Acquirer: Parent Co.

Acquiree: Subsidiary Co.

Date of Acquisition: 31 December 20x0

Subsidiary Co
Statement of Financial Position
As at 31 December 20x0 (date of acquisition)

Book Value Fair Value

Fixed assets, net $ 600,000 $ 750,000
Current Assets:
Inventory $ 40,000 $ 50,000
Accounts receivable $ 100,000 $ 70,000
Cash $ 20,000 $ 20,000
$ 160,000 $ 140,000

Less Current Liabilities:

Accounts payable $ 80,000 $ 80,000
Short-term loans $ 110,000 $ 110,000
$ 190,000 $ 190,000
Net current assets/liabilities $ (30,000) $ (50,000)
$ 570,000 $ 700,000

Shareholders' equity
Share capital $ 320,000
Retained Earnings $ 250,000
$ 570,000 $ 700,000

Income Statement and Partial Statement of Changes in Equity

For Year Ended 31 December 20x1

Parent Co Subsidiary Co
Net profit before tax (including dividend income) $ 550,000 $ 100,000
Less tax expense $ 110,000 $ 20,000
Net profit after tax $ 440,000 $ 80,000
Less dividend declared $ 100,000 $ 24,000
Profit retained for the year $ 340,000 $ 56,000
Retained earnings, 1 January $ 1,000,000 $ 250,000
Retained earnings, 31 December $ 1,340,000 $ 306,000

a. Parent paid $1,000,000 for an 80% stake in Subsidiary on 31 December 20x0.

Fair value of NCI was $250,000 at acquisition date that was proportional to the
consideration transferred by Parent Co.
b. On 31 December 20x1, total goodwill was assessed to be impaired to the extent of
$50,000
c. There were no intragroup transactions other than parent Co's investment in
Subsidiary Co and dividends declared by S Co
d. Information relating to "undervalued" and "overvalued" identifiable net assets is
as follows
i. Remaining useful life of undervalued fixed assets as at 31 December 20x0 was
ten years
ii. Undervalued inventory was sold in 20x1
iii. Overvalued accounts receivable was written down for a potential bad debt. The
debt was confirmed bad in 20x1 and written off in subsidiary's book in 20x1
e. Assume a tax rate of 20%. Recognize tax effects on fair value adjustments

Required:
1. What is the goodwill arising from the applications of IFRS 3?
2. Prepare the consolidation adjustments for the year ended in 31 December 20x1
3. Perform an analytical check on the NCI balance as at 31 December 20x1
4. Show the consolidation adjustments that need to be passed in 20x2 to re-enact the
consolidation adjustments of 20x1
5. Prepare the conslidated income statement for the year ended 31 December 20x1
1. What is the goodwill arising from the applications of IFRS 3?

Investment cost [80%] $ 1,000,000

NCI {20%] $ 250,000
Total transferred [100%] $ 1,250,000
Book value of net assets/equity $ 570,000
Book value and fair value differential $ 680,000
Allocation of FV over BV
Fixed Assets $ 150,000
Inventory $ 10,000
Accounts receivable $ (30,000)
$ 130,000
Deferred tax liability (20%) $ 26,000
$ 104,000
Goodwill $ 576,000
Goodwill attributable to NCI $ 115,200

2. Prepare the consolidation adjustments for the year ended in 31 December 20x1

CJE 1: Elimination of investment entry (20x1)

Dr Share capital $ 320,000
Dr Retained earnings $ 250,000
Dr Fixed assets $ 150,000
Dr Inventory $ 10,000
Dr Goodwill $ 576,000
Cr Investment in S Co. $ 1,000,000
Cr NCI $ 250,000
Cr Accounts receivable $ 30,000
Cr Deferred tax liability $ 26,000

CJE 2: Impairment of goodwill (20x1)

Dr Impairment loss of goodwill $ 50,000
Cr Goodwill $ 50,000

CJE 3: Elimination of dividend declared (20x1)

