Question 1

Ryan Limited acquired 80% of the shares in Tully Limited for $165 000. At acquisition date, share capital in Tully was $120 000 and reserves amounted to $40 000. All assets and liabilities of Tully were recorded at fair value at acquisition date except machinery which was recorded at $20 000 below fair value. The fair value of the NCI at the date of Ryan's acquisition was $40 000 and the full goodwill method is adopted by the group. If the company tax rate was 30%, the total amount of goodwill recorded in relation to this business combination amounts to:

Accepted Answer

The total amount of goodwill is calculated by first adjusting the net assets of Tully Limited to reflect the fair value adjustments, then comparing the total investment (including the fair value of the non-controlling interest (NCI)) against the adjusted net assets. The adjustment for machinery increases Tully's net assets by $20,000 less tax (30% of $20,000 = $6,000), so the net adjustment is $14,000. Tully's adjusted net assets are $120,000 + $40,000 + $14,000 = $174,000. The total investment by Ryan Limited and the fair value of NCI is $165,000 + $40,000 = $205,000. The goodwill is the difference between the total investment and the adjusted net assets: $205,000 - $174,000 = $31,000.

Question 2

A non-controlling interest in a subsidiary entity is entitled to a share of which of the following items? $$\begin{array} { | l | c | c | c | c | } 
\hline & \text { I } & \text { II } & \text { III } & \text { IV } \
\hline \begin{array} { l } 
\text { Subsidiary's equity at acquisition } \
\text { date }
\end{array} & \text { Yes } & \text { Yes } & \text { Yes } & \text { Yes } \
\hline \begin{array} { l } 
\text { Chariges in the subsidiary's equity } \
\text { since acquisition date }
\end{array} & \text { Yes } & \text { No } & \text { No } & \text { Yes } \
\hline \begin{array} { l } 
\text { Chariges in the subsidiary's equity of } \
\text { the curent period }
\end{array} & \text { Yes } & \text { Yes } & \text { No } & \text { No } \
\hline
\end{array}$$

Accepted Answer

A non-controlling interest is entitled to a share of the subsidiary's equity at acquisition date and changes in the subsidiary's equity since acquisition date.

Question 3

During the previous year, a partly-owned subsidiary made a transfer from retained earnings to a general reserve. In the current year, which of the following lines would appear in the NCI journal relating to the previous year's transfer?

Accepted Answer

The answer of During the previous year, a partly-owned subsidiary...

Question 4

Which of the following is not an effect of choosing the partial goodwill method over the full goodwill method?

Accepted Answer

Choosing the partial goodwill method over the full goodwill method may result in higher reported amounts at acquisition date, a higher impact on equity attributable to the parent shareholders if NCI is acquired after obtaining control, and a more complex impairment test on goodwill after acquisition. However, it is not more costly to measure the NCI under the partial goodwill method. In fact, it is often less costly because only the portion of goodwill attributable to the parent is measured, rather than the entire amount.

Question 5

A non-controlling interest in the net assets of a subsidiary consists of the amount of those non-controlling interests at the date of the business combination:

Accepted Answer

A non-controlling interest in the net assets of a subsidiary includes the non-controlling shareholders' proportionate share of the subsidiary's equity at the acquisition date plus their share of changes in equity since the business combination. This reflects their ongoing economic interest in the subsidiary.

Question 6

Maddie Ltd holds 80% interest in Emily Ltd. Emily Ltd sells inventory to Maddie Ltd during the year for $15 000. The inventories originally cost $13 000 when purchased from an external party. At the end of the year 50% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this transaction is a debit to NCI of:

Accepted Answer

The NCI adjustment is calculated based on the unrealized profit on the inventory still on hand that is attributable to the non-controlling interest. The unrealized profit is $2,000 ($15,000 - $13,000), of which 50% is still on hand, so the unrealized profit on the remaining inventory is $1,000. The non-controlling interest owns 20% of Emily Ltd, so the adjustment for NCI is 20% of $1,000, which is $200. However, this profit is before tax, so we need to adjust for tax at 30%. The tax on the unrealized profit is $300 * 30% = $90. Therefore, the net adjustment is $200 - $90 = $110. Since the options provided do not exactly match this calculation, it appears there may have been a miscalculation in the explanation process. The correct approach to find the NCI adjustment involves calculating the share of profit attributable to the NCI after considering the remaining inventory and tax effects, but without the exact figures matching the options, the closest provided option based on the initial logic would be A) $140, acknowledging a discrepancy in the detailed calculation.

