Prism Co acquired 80% of the stock of Sapphire Co for $300,000 on 1 January 20x

At acquisition date, Sapphire reported retained earnings of $150,000.

The excess of Prism Co's acquisition cost over its share of Sapphire's book value
was assigned to buildings and equipment that had a remaining life of ten years at
acquisition date and deffered tax liability on the undervalued building and equipm
The purchase consideration paid by Prism Co was proportional to Prims's share of
vair value of Sapphire Co as an entity. NCI are to be measured at its share of fair v
of Sapphire Co as at acquisition date. The financial statement of two companies fo
year ended 31 Desember 20x9 are shown below. Investment in Sapphire Co was c

Statements of Financial Position

As at 31 December 20x9

Prism
Sales 1,000,000
Cost of goods sold (640,000)
Dividend income 16,000
Depreciation expense (100,000)
Interest expense (72,000)
Tax and other expenses (44,000)
Profit retained 160,000
Retained earnings, 1 January 580,000
Dividend declared (40,000)
Retained earnings, 31 December 700,000

Cash and receivable 620,000

Inventory 640,000
Land 260,000
Buildings and equipment, cost 1,500,000
Investment in Sapphire, cost 300,000
Debits 3,320,000

Accumulated depreciation 1,000,000

Payable 1,220,000
Share capital 400,000
Retained earnings 700,000
Credits 3,320,000

On 1 January 20x9, Prism Co held inventory purchased from Sapphire Co during 2

which had been manufactured by Sapphire at a cost of $10,000. During 20x9, Sap
costing $40,000 to Prism Co for $60,000. Prism sold the inventory on hand at the
but continued to hold 40% of its 20x9 purchases from Sapphire on 31 December
2
 Required
1 Prepare all necessary consolidation elimination and adjustment entries for the ye
2 Prepare the consolidation worksheets for the year ended 31 December 20x9
3 Perform an alaytical check on the NCI balance at 31 December 20x9
4 Determine the following consolidated amounts as at 31 December 20x9
analytica in your consolidation worksheets in Part 3
a) Inventory
b) Buildings and equipment, net of accumulated depreciation
c) Retained earnings

Jawaban

REQUIRED 1 - Consolidation entries

All excess acquisition cost by Prism Co assigned to FV differential => Has share of FV diffe
NCI measured at its share of fair value as at acquisition date => Has share of FV differenti
Hence, no goodwill in this question

Investment by Prism in Sapphire (80%) 300,000

Share of NCI in Sapphire (20%) 75,000
Total Consideration paid by Prism & NCI in Sapphire 375,000
Less: Share Capital of Sapphire at acquisition date -200,000
Less: Retained Earnings of Sapphire at acquisition date -150,000
FV Differential (80%) 25,000
FV Differential (100%) 31,250
Deferred Tax Liability (20% Tax Rate) 6,250

CJE1 - Eliminate investment in Sapphire

Dr Share Capital 200,000
Dr Retained Earnings 150,000
Dr Equipment & Building 31,250
Cr Deferred Tax Liability
Cr Investment in Sapphire
Cr NCI (B/S)
381,250

CJE2 - Allocation of prior year profits to NCI (B/S)

Dr Opening Retained Earnings 30,000
Cr NCI (B/S)

CJE 3 - Adjust for prior year depreciation of excess FV of building

Dr NCI (B/S) 1,250
Dr Opening Retained Earnings 5,000
Cr Accumulated Depreciation

CJE 4 - Tax effect of CJE 3

Dr Deferred Tax Liability 1,250
Cr NCI (B/S)
Cr Opening Retained Earnings

CJE 5 - Adjust for current year depreciation of excess FV of building

Dr Depreciation Expense 3,125
Cr Accumulated Depreciation

CJE 6- Tax effect of CJE 5

Dr Deferred Tax Liability 625
Cr Income Tax Expense

CJE 7 - Eliminate dividends declared by Sapphire

Dr Dividend Income 16,000
Dr NCI (B/S) 4,000
CR Dividends Declared

CJE 8 - Unrealised profit in inventory held in prior year is subsequently realised in current
Dr Opening Retained Earnings 4,000
Dr NCI (B/S) 1,000
Cr Cost of Sales