Dr Dividend Income $ 19,200
Dr NCI $ 4,800
Cr Dividend declared $ 24,000

CJE 4: Depreciation Adjustment (20x1)

Dr Depreciation expense $ 15,000
Cr Accumulated depreciation $ 15,000

Dr Deferred tax liability $ 3,000

 Cr Tax expense $ 3,000

CJE 5: Sale of Undervalued Inventory (20x1)

Dr Cost of good sold $ 10,000
Cr Inventory $ 10,000

Dr Deferred tax liability $ 2,000

Cr Tax expense $ 2,000

CJE 6: Written down of accounts receivable (20x1)

Dr Accounts receivable $ 30,000
Cr Bad debt expense $ 30,000

Dr Tax expense $ 6,000

Cr Deferred tax liability $ 6,000

CJE 7: Attributable Net Profit After Tax to NCI (20x1)

Dr Income to NCI $ 6,800
Cr NCI $ 6,800

NPAT $ 80,000
Current adjustment
Depreciation adj. (CJE 4) $ (15,000)
COGS adj. (CJE 5) $ (10,000)
Written down of A/R adj. (CJE 6) $ 30,000
$ 5,000
Tax expense $ (1,000)
$ 4,000
Impairment loss of goodwill (CJE 2) $ (50,000)
Adjusted NPAT $ 34,000
NCI shares @20% $ 6,800

3. Perform an analytical check on the NCI balance as at 31 December 20x1

CJE 1 $ 250,000
CJE 3 $ (4,800)
CJE 7 $ 6,800
Balance NCI (31/12/20x1) $ 252,000

Hak NCI (20%)

Book value of net assets (31/12/20x1) $ 626,000 $ 125,200

Share of FV&BV Differential

Fixed assets $ 135,000 $ 27,000
 Deferred tax liability $ (27,000) $ (5,400)
$ 108,000 $ 21,600
Share of Identifiable Net Assets $ 233,200 $ 146,800
Goodwill attributable to NCI $ 115,200
NCI share of goodwill impairment $ (10,000)
Balance NCI (31/12/20x1) $ 252,000

Hak NCI = Hak NCI atas net aset teridentifikasi (%NCI x Net aset teridentifikasi) + Hak NCI atas Goodwill

4. Show the consolidation adjustments that need to be passed in 20x2 to re-enact the consolidation adjustments of 20x1

CJE 1: Elimination of investment entry (20x2)

Dr Share capital $ 320,000
Dr Retained earnings $ 250,000
Dr Fixed assets $ 150,000
Dr Inventory $ 10,000
Dr Goodwill $ 576,000
Cr Investment in S Co. $ 1,000,000
Cr NCI $ 250,000
Cr Accounts receivable $ 30,000
Cr Deferred tax liability $ 26,000

CJE 2: Impairment of goodwill (Last/past year 20x1)

Dr Opening Retained earnings $ 40,000

Dr NCI $ 10,000
Cr Goodwill $ 50,000

CJE 4: Depreciation Adjustment (Last/past year 20x1)

Dr Opening Retained earnings $ 12,000
Dr NCI $ 3,000
Cr Accumulated depreciation $ 15,000

Dr Deferred tax liability $ 3,000

Cr Opening Retained Earnings $ 2,400
Cr NCI $ 600

CJE 5: Depreciation Adjustment (current year 20x2)

Dr Depreciation expense $ 15,000
Cr Accumulated depreciation $ 15,000

Dr Deferred tax liability $ 3,000

Cr Tax expense $ 3,000

CJE 5: Sale of Undervalued Inventory (past year 20x1)

Dr Opening Retained Earnings $ 2,000
Dr NCI $ 8,000
Cr Inventory $ 10,000

Dr Deferred tax liability $ 2,000

Cr Opening Retained Earnings $ 1,600
Cr NCI $ 400

CJE 6: Written down of accounts receivable (past year 20x1)

Dr Accounts receivable $ 30,000
Cr Opening Retained Earnings $ 24,000
Cr NCI $ 6,000

