Income Statement and Partial Statement of Changes in Equity (For the Fair and Book Values of Net Assets

Book Values of Net Assets at Date of Acquisition:

Category Amount
Category P Co S Co Fixed assets (fair value) 160,000
Operating profit 1,000,000 300,000 Fixed assets (book value) 120,000
Dividend income (including from S) 42,000 - Excess of fair value over book value 40,000
Profit before tax 1,042,000 300,000 Unrecognized intangible assets 60,000
Tax expense (200,000) (60,000) air value of identifiable net assets 500,000
Profit after tax 842,000 240,000 Book value of identifiable net assets 400,000
Dividends declared (150,000) (40,000) Fair value of non-controlling interests 60,000
Profit retained 692,000 200,000
Retained earnings, 1 January 20x5 900,000 500,000 Additional Information:
Retained earnings, 31 December 20x5 1,592,000 700,000 Remaining useful life: 5 years
Residual value: Negligible
Statement of Financial Position (As at 31 December 20x5) (b) Unrecognized Intangible Asset:
Indefinite useful life
Category P Co S Co No indications of impairment.
Fixed assets, net book value $900,000 $700,000 c) Fixed Asset Transfer from S Co to P Co on 1 January 20x4:
Investment in S, at cost $540,000 —
Other investments $160,000 — Details Amount
Inventory $350,000 $200,000 Transfer price invoiced by S Co to P Co 30,000
Accounts receivable $200,000 $150,000 Original cost of the fixed asset 60,000
Cash $50,000 $40,000 Accumulated depreciation (36,000)
Total Assets $2,200,000 $1,090,000 Net book value at 1 January 20x4 24,000
Liabilities and Equity P Co S Co Profit on sale recorded by S Co in 20x4 6,000
Accounts payable $258,000 $90,000 Useful life from original purchase date (1 January 20x1) 5 years
Share capital $350,000 $300,000 Remaining useful life as at 1 January 20x4 2 years
Retained earnings $1,592,000 $700,000 Residual value Negligible
Total Liabilities and Equity $2,200,000 $1,090,000 (d) Inventory Purchase by S Co from P Co on 1 December 20x4:
Total Liabilities and Equity 2,250,000 1,130,000
Details Amount
Required: Transfer price $20,000
1. Prepare the consolidation entries for 20x5. Original cost $15,000
2. Perform the analytical check on the balance of non-controlling interests. Profit on sale recorded by P Co $5,000
3. Determine the consolidated amounts of the following items: Inventory details:
(a) Fixed assets balance as at 31 December 20x5. - 80% resold to third parties in 20x5
(b) Inventory balance as at 31 December 20x5. - 20% remained in S Co's inventory as of 31 December 20x5
(c) Retained earnings balance as at 1 January 20x5.
(d) Net profit after tax for the year ended 31 December 20x5. (e) Inventory Sale by S Co to P Co during 20x5:
(e) Retained earnings balance as at 31 December 20x5. Details Amount
Transfer price $100,000
Shareholders' Equity at Date of Acquisition: Original cost $80,000
Profit on sale recorded by S Co $20,000
Date of acquisition: 1 July 19x9 Inventory details:
Percentage acquired by P Co: 90% - 60% remained in P Co's inventory as of 31 December 20x5
Category Amount
Share capital 300,000
Retained earnings 100,000
Total Equity 400,000
ANSWER CJE9: Tax effects of CJE8
1 JOURNAL ENTRIES FOR 20X5 DR DTA 1,000
CJE1: Elimination of investment in S CR RE (OB) 200
Dr Capital 300,000 CR IncomeTaxExp (i/s) 800
DR RE 100,000
DR Fix assets 40,000 CJE10: Adjustment for unrealized profit from upstream sale during 20x5
DR Intangible assets 60,000 DR Sales $100,000 =F40
DR GW (WP1) 120,000 CR COGS 88,000 =F41+F42*40%
CR Investment in S 540,000 CR Inv 12,000 =F42*60%
CR NCI 60,000 Notes
CR DTL (WP 2) 20,000 CR COGS Loại trừ COS intra + 40%UnearnedREv đã bán = 80,000 + 40%*20,000 = 88,000
CR Inv Loại trừ 60%UnearnedREv chưa bán = 20,000 * 60% = 12,000
(WP1) Goodwill calculation
Goodwil = Consideration transffered + FV NCI - FV of indentiable NA after effect of DTL) CJE11: Tax effects of CJE10
= 540,000 + 60,000 - (RE + Capital + exceeded FV over BV of NA*(1-20%)
= 600,000 - (400,000 + 100,000*(1-20%) DR DTA 2,400 =F42*60%*20%
= 120,000 CR IncomeTaxExp 2,400 =S16
(WP2) Deferred tax liablitity
Deferred tax liablitity = Exceeded FV over BV of NA*Tax rate CJE12: Allocate share of post-acquisition retained earnings to NCI (OB)
= 100,000 * 20%
= 20,000 DR RE (OB) 40,000 =T22
CJE2: Past depreciation of undervalued fixed assets (fully depreciated) CR NCI (OB) 40,000 =T27*10%

