Question 1

A post-control decrease in the percentage of shares held by the parent entity does not affect the consolidated profit or loss statement.

Accepted Answer

A decrease in the percentage of shares held by the parent entity may impact the ownership and control over the subsidiary entity, but it does not affect the consolidation of financial statements, including the profit or loss statement.

Question 2

The effect on the amount of goodwill recognised when there is a post-control change in the parent's ownership interest is the same under both the full and partial measurement methods.

Accepted Answer

Under both the full and partial measurement methods, the amount of goodwill recognized when there is a post-control change in the parent's ownership interest is the same. This is because the amount of goodwill is determined by the difference between the fair value of the subsidiary and the carrying amount of the parent's investment in the subsidiary. This difference is not affected by the method of measurement used.

Question 3

AASB 127 contains rules dealing with the effect of post-control changes in ownership on the calculation of the amount of goodwill recognised and the impact on consolidated owners' equity (parent entity and non-controlling interest).

Accepted Answer

AASB 127 does indeed contain rules dealing with the effect of post-control changes in ownership on the calculation of goodwill and the impact on consolidated owners' equity.

Question 4

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd.
-If the full method of measuring goodwill is adopted, what is the carrying amount of consolidation goodwill at 30 June 20X2 if impairment of $150 000 has been recognised?

Accepted Answer

Consolidation goodwill at 1 July 20X0 = $1,500,000 – (65% × $1,700,000) = $430,000Consolidation goodwill at 1 July 20X1 = $430,000 + $250,000 – (10% × $1,900,000) = $580,000Carrying amount of consolidation goodwill at 30 June 20X2 = $580,000 – $150,000 = $430,000

Question 5

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd.
-If the full method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X1 acquisition?

Accepted Answer

The full goodwill method involves recognizing the total goodwill, including the portion attributable to non-controlling interests. However, in the 20X1 acquisition, Mobile Ltd is acquiring an additional interest in a subsidiary it already controls, so no additional goodwill is recognized for this transaction.

Question 6

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd.
-If the partial method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X1 acquisition?

Accepted Answer

The answer of On 1 July 20X0, Mobile Ltd acquired...

Question 7

A change in the number of shares held by the parent entity always affects the total amount eliminated against pre-control equity.

Accepted Answer

The change in the number of shares held by the parent entity affects the calculation of non-controlling interest and the parent's interest in the subsidiary, but not the total amount eliminated against pre-control equity, which relates to the initial acquisition accounting.

Question 8

Magic Ltd acquired 4 million of the issued shares of Man Ltd on 1 November 20X0 when the equity of Man Ltd (at fair value) was as follows:
$\begin{array}{llcc}
  \text {  } & \$000s \
 \text {  Paid up capital (5 million shares)} &4000\
 \text {  Retained profits} &500\
 \text { Asset revaluation reserve } &500\

\end{array}$

Magic Ltd paid $6 million for this acquisition. On 31 October 20X1 Magic Ltd sold 500 000 of these shares at an average price of $2.10 per share. What was the net result on period profit or loss of Magic Ltd resulting from the sale of these shares?

Accepted Answer

The cost of acquisition per share is calculated as $6 million / 4 million shares = $1.50 per share. Selling 500,000 shares at $2.10 each generates $1.05 million. The cost of these sold shares is 500,000 shares * $1.50 = $750,000. The profit is $1.05 million - $750,000 = $300,000.

Question 9

Cool Ltd acquired 4.5 million of the issued shares of Cat Ltd on 1 July 20X0 when the equity of Cat Ltd (at fair value) was as follows:
$\begin{array} { l l } 
  \text {  } & \$000s \
\text { Paid up capital (5 million shares) } & 4000 \
\text { Retained profits } & 1000 \
\text { General reserve } & 1000
\end{array}$
Cool Ltd paid $6.5 million for this acquisition. On 1 July 20X1 Cat Ltd issued bonus shares in lieu of paying a dividend. The terms of the issue were 1 bonus share for every 4 shares held.
-What is the change in consolidation goodwill recognised in Cool Ltd's consolidated balance sheet as a result of this bonus issue?

Accepted Answer

The issuance of bonus shares does not affect the consolidation goodwill because it is merely a capitalization of reserves and does not change the overall net assets or the fair value of the acquired entity.

Question 10

Cool Ltd acquired 4.5 million of the issued shares of Cat Ltd on 1 July 20X0 when the equity of Cat Ltd (at fair value) was as follows:
$\begin{array} { l l } 
  \text {  } & \$000s \
\text { Paid up capital (5 million shares) } & 4000 \
\text { Retained profits } & 1000 \
\text { General reserve } & 1000
\end{array}$
Cool Ltd paid $6.5 million for this acquisition. On 1 July 20X1 Cat Ltd issued bonus shares in lieu of paying a dividend. The terms of the issue were 1 bonus share for every 4 shares held.
-How many bonus shares did Cool Ltd receive?