Dr Opening Retained Earnings $ 4,800

Dr NCI $ 1,200
Cr Deferred tax liability $ 6,000

CJE 7: Allocation of change in R/E to NCI

Dr Retained Earnings $ 11,200
Cr NCI $ 11,200

R/E at acquisition date (1/1/20x1) $ 250,000

R/E at beginning of current year (1/1/20x2) $ 306,000
$ 56,000
Allocation to NCI $ 11,200
 5. Prepare the conslidated income statement for the year ended 31 December 20x

Consolidated Income Statem

For Year Ended 31 December

Net profit before tax (including dividend income)

Less tax expense

Net profit after tax

Less income to NCI
Less dividend declared
Profit retained for the year
Retained earnings, 1 January
Retained earnings, 31 December

Book value of fixed assets $ 600,000

Fair value of fixed assets $ 750,000
Differential $ 150,000
Remaining useful lifes 10 years
Depreciation adj. $ 15,000

Book value inventory $ 40,000

Fair value inventory $ 50,000
Differential $ 10,000
on adjustments of 20x1
t for the year ended 31 December 20x1

Consolidated Income Statement

For Year Ended 31 December 20x1

Consolidation Entries
Parent Co Subsidiary Co Dr Cr Consolidation
$ 550,000 $ 100,000 $ 50,000 CJE 2 $ 585,800
$ 19,200 CJE 3
$ 15,000 CJE 4
$ 10,000 CJE 5
CJE 6 $ 30,000

$ 110,000 $ 20,000 CJE 4 $ 3,000 $ 131,000

CJE 5 $ 2,000
$ 6,000 CJE 6
$ 440,000 $ 80,000 $ 454,800
$ 6,800 CJE 7 $ 6,800
$ 100,000 $ 24,000 CJE 3 $ 24,000 $ 100,000
$ 340,000 $ 56,000 $ 348,000
$ 1,000,000 $ 250,000 $ 250,000 CJE 1 $ 1,000,000
$ 1,340,000 $ 306,000 $ 357,000 $ 59,000 $ 1,348,000
On January 20x4, P Co acquired 90% of S Co. Details of S Co as at the date of acquisition
are as follows

Share capital $ 1,000,000

Retained earnings as at 1 January 20x4 $ 150,000
$ 1,150,000

Fair value was different from book value of the following assets of S Co

Fair Value Book Value

Fixed assets $ 900,000 $ 800,000

Remaining useful life for the fixed assets as at acquisition date was five years and residual
value of the fixed assets was zero. Fair value of NCI as at acquisition date was $345,000.
The financial statement of P Co and S Co for the year ended 31 December 20x5 are shown
below. Assume a tax rate of 20% throughout.

Income Statement and Partial Statement of Changes in Equity

For Year Ended 31 December 20x5
P Co S Co
Sales $ 10,000,000 $ 3,500,000
Cost of Sales $ (7,820,000) $ (1,200,000)
Gross profit $ 2,180,000 $ 2,300,000
Operating Expense $ (800,000) $ (560,000)
Operating Profit $ 1,380,000 $ 1,740,000
Dividen Income from S $ 54,000
Interest Income - S and Bank $ 100,000
Interest expense to P $ (90,000)
Profit before tax $ 1,534,000 $ 1,650,000
Tax at 20% $ (306,800) $ (330,000)
Profit after tax $ 1,227,200 $ 1,320,000
Dividen declared $ (120,000) $ (60,000)
Profit retained $ 1,107,200 $ 1,260,000
Retained earnings, 1 January $ 1,300,000 $ 400,000
Retained earnings, 31 December $ 2,407,200 $ 1,660,000

Statement of Financial Position

As at 31 December 20x5
P Co S Co
Investment in S Co $ 3,200,000
Fixxed Asset $ 4,500,000 $ 2,000,000
Loan Receivable from S Co $ 500,000
Inventory $ 1,250,000 $ 670,000
Account receivable $ 1,300,000 $ 500,000
Other receivable $ 200,000 $ 120,000
Cash $ 320,000
$ 11,270,000 $ 3,290,000