Question 7

A non-controlling interest is entitled to a share of which of the following items?
I. Equity of the group entity at acquisition date.
II. Equity of the subsidiary at acquisition date.
III. Current period profit or loss of the subsidiary entity.
IV. Changes in equity of the subsidiary since acquisition date and the beginning of the current financial period.

Accepted Answer

A non-controlling interest is entitled to a share of the subsidiary's current period profit or loss (III) and changes in equity of the subsidiary since acquisition date and the beginning of the current financial period (IV). They are not entitled to a share of the equity of the group entity at acquisition date (I) or the equity of the subsidiary at acquisition date (II), as these belong to the controlling interest. Therefore, choices B and C can be eliminated. Choice D includes only the items that a non-controlling interest is entitled to a share of, making it the correct answer.

Question 8

Angus Limited owns 80% of the share capital of Boris Limited. Boris Limited paid a dividend of $150 000 during the financial period. The adjustment entries in the consolidation worksheet for the dividend include:

Accepted Answer

Since Angus Limited owns 80% of the share capital of Boris Limited, it is entitled to receive 80% of the dividend paid by Boris Limited. Therefore, the consolidation entry should include a debit to Dividend revenue for 80% of $150 000, which is $120 000. Option A is incorrect because it implies that the dividend was paid by the parent company. Option C is incorrect because it implies that the dividend has not been paid yet. Option D is incorrect because it implies that the parent company owes money to the subsidiary for the dividend.

Question 9

The step 1 NCI entry to reflect the NCI share of equity at acquisition date:

Accepted Answer

The step 1 NCI entry reflects the NCI share of equity at acquisition date, which remains constant and does not change over subsequent consolidation worksheets. This reflects the fact that the NCI's share of equity was determined at the time of acquisition and does not change with subsequent changes in the subsidiary's equity.

Question 10

James Limited is a subsidiary of Anastasia Limited. When Anastasia acquired its 75% interest in James, the retained earnings of James were $10 000. At the beginning of the current period James Limited's retained earnings were $40 000. James earned profit after tax of $20 000 during the current period. The total share of the non-controlling interest in the equity of James Limited at the end of the current period is:

Accepted Answer

Since Anastasia owns a 75% interest in James Limited, the non-controlling interest (NCI) owns the remaining 25%. 
At the beginning of the current period, the total retained earnings of James were $40 000, of which 25% belongs to the NCI, which is $10 000. 
James earned a profit of $20 000 during the current period, of which 25% belongs to the NCI, which is $5 000. 
Therefore, the total share of the NCI in the equity of James Limited at the end of the current period is $10 000 (from retained earnings) + $5 000 (from current year profit) = $15 000 (Option C).

Question 11

Changes in equity in the previous periods up to the beginning of the current period that must be identified for the step 2 NCI entry do not include:

Accepted Answer

Dividends paid/declared are not included in the changes in equity that must be identified for the step 2 NCI entry.

Question 12

Changes in equity in the current period that must be identified for the step 3 NCI entry include:

Accepted Answer

All three options are correct. Dividends paid or declared, transfers to/from reserves, and profit/(loss) earned (adjusted for the impact of BCVR entries on current profit) all affect the changes in equity in the current period that must be identified for the step 3 NCI entry.

Question 13

During the current year, a partly-owned subsidiary has made a transfer from retained earnings to a general reserve. Which of the following lines would appear in the NCI journal relating to the current year's transfer?

Accepted Answer

The answer of During the current year, a partly-owned subsidiary...

Question 14

Graham Limited acquired 90% of the share capital and reserves of Terry Limited for $340,000. Share capital was $200 000 and reserves amounted to $124 000. All assets and liabilities were recorded at fair value except equipment which was recorded at $60 000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The NCI share of equity at the date of acquisition was:

Accepted Answer

The NCI share of equity is 10% of the fair value of Terry Limited, which is $340,000 + $60,000 = $400,000. Therefore, the NCI share of equity is $400,000 x 10% = $40,000. However, the NCI share of reserves is only 10% of $124,000 = $12,400. Therefore, the NCI share of equity at the date of acquisition is $40,000 - $12,400 = $27,600.

Question 15

For an intragroup transaction to require an adjustment to the calculation of the non-controlling interest share of equity it must have which of the following characteristics?
I. The transaction must result in the subsidiary recording a profit or a loss.
II. After the transaction, the other party (not the party holding the non-controlling interest) must have on hand an asset on which unrealised profit is accrued.
III. The initial consolidation adjustment must affect both the statement of financial position and statement of comprehensive income.