DR RE (OB) 36,000 =L26*90% Calculation of change in RE

DR NCI 4,000 =L26-K24 RE @ 01/01/20x5 500,000
CR Acc.Depreciation 40,000 =K6 RE @ Acquisitiondate 100,000
Changes in RE 400,000
CJE3: Tax effects of CJE2
DR DTL (WP2) 8,000 =L26*20% CJE13: Eliminate dividends declared by S Co
CR RE (OB) 7,200 =K29*90%
CR NCI 800 =K29-L30 DR Dividend Income 36,000 =T33*90%
DR NCI 4,000 =T33*10%
CJE4: Adjustment for unrealized profit on intra-transfer of fixed assets as at transferred date (01/01/20x4) CR Divdend Declared 40,000 =-C9
DR Re (OB) 5,400 =-$L$45*90%
DR NCI 600 =-$L$45*10% CJE14: Allocate share of current income to non-controlling interests
DR FA 30,000 =L42
CR Accum.Depre 36,000 =-L43 DR RE 23,280
CR NCI 23,280

What should be What is Conso. ADJ

Calculation of Income of S after Conso ADJ for FY20x5
a b c=a-b DR CR Net Impact
FA 60,000 30,000 30,000 <to increase Profit after tax FYE 31/12/20x5 240,000 240,000
Acc.Depre (36,000) - (36,000) <to increase Adjustment for:
NBV (FA) 24,000 30,000 (6,000) CJE6: current depreciation of transferred fixed assets 3,000 3,000
RE (OB) 0 6,000 (6,000) CJE7: Tax effects of CJE6 600 (600)
Unrealised profit from downstream sales 12,000 (12,000)
CJE5: Adjustment for tax on unrealized profit on transfer of fixed assets as at transferred date (01/01/20x4) CJE11: Tax impact 2,400 2,400
DR DTA 1,200 Adjusted PAT FYE 31/12/20x5 of S 232,800
CR RE (OB) 1,080 Allocation to NCI (10%) 23,280
CR NCI 120
2. Analytical Check on Non-Controlling Interests:
CJE6: Adj of past and current depreciation of transferred fixed assets Amount
DR AccumDepre. 6,000 =SUM(L61:L62)Book value of net assets as at 31 December 20x5 1,090,000
CR Depreciation exp 3,000 =L62 Balance of unrealized profit in inventory (after-tax) (9,600)
CR RE (OB) 2,700 =L61*90% 1,080,400
CR NCI 300 =L62*10% Share of adjusted net assets (10%) 108,040
Goodwill (Note 1) 12,000
Intangible asset (after-tax) 4,800
What should be What is Conso. ADJ
Non-controlling interests 124,840
DepreExp. a b c = b-a CJE1: Non-controlling interests at date of acquisition 60,000
FY20x4 12,000 15,000 3,000 < to reverse from RE (OB) CJE2: Share of past depreciation of undervalued asset (4,000)
FY20x5 12,000 15,000 3,000 CJE3:
< to reverse from Depre.Exp (I/S)Tax effects of past depreciation of undervalued asset 800
CJE4: Share of adjustment of profit on transfer of fixed assets (600)
CJE7: Tax effects of CJE6 CJE5: Share of tax on adjustment of profit on asset transfer 120
DR RE 540 =L55*20% CJE6: Share of adjustment to past depreciation 300
DR NCI 60 =L56*20% CJE7: Share of tax on past depreciation (60)
DR Income tax exp 600 =L54*20% CJE12: Share of post-acquisition retained earnings 40,000
CR DTA 1,200 =K48 CJE13: Dividends received (4,000)
CJE14: Allocate share of current income to non-controlling interests 23,280
CJE8: Adjustment for unrealized profit from downstream sale in beginning inventory Total Non-Controlling Interests’ Balance (31 December 20x5) 115,840 (9,000)
DR RE(OB) 5,000 =F33 x
CR COGS 4,000 =K71*80% x
CR Inv 1,000 =K71*20% x
3. Consolidated Amounts (e) Retained Earnings as at 31 December 20x5

