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21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
A
D
A
B
C
B
D
A
B
D
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
C
B
A
B
B
D
A
C
A
D
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
C
A
A
C
A
D
D
B
C
A
B
A
C
Solutions:
1. D
Solutions:
Step 1: Analysis of effects of intercompany transaction
XYZ, Inc.
62
20%
80,000
80,000
440,000
32,000
(4,000)
28,000
468,000
63
N/A
240,000
(32,000)
(4,000)
204,000
320,000
(40,000)
(4,000)
276,000
80,000
(8,000)
72,000
Totals
(d)
(4,000)
(4,000)
268,000
8,000
276,000
Shares in XYZs profit before FVA (Step 6) (80,000 x 80%); (80,000 x 20%)
2. A
Solution:
Total assets of ABC Co.
Total assets of XYZ, Inc.
Investment in subsidiary
FVA, net (16K - 10K) (Step 2)
Goodwill, net (Step 3)
Effect of intercompany transaction
Consolidated total assets
Case #1
(proportionate)
1,672,000
496,000
(300,000)
24,000
8,000
1,900,000
3. C
Solution:
Case #1
(proportionate)
680,000
260,000
468,000
1,408,000
80,000
1,488,000
4. D
Solution:
Step 1: Analysis of effects of intercompany transaction
64
XYZ, Inc.
300,000
300,000
(288,000)
12,000
(3,200)
8,800
75,000
(72,000)
3,000
(800)
2,200
11,000
65
Case #2
400,000
20%
80,000
2,200
82,200
440,000
32,000
-
(3,200)
28,800
468,800
(b)
N/A
240,000
(32,000)
(3,200)
204,800
80,000
(8,000)
(800)
71,200
320,000
(40,000)
(4,000)
276,000
5. C
Solution:
Total assets of ABC Co.
Total assets of XYZ, Inc.
Investment in subsidiary
FVA, net (16K - 10K) (Step 2)
Goodwill, net (Step 3)
Effect of intercompany transaction
Consolidated total assets
66
Case #2
(fair value)
1,672,000
496,000
(300,000)
24,000
11,000
1,903,000
6. D
Solution:
Case #2
(fair value)
680,000
260,000
468,800
1,408,800
82,200
1,491,000
Owners
of parent
320,000
400,000
80,000
%
20%
-
NCI
80,000
(80,000)
Net assets
of XYZ
400,000 a
400,000
-
This represents the fair value of XYZs net assets on December 31, 20x1
(360,000 fair value on acquisition date + 40,000 increase during the year).
Jan.
1,
20x2
80,000
40,000
120,000
10. B
Solution:
%
Before the transaction
80%
After the transaction
100%
Change Inc./ (Decrease)
Owners
of parent
332,000
415,000
83,000
%
20%
-
NCI
83,000
(83,000)
Net assets
of XYZ
415,000 b
415,000
-
When NCI is measured at fair value, the subsidiarys net assets is grossed
up to reflect the goodwill attributable to the NCI (83,000 NCI 20% =
415,000).
Jan.
1,
20x2
83,000
37,000
120,000
11. B
Solution:
%
Before the transaction 80%
92%
After the transaction
Change Inc./ (Decrease)
Owners of
parent
320,000
368,000
48,000
NCI
Net assets
of XYZ
20%
8%
80,000
32,000
(48,000)
400,000
400,000
-
Owners
of parent
332,000
381,800
49,800
NCI
Net assets
of XYZ
20%
8%
83,000
33,200
(49,800)
415,000*
415,000
-
Owners
of parent
320,000
280,000
(40,000)
NCI
20%
30%
80,000
120,000
40,000
Case #1
(proportionate)
80,000
(40,000)
40,000
68
Net assets
of XYZ
400,000
400,000
-
14. D
Solution:
Owners
of parent
%
Before the transaction 80%
70%
After the transaction
Change Inc./ (Decrease)
332,000
290,500
(41,500)
NCI
20%
30%
83,000
124,500
41,500
Net assets
of XYZ
415,000
415,000
-
15. A
Solution:
The change in ABCs ownership interest in XYZ is determined as
follows:
Shares held by ABC
Outstanding shares of XYZ
a
Before
issuance
40,000
50,000
80%
After
issuance
40,000
a
60,000
%
66.67%
%
Before the transaction
80%
After the transaction
66.67%
Change Inc./ (Decrease)
b
Owners of
parent
320,000
333,332
13,332
%
NCI
20%
80,000
33.33% 166,668
86,668
69
Net assets
of XYZ
400,000
500,000
100,000
16. B
Solution:
Owners
of parent
%
NCI
332,000
83,000
Before the transaction
80%
20%
After the transaction
66.67% 343,332 33.33% 171,668
11,332
88,668
Change Inc./ (Decrease)
%
c
d
Net assets
of XYZ
415,000 c
515,000 d
100,000
17. B
Solution:
Step 1: We will identify the carrying amounts of XYZs assets and
liabilities in the consolidated financial statements as at the date
control was lost.
