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Homework answers / question archive / The following three entities make up an economic group as follows: Apple Ltd purchased 60% of the shares totalling $65,000 in Banana Ltd and Banana Ltd wholly owns Cherry Ltd which was purchased for $52,000
The following three entities make up an economic group as follows:
Apple Ltd purchased 60% of the shares totalling $65,000 in Banana Ltd and Banana Ltd wholly owns Cherry Ltd which was purchased for $52,000. Both investments were acquired on 1 July 2018. On this date, shareholders' equity was valued at:
Banana Ltd Cherry Ltd
Share capital 75,000 20,000
General reserve 10,000 1,000
Retained earning 16,000 4,500
The financial statements of the entities within the group at 30 June 2020 are as follows:
Apple Ltd:
Total assets 295,000
Total liabilities 126,000
Share capital 100,000
General reserve 30,000
Retained earnings 39,000
Banana Ltd:
Debentures in Cherry Ltd20,000
Total assets 147,000
Total liabilities 17,750
Share capital 75,000
General reserve 16,250
Retained earnings 38,000
Cherry Ltd:
Total assets 66,500
Debentures 25,000
Total liabilities 30,250
Share capital 20,000
General reserve 2,250
Retained earnings 14,000
The tax rate is 30%. All non-controlling interest are valued at the proportionate share of the acquiree's identifiable net assets. Inventory on hand at 30 June 2020 included goods obtained from within the group as follows:
-Apple Ltd purchased from Banana Ltd, sale price was $10,000 and cost $7,500.
-Apple Ltd purchased from Cherry Ltd, sale price was $20,000 and cost $18,500.
-Banana Ltd purchased from Cherry Ltd, sale price was $15,000 and cost $13,800.
The directors had applied the impairment test for goodwill annually and determined that a write-down of $3,090 is required for consolidation purposes at 30 June 2020 (write-down of goodwill in Banana Ltd is $440 and write-down of goodwill in Cherry Ltd is $2,650) with the same amounts deemed to be attributable for the prior period. All debentures (including the debenture from Cherry Ltd to Banana Ltd) is due 30 June 2030.
Required:
In the space provided - show goodwill entries, intragroup transactions and calculate direct and indirect non-controlling interest.
Consolidation falls under IFRS 10 Consolidated Financial Statements.
IFRS 10 establishes that control is the sole basis for consolidation. Hence, it requires an entity to determine whether it controls another and thereupon prepare consolidated FS if the answer is affirmative.
Control exists when an entity has power over another, exposure to its variable returns and ability to use power to affect such returns. It is presumed to exist when an entity holds more than 50% of the voting shares of another unless it can be demonstrated that it is not the case.
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