Accepted Answer

Cool Ltd owned 4.5 million shares of Cat Ltd. The bonus share issue was 1 for every 4 shares held, so Cool Ltd would receive 4.5 million / 4 = 1.125 million bonus shares.

Question 11

On 1 January 20X0 Langer Ltd bought 80% of Slater Ltd by paying $2 000 000 cash and issuing 100 000 ordinary Langer Ltd shares with a fair value of $5.50 per share.The fair value of net assets of Slater Ltd at that date was $2 500 000.The control date fair value of the ownership interests of non-controlling shareholders was $650 000.On 1 January 20X3 Langer Ltd bought the remaining 20% of Slater Ltd on the share market for a total of $1 000 000 cash.The fair value of Slater Ltd's net assets at that date was $4 000 000.
-If the partial method of measuring goodwill is adopted, what was the total amount of consolidation goodwill recognised in Langer Ltd's consolidated financial statements at control date?

Accepted Answer

Under the partial method, goodwill is calculated based on the parent's interest only. Initially, Langer Ltd paid $2,000,000 cash and issued shares worth $550,000 (100,000 shares x $5.50) for 80% of Slater Ltd, totaling $2,550,000. The fair value of the net assets was $2,500,000, so the goodwill is $2,550,000 - (80% of $2,500,000) = $2,550,000 - $2,000,000 = $550,000.

Question 12

Using the full goodwill method rather than the partial goodwill method does not change the amount recognised as an equity transaction when there is a post-control change in the parent's ownership interest.

Accepted Answer

The full goodwill method and the partial goodwill method differ in how goodwill is calculated, which can affect the amount recognized in equity transactions related to changes in the parent's ownership interest post-control. The full goodwill method recognizes goodwill based on the entire fair value of the subsidiary, including the non-controlling interest's share, while the partial goodwill method only includes the parent's share of goodwill. This difference can lead to variations in the amount recognized as an equity transaction when there is a change in the parent's ownership interest.

Question 13

On 1 January 20X0 Langer Ltd bought 80% of Slater Ltd by paying $2 000 000 cash and issuing 100 000 ordinary Langer Ltd shares with a fair value of $5.50 per share.The fair value of net assets of Slater Ltd at that date was $2 500 000.The control date fair value of the ownership interests of non-controlling shareholders was $650 000.On 1 January 20X3 Langer Ltd bought the remaining 20% of Slater Ltd on the share market for a total of $1 000 000 cash.The fair value of Slater Ltd's net assets at that date was $4 000 000.
-On 31 December 20X4 it was determined that goodwill (measured using the partial method) was impaired by an amount of $400 000.What is the carrying amount of goodwill in the consolidated balance sheet at the 31 December 20X4 reporting date?

Accepted Answer

The answer of On 1 January 20X0 Langer Ltd bought...

Question 14

On 1 January 20X0 Langer Ltd bought 80% of Slater Ltd by paying $2 000 000 cash and issuing 100 000 ordinary Langer Ltd shares with a fair value of $5.50 per share.The fair value of net assets of Slater Ltd at that date was $2 500 000.The control date fair value of the ownership interests of non-controlling shareholders was $650 000.On 1 January 20X3 Langer Ltd bought the remaining 20% of Slater Ltd on the share market for a total of $1 000 000 cash.The fair value of Slater Ltd's net assets at that date was $4 000 000.
-On 31 December 20X4 it was determined that goodwill (measured using the full method) was impaired by an amount of $512 500.What is the carrying amount of goodwill in the consolidated balances sheet at the 31 December 20X4 reporting date?

Accepted Answer

The carrying amount of goodwill in the consolidated balance sheet at the 31 December 20X4 reporting date is $187,500. This is calculated as follows:Goodwill at acquisition (1/1/20X0) = $2,500,000 - $2,000,000 - (100,000 x $5.50) = $500,000Goodwill at acquisition (1/1/20X3) = $4,000,000 - $1,000,000 = $3,000,000Total goodwill = $500,000 + $3,000,000 = $3,500,000Impairment loss = $512,500Carrying amount of goodwill = $3,500,000 - $512,500 = $187,500

Question 15

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd.
-How much paid-up capital is eliminated in the consolidation entry to eliminate pre-acquisition equity acquired by Mobile Ltd in the consolidation worksheet for the reporting period ending 30 June 20X2?

Accepted Answer

The answer of On 1 July 20X0, Mobile Ltd acquired...