Statements of financial position
As at January 1, 20x2
ABC Co. XYZ, Inc.
ASSETS
Cash
Accounts receivable
Inventory
Investment in subsidiary
Equipment
(a)
Consolidated
(b)
92,000
300,000
420,000
300,000
800,000
Accumulated depreciation (240,000)
Goodwill
1,672,000
TOTAL ASSETS
228,000
320,000
88,000
388,000
60,000
480,000
200,000 1,040,000
(80,000) (336,000)
12,000
496,000 1,904,000
120,000
120,000
200,000
176,000
70
292,000
120,000
412,000
680,000
260,000
472,000
Carrying amount
of XYZs net
assets
(c) = (b) (a)
228,000
88,000
60,000
240,000
(96,000)
520,000
120,000
120,000
-
80,000
Non-controlling interest
1,380,000 376,000 1,492,000
Total equity
TOTAL LIAB. & EQTY. 1,672,000 496,000 1,904,000
400,000
-
400,000
100,000
120,000
96,000
80,000
228,000
88,000
60,000
240,000
12,000
168,000
18. D
Solution:
Jan. Cash ABC Co. (Consideration received)
1,
20x2
400,000
Non-controlling interest
Net identifiable assets a (see given)
Goodwill
82,400
412,000
12,000
158,400
Net identifiable assets is also excess of total assets over total liabilities.
19. C
Solution:
Total assets of Dad before the combination
Investment in subsidiary
Total assets of Dad after the combination
4,000,000
1,000,000
5,000,000
20. B
Solution:
Total assets of Dad after the combination (see above)
5,000,000
Total assets of Son (carrying amount)
1,600,000
Investment in subsidiary
(1,000,000)
FVA on assets (430K fair value 400K carrying amount)
120,000
Goodwill net [1M + (920K x 20% NCI)] 920
264,000
Effect of intercompany transactions (intercompany receivable)
(80,000)
71
5,904,000
21. A
Solution:
Analysis of net assets
Acquisition Consolidation
Net
date
date
change
Nymph Co.
Share capital (100,000 sh. x 4)
Retained earnings
Totals at carrying amounts
FVA on investment property a
FVA on building
400,000
320,000
720,000
80,000
120,000
NIL
920,000
400,000
1,120,000
1,520,000
560,000
120,000
(48,000)
2,152,000 1,232,000
The depreciation of FVA pertains only to the building (see discussion above)
(120,000 x 2/5 = 48,000).
1,200,000
1,200,000
(690,000)
510,000
Less: Parents share in goodwill impairment (80,000 x 75%) (60,000)
Goodwill attributable to owners of parent current year
450,000
350,000
(230,000)
120,000
(20,000)
100,000
550,000
22. D
Solution:
Nymph's net assets at fair value 6/30/x3 (see Analysis above) 2,152,000
25%
538,000
72
100,000
638,000
23. A
Solution:
Cockroach's retained earnings 6/30/x3
2,000,000
Consolidation adjustments:
Share in the net change in Nymph's net assets (a)
924,000
Cockroach's share in goodwill impairment
(60,000)
864,000
Net consolidation adjustments
2,864,000
Consolidated retained earnings June 30, 20x3
(a)
24. B
Solution:
Total assets of Cockroach
Total assets of Nymph
Investment in subsidiary
Fair value adjustments net
Goodwill net
4,000,000
2,000,000
(1,200,000)
632,000
(560K + 120K 48K) see Analysis
550,000
(40,000)
Effect of intercompany transactions (Intercompany receivable)
5,942,000
Consolidated total assets
25. C
Solution:
Share capital of Cockroach
Share premium of Cockroach
Consolidated retained earnings
Equity attributable to owners of the parent
Non-controlling interests
Consolidated total equity
1,200,000
2,864,000
4,064,000
638,000
4,702,000
26. B
Solution:
Analysis of net assets
Acquisition Consolidation
Net
date
date
change
Bunny Co.