CJE 9 - Tax effect of CJE 8

Dr Income Tax Expense 1,000
Cr Opening retained earnings
Cr NCI (B/S)

CJE 10 - Eliminate upstream sale by Sapphire to Prism

Dr Sales 60,000
Cr Cost of Sales
Cr Inventory

CJE 11 - Tax effect of CJE 10

Dr Deferred Tax Asset 1,600
Cr Income Tax Expense

Subsidiary Sapphire's 100% net profit after tax for 20X9 60,000
Less: Depreciation of excess FV differentiation -3,125

Add: Tax Expense 625

Add: Cost of Sales 5,000
Less: Tax Expense -1,000
Less: Unearned profit -8,000
Add: Tax Expense 1,600
Adjusted net profit after tax 55,100
Profit (NCI) - 20% 11,020

CJE 12 - Allocate Sapphire's Profits to NCI (B/S)

Dr NCI (P/L) 11,020
Cr NCI (B/S)

REQUIRED 2 - CONSOLIDATION WORKSHEET

Income Statement and Partial Statement of Changes in Equity as 31 December 20x9

PRISM
Sales 1,000,000
Cost of Sales -640,000

Dividend income 16,000

Depreciation expense -100,000
Interest expense -72,000
Tax and other expense -44,000

Net profit after tax 160,000

NCI (P/L)
Profit attributable to shareholders
Opening retained earnings (1 January 20x9) 580,000

Less: Dividends declared and paid -40,000

Closing retained earnings (31 December 20x9) 700,000

Statement of Financial Position as at 31 December 20x9

PRISM
ASSETS
Cash and receivables 620,000

Inventory 640,000
Land 260,000
Building and equipment, cost 1,500,000
Less: Accumulated Depreciation -1,000,000

Investment in Sapphire, cost 300,000

Deferred tax asset
TOTAL ASSETS 2,320,000
LIABILITIES
Payables 1,220,000
Deferred tax liability 0

TOTAL LIABILITIES 1,220,000

EQUITY
Share capital 400,000
Retained earnings as at 31 December 20x9 700,000
Non-controlling interest 0

TOTAL EQUITY 1,100,000

TOTAL LIABILITIES AND EQUITY 2,320,000

REQUIRED 3 - ANALYTICAL CHECK

Listing of CJE method to compute NCI (B/S)

Fair value of NCI at acquisition date 75,000
Adjusted prior year depreciation of excess FV of building
-1,250
Adjusted tax effects 250
Adjusted upstream sale of inventory (prior year) -1,000
Adjusted tax effects 200
Adjusted allocation of prior year profits to NCI (B/S) 30,000
Adjusted allocate net income of S to NCI 11,020
Adjusted eliminate dividends declared by S -4,000
NCI (B/S) at 31-12-20X9 under the listing of the CJE method 110,220
 Analytical check (independent proof of balances of NCI (B/S)

1 Share capital of Sapphire at 31-12-20x9 - 100% 200,000

1 Retained earnings of Sapphire at 31-12-20x9 - 100% 340,000
Book value of net assets of Sapphire as reported - 100%
1 540,000

Add: Unamortised fair dfferential of equipment and building

21,875
2
Less: Unrealised profit in inventory -8,000
4
Total - unamortised fair value differential - before tax 13,875
Tax rate 20%
Total - unamortised fair value differential - after tax 11,100

Fair value if identifiable net assets of S - 100% 551,100

NCI 20% share of Fair value of identifiable net assets of S
110,220
NCI (B/S) at 31-12-20x5 under the analytical check method
110,220

REQUIRED 4
(a) Consolidated inventory balance
Prism - as at 31 Dec 20x9 640,000
Sapphre - as at 31 Dec 20x9 270,000
910,000
Less: Remaining unrealised profit on upstream transfer 8,000
902,000

(b) Consolidated carrying amount of buildings and equipment

Prism - as at 31 Dec 20x9 500,000
Sapphre - as at 31 Dec 20x9 120,000
620,000
Add: Unamortised FV differential of buildings and equipment 21,875
641,875