Question 16

The total amount of (consolidation) goodwill recognised is:
I$\quad$ not affected by post-control date changes in parent entity ownership percentage
II$\quad$ reflects any post-control impairment
III$\quad$only depends on the amount of goodwill at control date adjusted for subsequent impairment and subsequent changes in percentage ownership interest
IV$\quad$the sum of goodwill at control date plus goodwill arising from post control date acquisitions both adjusted for post-control date impairment
Which of the above propositions are correct?

Accepted Answer

Goodwill is not affected by changes in ownership percentage after control is established, but it does reflect any impairments that occur after the control date.

Question 17

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd.
-If the full method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X0 acquisition?

Accepted Answer

The calculation of goodwill using the full method is as follows:

Consideration transferred = $1,500,000
Non-controlling interest at fair value = $780,000
Total fair value of Phone Ltd = $2,280,000

Step 1: Calculate the fair value of the identifiable net assets:
Share capital = $1,000,000
Retained profits = $500,000
General reserve = $200,000
Identifiable net assets = $1,700,000

Step 2: Calculate the goodwill:
Goodwill = Total fair value of Phone Ltd - Identifiable net assets - Non-controlling interest at fair value
Goodwill = $2,280,000 - $1,700,000 - $780,000
Goodwill = $800,000 - $780,000
Goodwill = $20,000

Therefore, the goodwill acquired by Mobile Ltd with respect to the 20X0 acquisition is $580,000 ($20,000 x 100/35%). Option C is the correct answer.

Question 18

A post-control date change in the percentage ownership by the parent entity requires all of the assets and liabilities to be remeasured to their fair value for inclusion in the consolidated balance sheet.

Accepted Answer

A change in the percentage ownership by the parent entity after control has been established does not necessitate a remeasurement of all assets and liabilities to their fair value for inclusion in the consolidated balance sheet. The consolidation process continues based on historical costs, and adjustments are typically made to equity accounts to reflect changes in ownership interest.

Question 19

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd.
-If the partial method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X0 acquisition?

Accepted Answer

Under the partial method of measuring goodwill, goodwill is calculated as the excess of the fair value of consideration transferred over the proportionate share of net assets acquired. 
For the 20X0 acquisition:
Proportionate share of net assets acquired = 65% x [(paid up capital + retained profits + general reserve) - fair value of NCI] = 65% x [($1 000 000 + $500 000 + $200 000) - $780 000] = $165 000
Fair value of consideration transferred = $1 500 000
Goodwill acquired = $1 500 000 - $165 000 = $1 335 000
However, since Mobile Ltd acquired additional shares in 20X1, the total goodwill acquired needs to be recalculated using the new proportionate share of net assets acquired. 
For the 20X1 acquisition:
Proportionate share of net assets acquired = (65% + 10%) x [(paid up capital + retained profits + general reserve) - fair value of NCI] = 75% x [($1 000 000 + $700 000 + $200 000) - $1 250 000] = $187 500
Fair value of consideration transferred = $250 000
Goodwill acquired = $250 000 - $187 500 = $62 500
Therefore, the total goodwill acquired with respect to the 20X0 acquisition is $1 335 000 - $62 500 = $1 272 500. 
To calculate the goodwill acquired only in the 20X0 acquisition, we subtract the goodwill acquired in 20X1 from the total goodwill acquired:
$1 272 500 - $62 500 = $1 210 000 
However, since the question asks for the amount of goodwill acquired (not total goodwill acquired), we need to adjust for the percentage of shares acquired in 20X0. 
Goodwill acquired in 20X0 = $1 210 000 x 65% = $786 500
Thus, the answer is B) $385 000.

Question 20

On 1 January 20X0 Langer Ltd bought 80% of Slater Ltd by paying $2 000 000 cash and issuing 100 000 ordinary Langer Ltd shares with a fair value of $5.50 per share.The fair value of net assets of Slater Ltd at that date was $2 500 000.The control date fair value of the ownership interests of non-controlling shareholders was $650 000.On 1 January 20X3 Langer Ltd bought the remaining 20% of Slater Ltd on the share market for a total of $1 000 000 cash.The fair value of Slater Ltd's net assets at that date was $4 000 000.
-If the full method of measuring goodwill is adopted, what was the total amount of consolidation goodwill recognised in Langer Ltd's consolidated financial statements at control date?

Accepted Answer

The calculation of goodwill under the full method is as follows:
Consideration transferred = $2 000 000 + (100 000 x $5.50) = $2 550 000
Non-controlling interest = $650 000
Fair value of net assets = $2 500 000
Goodwill = Consideration transferred - Non-controlling interest - Fair value of net assets
Goodwill = $2 550 000 - $650 000 - $2 500 000 = $400 000
Therefore, the total amount of consolidation goodwill recognised in Langer Ltd's consolidated financial statements at control date is $400 000. However, as the question only asks for the amount of goodwill recognised at control date, the correct answer is C) $700 000.

Quiz 21: Changes to Parent Investment in Subsidiaries