Share capital $ 3,000,000 $ 1,000,000

Retained earnings $ 2,407,200 $ 1,660,000
Loan Payable to P $ 500,000
Account payable $ 5,742,800 $ 80,000
Other payable $ 120,000 $ 50,000
$ 11,270,000 $ 3,290,000

Required:
1. Prepare the consolidation adjustments for the year ended 31 December 20x5
2. Prepare the consolidation worksheets for the year ended 31 December 20x5
3. Reconcile the NCI interest' balance as at 31 December 20x5
1. Prepare the consolidation adjustments for the year ended 31 December 20x5

1/1/20x4 Investment cost [90%] $ 3,200,000

NCI [10%] $ 345,000
Total transferred [100%] $ 3,545,000
BV of equity S Co $ 1,150,000
Differential $ 2,395,000
Allocation of FV and BV differential
Fixed assets $ 100,000
DTL (20%) $ (20,000)
$ 80,000
Goodwill $ 2,315,000
Goodwill attributable to NCI (10%) $ 222,000

CJE 1: Elimination of investment in S Co (20x5)

31/12/20x5 Share capital $ 1,000,000
Retained earnings $ 150,000
Fixed assets $ 100,000
Goodwill $ 2,315,000
Investment in S Co $ 3,200,000
NCI $ 345,000
DTL $ 20,000
$ 3,565,000 $ 3,565,000

CJE 2: Depreciation adjustment (past year 20x4)

31/12/20x5 Opening retained earnings $ 18,000
NCI $ 2,000
Accumulated depreciation - FA $ 20,000

Fair value of fixed assets $ 900,000

Book value of fixed assets $ 800,000
Differential $ 100,000
Remaining useful life 5 years
Depreciation adjustment $ 20,000 /years

31/12/20x5 Deferred tax liability $ 4,000

Opening retained earnings $ 3,600
NCI $ 400

CJE 3: Depreciation Adjustment (current year 20x5)

31/12/20x5 Depreciation expense $ 20,000
Accumulated depreciation - FA $ 20,000

31/12/20x5 Deffered tax liability $ 4,000

 Tax expense $ 4,000

CJE 4: Elimination of dividend

31/12/20x5 Dividend income from S $ 54,000
NCI $ 6,000
Dividend declared $ 60,000

CJE 5: Elimination of receivables from S Co

31/12/20x5 Loan payable to P $ 500,000
Loan Receivables from S Co $ 500,000

CJE 6: Elimination of interest expense to P

31/12/20x5 Interest Income - S $ 90,000
Interest expense to P $ 90,000

CJE 7: Allocation of change in retained earnings to NCI

31/12/20x5 Opening retained earnings $ 25,000
NCI $ 25,000

Retained earnings at acquisition date $ 150,000

Retained earnings at beginning of current year $ 400,000
Differential $ 250,000
Allocation to NCI (10%) $ 25,000

CJE 8: Attributable net profit to NCI

31/12/20x5 Income to NCI $ 130,400
NCI $ 130,400

NPAT of S Co (20x5) $ 1,320,000

Current adjustment
Depreciation expense $ (20,000)
$ (20,000)
Tax expense $ 4,000
$ (16,000)
Adjusted NPAT of S Co (20x5) $ 1,304,000
Allocation to NCI (10%) $ 130,400
2. Prepare the consolidation worksheets for the year ended 31 December 20x5

