Question 21.5

Partial and full goodwill methods

On 1 July 2016 Sugar Ltd acquired 90% of the shares of Glider Ltd for $435 240. At this date
the equity of Glider Ltd consisted of share capital of $300 000 and retained earnings of $120
000. All the identifiable asset and liabilities of Glider Ltd were recorded at amounts equal to fair
value except for:

Land

Carrying
amount
$ 80 000

Fair value

300
15 000
000

330
18 000

000

PlantInventory
(cost $380 000)

$ 95 000

The plant was considered to have a further 10-year life. All the inventory was sold by 30 June
2017. The tax rate is 30%. Sugar Ltd uses the partial goodwill method.
During the 2016–17 period Glider Ltd recorded a profit of $30 000.
Required
A. Prepare the consolidation worksheet entries for the preparation of the consolidated
financial statements of Sugar Ltd at 30 June 2017.
B. Prepare the consolidation worksheet entries if Sugar Ltd used the full goodwill method,
assuming the fair value of the non-controlling interest at 1 July 2016 was $47 700.

90%
Sugar Ltd

Glider Ltd
Sugar Ltd 90%

NCI

At 1 July 2016:

Net fair value of identifiable assets
and liabilities of Glider Ltd
=

(a) Consideration transferred
(b) Non-controlling interest
Aggregate of (a) and (b)
Goodwill of the parent

=
=
=
=
=
=
=

10%

$300 000 + $120 000 (equity)
+ $15 000 (1 – 30%) (land)
+ $3 000 (1 – 30%) (inventory)
+ $30 000 (1 – 30%) (plant)
$453 600
$435 240
10% x $453 600
$45 360
$480 600
$480 600 - $453 600
$27 000

A. Worksheet entries at 1 July 2016
1. Business combination valuation entries

Land

Dr
Cr
Cr

15 000

Deferred tax liability
Business combination valuation reserve
Accumulated depreciation - plant
Plant
Deferred tax liability
Business combination valuation reserve

Dr
Cr
Cr
Cr

80 000

© John Wiley and Sons Australia, Ltd 2015

4 500
10 500

50 000
9 000
21 000

21.24