Portia Ltd. acquired 80% of Siro Ltd. on December 31, 20X0. At the acquisition date, Siro's net assets totalled $15,000. Portia uses the cost method to record the acquisition and consolidates using the entity method. At December 31, 20X1, the separate-entity financial statements showed the following:
- During 20X1, Siro sold $7,000 of goods, with a gross margin of 40%, to Portia. At the end of 20X1, $3,000 of the goods were still in Portia's inventory. What amount should be shown on the consolidated statement of financial position for the non-controlling interest at December 31, 20X1?

Question

Portia Ltd. acquired 80% of Siro Ltd. on December 31, 20X0. At the acquisition date, Siro's net assets totalled $15,000. Portia uses the cost method to record the acquisition and consolidates using the entity method. At December 31, 20X1, the separate-entity financial statements showed the following: 
- During 20X1, Siro sold $7,000 of goods, with a gross margin of 40%, to Portia. At the end of 20X1, $3,000 of the goods were still in Portia's inventory. What amount should be shown on the consolidated statement of financial position for the non-controlling interest at December 31, 20X1?

Quizplus · Accepted Answer

The non-controlling interest should be shown for the amount of the gross margin on the unsold goods. The gross margin is 40%, and the unsold goods are $3,000, so the non-controlling interest should be shown for $3,000 x 40% = $1,200.