Income Statement and Partial Statement of Changes in Equity Consolidation Wo

For Year Ended 31 December 20x5
Consolidation entries
P Co S Co Dr
Sales $ 10,000,000 $ 3,500,000
Cost of Sales $ (7,820,000) $ (1,200,000)
Gross profit $ 2,180,000 $ 2,300,000
Operating Expense $ (800,000) $ (560,000) $ 20,000
Operating Profit $ 1,380,000 $ 1,740,000
Dividen Income from S $ 54,000 $ 54,000
Interest Income - S and Bank $ 100,000 $ 90,000
Interest expense to P $ (90,000)
Profit before tax $ 1,534,000 $ 1,650,000
Tax at 20% $ (306,800) $ (330,000)
Profit after tax $ 1,227,200 $ 1,320,000
Income to NCI $ 130,400

Dividen declared $ (120,000) $ (60,000)

Profit retained $ 1,107,200 $ 1,260,000
Retained earnings, 1 January $ 1,300,000 $ 400,000 $ 150,000
$ 18,000
$ 25,000
Retained earnings, 31 December $ 2,407,200 $ 1,660,000 $ 487,400

Statement of Financial Position Consolidation Worksheet

As at 31 December 20x5
Consolidation entries
P Co S Co Dr
Investment in S Co $ 3,200,000
Fixed Assets (Net) $ 4,500,000 $ 2,000,000 $ 100,000
Accumulated Depreciation - FA

Fixed Assets (Net)

Loan Receivable from S Co $ 500,000
Inventory $ 1,250,000 $ 670,000
Account receivable $ 1,300,000 $ 500,000
Other receivable $ 200,000 $ 120,000
Cash $ 320,000
Goodwill $ 2,315,000
Total Assets $ 11,270,000 $ 3,290,000

Share capital $ 3,000,000 $ 1,000,000 $ 1,000,000

Retained earnings $ 2,407,200 $ 1,660,000 $ 487,400
NCI
$ 2,000
$ 6,000

Loan Payable to P $ 500,000 $ 500,000

Account payable $ 5,742,800 $ 80,000
DTL
$ 4,000
$ 4,000

Other payable $ 120,000 $ 50,000

$ 11,270,000 $ 3,290,000

3. Reconcile the NCI interest' balance as at 31 December 20x5

1. NCI 31/12/20x5 (ending balance from worksheet)

2. Analytical Check NCI 31/12/20x5)

NCI interest (10%)
Equity S Co. (31/12/20x5) $ 2,660,000 $ 266,000
Change in FV and BV differential
Fixed Assets $ 60,000
DTL $ (12,000)
$ 48,000 $ 4,800
Goodwill attributable to NCI $ 222,000
NCI (31/12/20x5) $ 492,800
n Equity Consolidation Worksheet
er 20x5
Consolidation entries
Cr Consolidation
$ 13,500,000
$ (9,020,000)
$ 4,480,000
CJE 3 $ (1,380,000)
$ 3,100,000
CJE 4 $ -
CJE 6 $ 10,000
CJE 6 $ 90,000 $ -
$ 3,110,000
CJE 3 $ 4,000 $ (632,800)
$ 2,477,200
CJE 8 $ (130,400)
$ 2,346,800
CJE 4 $ 60,000 $ (120,000)
$ 2,226,800
CJE 1 $ 1,510,600
CJE 2 $ 3,600
CJE 7
WS 1 $ 157,600 $ 3,737,400

dation Worksheet
x5
Consolidation entries
Cr Consolidation
CJE 1 $ 3,200,000 $ -
CJE 1 $ 6,600,000
CJE 2 $ 20,000 $ (40,000)
CJE 3 $ 20,000
$ 6,560,000
CJE 5 $ 500,000 $ -
$ 1,920,000
$ 1,800,000
$ 320,000
$ 320,000
CJE 1 $ 2,315,000
$ 13,235,000

CJE 1 $ 3,000,000
WS 1 $ 157,600 $ 3,737,400
CJE 1 $ 345,000 $ 492,800
CJE 2 $ 400
CJE 4
CJE 7 $ 25,000
CJE 8 $ 130,400
CJE 5 $ -
$ 5,822,800
CJE 1 $ 20,000 $ 12,000
CJE 2
CJE 3

$ 170,000
$ 13,235,000

$ 492,800