Answer to Question Two
Rationale This question was intended to test the principles of consolidation. Only the key workings for the statement of financial position were asked. Fair value, unrealised profit on trading and impairment of goodwill were also tested in this question. This question examined learning outcomes A1(a) and A2(b).
Suggested Approach This question tested the basics of consolidation and candidates should have been capable of scoring full marks. Setting up the formatted workings was the most logical starting point to avoid duplication of workings (eg for post-acquisition earnings in RE and NCI, and for FV of NCI in goodwill and NCI).
(a)
Goodwill $ Consideration transferred Non-controlling interest at fair value Net assets at date of acquisition: Carrying value $(1,000,000 + 885,000) Fair value increase $(1,100,000 – 945,000)
$ 1,850,000 570,000
1,885,000 155,000 (2,040,000) 380,000 (76,000) 304,000
Goodwill on acquisition Impairment 20% in 2011 Goodwill as at 31 December 2011
(b)
Consolidated retained earnings
As reported in SOFP Less pre-acquisition retained earnings Accumulated depreciation on PPE FV adjustment ($155,000 x 2/5 years) Impairment of goodwill (as in (a) above) Unrealised profit ($400,000 x 20%) Group share of AB ($197,000 x 75%) Consolidated retained earnings
(c)
BN $ 4,200,000
AB $ 1,300,000 (885,000) (62,000) (76,000) (80,000) 197,000
147,750 4,347,750
Non-controlling interest
Non-controlling interest at fair value at acquisition Plus NCI share of adjusted post acquisition retained earnings (as in (b) above) (25% x $197,000)
$ 570,000 49,250 619,250
May 2012
3
Financial Management