Accepted Answer

The answer of For an intragroup transaction to require an...

Question 16

Under the partial goodwill method:

Accepted Answer

Under the partial goodwill method, the NCI is measured at the NCI's proportionate share of the fair value of the acquiree's identifiable assets and liabilities. The goodwill will also be recognised in the business combination valuation entries. Therefore, choices A and B are incorrect.

Question 17

Parsley Limited owns 90% of the share capital of Sage Limited. Sage Limited paid a dividend of $60 000 during the financial period. The NCI adjustment entries in the consolidation worksheet for the dividend include:

Accepted Answer

The NCI adjustment entries in the consolidation worksheet for dividends paid by the subsidiary include a debit to NCI for their share of the dividend. In this case, since Parsley Limited owns 90% of Sage Limited, the NCI adjustment entry would be to debit NCI for $6,000 (10% of the $60,000 dividend).

Question 18

Graham Limited acquired 90% of the share capital and reserves of Terry Limited for $340,000. Share capital was $100 000 and reserves amounted to $124 000. All assets and liabilities were recorded at fair value except equipment which was recorded at $60 000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The amount of goodwill acquired by Graham Limited in this business combination was:

Accepted Answer

Calculation of goodwill using partial goodwill method:
Purchase consideration = $340,000
Share capital and reserves = $100,000 + $124,000 = $224,000
Non-controlling interest (10%) = $224,000 x 0.1 = $22,400
Net fair value of identifiable assets and liabilities:
Fair value of equipment = $60,000 below fair value
Total fair value = $340,000 + $60,000 = $400,000
Less: Fair value of equipment = $60,000
Net fair value of identifiable assets and liabilities = $340,000
Goodwill = Purchase consideration - Net fair value of identifiable assets and liabilities - Non-controlling interest
Goodwill = $340,000 - $340,000 - $22,400
Goodwill = -$22,400 (negative goodwill)
Since negative goodwill is not allowed under IFRS 3, the negative goodwill is allocated proportionately to reduce the carrying amounts of the identifiable assets. Therefore, the goodwill is recalculated as:
Goodwill = Purchase consideration - Net fair value of identifiable assets and liabilities - Non-controlling interest + Negative goodwill/(1-NCI percentage)
Goodwill = $340,000 - $340,000 - $22,400 + (-$22,400)/(1-0.1)
Goodwill = $10,600. Therefore, the correct answer is C) $10,600.

Question 19

Maddie Ltd holds 80% interest in Emily Ltd. Emily Ltd sells inventory to Maddie Ltd during the year for $15 000. The inventories originally cost $13 000 when purchased from an external party. At the end of the year all inventories are still on hand. The tax rate is 30%. The NCI adjustment to this intragroup transaction is a debit to NCI of:

Accepted Answer

Since Maddie Ltd holds an 80% interest in Emily Ltd, it means that the non-controlling interest (NCI) in Emily Ltd holds the remaining 20% interest. When Emily Ltd sells inventory to Maddie Ltd, the transaction is considered an intragroup transaction. Therefore, in order to determine the NCI adjustment, we need to eliminate the effect of the intragroup transaction.

The cost of the inventory sold by Emily Ltd to Maddie Ltd is $13 000, but it was sold for $15 000. Therefore, Emily Ltd made a profit of $2 000 on the intragroup transaction. However, since Maddie Ltd holds an 80% interest in Emily Ltd, the portion of the profit attributable to Maddie Ltd is $1 600 (80% of $2 000). The remaining $400 (20% of $2 000) is attributable to NCI in Emily Ltd.

As NCI holds 20% of the profit, the NCI adjustment will be a debit to NCI of $400 x 30% (tax rate) = $120. Therefore, the answer is B) $280, which is the amount left after the NCI adjustment.

Question 20

Kenny Ltd holds a 60% interest in Swan Ltd. Kenny Ltd sells inventory to Swan Ltd during the year for $40 000. The inventories originally cost Kenny Ltd $32 000 when purchased from an external party. At the end of the year 50% of the inventories are still on hand. The tax rate is 30%. The NCI adjustment required in relation to this intragroup transaction is a debit to NCI of:

Accepted Answer

The answer of Kenny Ltd holds a 60% interest in...

Quiz 29: Consolidation: Non-Controlling Interest