(a) Fixed Assets Balance (As at 31 December 20x5) Details Amount Calculation
P Co's retained earnings 1,592,000
Details Amount P Co's share of S Co's post-acquisition retained earnings 540,000 90% × ($700,000 - $100,000)
P Co 900,000 Less: Cumulative depreciation of undervalued fixed assets (after-tax) (28,800) 90% × 80% × $40,000
S Co 700,000 Less: Remaining unrealized profit on inventory downstream transfer (after-tax) (800) 20% × 80% × $5,000
Consolidated fixed assets balance 1,600,000 Less: Remaining unrealized profit on inventory upstream transfer (after-tax) (8,640) 90% × 60% × 80% × $20,000
Consolidated retained earnings as at 31 December 20x5 2,093,760

The undervalued fixed asset has been fully depreciated. Hence, the remaining balance of the undervalued amount is zero. The unrealized profit on the
transferred fixed asset is fully extinguished through depreciation, and there is no need to remove the unrealized profit from the combined balance.

(b) Inventory Balance (As at 31 December 20x5)

Details Amount
P Co 350,000
S Co 200,000
Total Inventory Balance 550,000
Less Adjustments:
Remaining unrealized profit on downstream transfer (1,000) 20% × $5,000
Remaining unrealized profit on upstream transfer (12,000) 60% × $20,000
Consolidated Inventory Balance: 537,000

(c )Retained Earnings Balance as at 1 January 20x5

Details Amount Calculation

P Co's retained earnings 900,000
P Co's share of S Co's post-acquisition retained earnings 360,000 90% × ($500,000 - $100,000)
Past periods’ depreciation of undervalued fixed assets (after-tax) (28,800) 90% × 80% × $40,000
Remaining unrealized profit on fixed asset upstream transfer (after-tax) (2,160) 90% × 80% × ($6,000 ÷ 2)
Remaining unrealized profit on inventory downstream transfer (after-tax) (4,000) 80% × $5,000
Consolidated retained earnings as at 1 January 20x5 1,225,040

Explanation:
Retained earnings is an equity item attributable to P Co's shareholders, adjusted for upstream transfers and depreciation of undervalued fixed assets.
These adjustments are pro-rated by P Co's ownership interests in S Co.

Compilation of Consolidation Adjustments:

Amount
P Co's retained earnings 900,000
S Co's retained earnings 500,000
1,400,000
Adjustment (CJE)
CJE1 (100,000)
CJE2 (36,000)
CJE3 7,200
CJE4 (5,400)
CJE5 1,080
CJE6 2,700
CJE7 (540)
CJE8 (5,000)
CJE9 1,000
CJE12 (40,000)
Consolidated opening retained earnings: 1,225,040

(d) Profit After Tax

Amount Calculation
P Co's profit after tax 842,000
S Co's profit after tax 240,000
Total Profit After Tax 1,082,000
Add: Excess depreciation (after-tax) from previous year's transfer of fixed assets 2,400 80% × $3,000
Add: Realized profit (after-tax) from previous year's transfer of inventory 3,200 80% × 80% × $5,000
Less: Unrealized profit (after-tax) from current year's transfer of inventory (9,600) 80% × 60% × $20,000
Less: Dividend income eliminated (36,000) 80% × $5,000
Consolidated profit after tax 1,042,000

Notes:
Adjustments are calculated on an after-tax basis.
Unrealized profits from current year transfers are removed from profit.
Realized profits from previous year transfers are added back.