(c) Consolidated Retained Earnings

1 Prism - as at 31 Dec 20x9 700,000
2 Prism's share of S Co's post-acquisition retained earnings 152,000
852,000
3 Less: Cumulative depreciation of undervalued fixed assets (afte -6,000
5 Less: Remaining unrealized profit on inventory upstream transf -5,120
Consolidated retained earnings as at 31 December 20x9 840,880
7

ent
the
alue
r the
arried at cost

Sapphire
480,000
(320,000)
-
(10,000)
(14,000)
(76,000)
60,000
300,000
(20,000)
340,000

420,000
270,000
150,000
200,000

1,040,000

80,000
420,000
200,000
340,000
1,040,000

0x8 for $15,000,

phire sold goods
beginning of the
year,
0x9. Tax rate was 20%
 ar ended 31 December 20x9

lly and compare with the balance

rential but no goodwill

al but no goodwill

Purchase consideration paid by Prism Co was proportional to Prism's share of the FV of Sapphire Co as an e

Assume share capital of Sapphire remains unchanged from 1/1/x7 to 31/12/x9

6,250
300,000
75,000
381,250

0.2 * (300,000 - 150,000)

30,000
0.2 * 6,250
0.8 * 6,250
6,250
(31,250 / 10) * 2 years

20% Tax Rate * 6,250

250 0.2 * 1,250
0.8 * 1,250 1,000

(31,250 / 10)
3,125

20% Tax Rate * 3,125

625

0.8 * 20,000
0.2 * 20,000
20,000
Given in Statement of Financial Position as at 31/12/x9

year
0.8 * 5,000
0.2 * 5,000
15,000 - 10,000 5,000

20% Tax Rate * 5,000

800 0.8 * 1,000
0.2 * 1,000 200

Sales Revenue charged by Sapphire to Prism 40% unsold * (60,000 -

52,000
40,000) 8,000

20% Tax Rate * 8,000

1,600

CJE 5
CJE 6
CJE 8
CJE 9
CJE 10
CJE 11

11,020

Consolidated entries Consolidate d

SAPPHIRE Dr Cr Note Total
480,000 60,000 CJE 10 1,420,000
-320,000 5,000 CJE 8 -903,000
52,000 CJE 10
0 16,000 CJE 7 0
-10,000 3,125 CJE 5 -113,125
-14,000 -86,000
-76,000 625 CJE 6 -118,775
1,000 CJE 9
1,600 CJE 11
60,000 199,100
11,020 CJE 12 -11,020
188,080
300,000 150,000 CJE 1 692,800
30,000 CJE 2
5,000 CJE 3
1,000 CJE 4
4,000 CJE 8
800 CJE 9
-20,000 20,000 CJE 7 -40,000
340,000 840,880

Consolidated entries Consolidate d

SAPPHIRE Dr Cr Note Total

420,000 1,040,000
 270,000 8,000 CJE 10 902,000
150,000 410,000
200,000 31,250 CJE 1 1,731,250
-80,000 6,250 CJE 3 -1,089,375
3,125 CJE 5
0 300,000 CJE 1 0
1,600 CJE 11 1,600
960,000 2,995,475

420,000 1,640,000
0 6,250 CJE 1 4,375
1,250 CJE 4
625 CJE 6
420,000 1,644,375

200,000 200,000 CJE 1 400,000

340,000 840,880
0 75,000 CJE 1 110,220
30,000 CJE 2
1,250 CJE 3
250 CJE 4
4,000 CJE 7
1,000 CJE 8
200 CJE 9
11,020 CJE 12
540,000 1,351,100
960,000 514,870 479,650 2,995,475

CJE 1

CJE 3
CJE 4
CJE 8
CJE 9
CJE 2
CJE 12
CJE 7
31,250 * (7 years left / 10 useful years)

0.8 * 13,875

540,000 + 11,100

0.2 * 551,100

* No Goodwill attributable to NCI

40% unsold * (60,000 - 40,000)

902,000 Check

31,250 * (7 years left / 10 useful years)

641,875 Check

0.8 * (340,000 - 150,000)

31,250 * (3 years depreciated / 10 useful years) * 0.8 * (1 - 20% Tax Rate)

40% unsold * (60,000 - 40,000) * 0.8 * (1 - 20% Tax Rate)
840,880 check
ntity