Share capital
Retained earnings
Totals at carrying amounts
Fair value adjustments
Subsequent depreciation of FVA
Subsidiary's net assets at fair value
73
400,000
320,000
720,000
NIL
720,000
400,000
1,120,000
1,520,000
( - )
1,520,000
800,000
800,000
400,000
1,200,000
(540,00)
660,000
( - )
660,000
220,000
(180,000)
40,000
( - )
40,000
700,000
27. D
Solution:
1,520,000
25%
380,000
40,000
420,000
2,000,000
)
600,000
2,600,000
Net change in Bunnys net assets (see Analysis) 800,000 x 75% = 600,000.
29. B
Solution:
Total assets of Rabbit
Total assets of Bunny
Investment in subsidiary (800,000 + 400,000)
74
4,000,000
2,000,000
(1,200,000)
700,000
5,500,000
30. D
Solution:
Share capital of Rabbit
Share premium of Rabbit
Consolidated retained earnings
Equity attributable to owners of the parent
Non-controlling interest
Consolidated total equity
1,200,000
2,600,000
3,800,000
420,000
4,220,000
31. C
Solution:
Owners
of parent
866,000
525,000 b
Depreciation of FVA
a
b
NCI
N/A
175,000
( - )
a
(8,000)
( - )
(24,000)
Totals
1,367,000 167,000
squeeze
start
75
60,000
(40,000)
20,000
1/2
10,000
26,000
440,000
268,000
(26,000)
682,000
128,000
(80,000)
48,000
1/3
16,000
Total
76
3,728,000
1,020,000
(188,000)
4,560,000
1,700,000
472,000
(188,000)
26,000
24,000
2,034,000
Sale price
Carrying amount of equipment on Jan. 1, 20x1
20,000
(24,000)
(4,000)
4/5
(3,200)
(20,000 purchase
price 5 yrs.).
(24,000 carrying
amount 5 yrs.).
Effect on combined FS
Depreciation is
understated by 800.
Depreciation Peter
Depreciation Simon
Understatement in depreciation
644,000
27,200
800
77
16,000
688,000
78
80,000
72,000
8,000
As allocated
80,000
Simon Co.
488,000
488,000
(468,000)
20,000
c
(7,200)
Less: Parents share in goodwill impairment (8,000 x 90%)
Goodwill attributable to owners of parent Dec. 31, 20x1
12,800
Fair value of NCI (see given)
Less: NCI's proportionate share in the net assets of
subsidiary (520,000 acquisition-date fair value x 20%)
Goodwill attributable to NCI Jan. 1, 20x1
Less: NCIs share in goodwill impairment (8,000 x 10%) c
Goodwill attributable to NCI Dec. 31, 20x1
Goodwill, net Dec. 31, 20x1
60,000
(52,000)
8,000
(800)
7,200
20,000
79
The problem states that goodwill was impaired by 8,000. The impairment
is shared between the parent and NCI because NCI is measured at fair
value.
756,000
10%
75,600
7,200
82,800
1,780,000
Peter's share in the net change in Simon's net assets (a) 212,400
Parent Subsidiary
1,160,000
380,800
(16,000)
(40,000)
10,000
(72,000)
(118,000)
1,042,000
(45,000)
(7,200)
989,800
Consolidated
1,540,800
(10,000)
3,200
(8,000)
N/A
(14,800)
366,000
(5,000)
(800)
360,200
80
(26,000)
3,200
(40,000)
2,000
(72,000)
(132,800)
1,408,000
(50,000)
(8,000)
1,350,000
Totals
(7,200)
(800)
(8,000)
1,319,200
30,800
1,350,000
(c)
Shares in Simons profit before FVA (Step 6): (366,000 x 90%); (366,000 x
10%)
359,200
200,000
559,200
3,200,000
1,939,200
5,139,200
82,800
5,222,000
5,781,200
Peter Group
Statement of profit or loss
For the year ended December 31, 20x1
Sales (Step 1.ii)
Cost of goods sold (Step 1.ii)
4,560,000
(2,034,000)
81
2,526,000
(400,000)
(688,000)
(30,000)
(10,000)
(40,000)
(8,000)
1,350,000
Gross profit
Interest income (eliminated - Step 1.iv)
Distribution costs
Depreciation expense (Step 1.iii)
Loss on sale of equipment (eliminated - Step 1.iv)
Interest expense (10,000 - 2,500 Step 1.iv)
Dividend income (eliminated - Step 1.v)
Amortization expense on patent (Step 1.iii)
Loss on extinguishment of bonds (Step 1.iv)
Impairment loss on goodwill (Step 3)
Profit for the year
Goodwill net
Effects of intercompany transactions:
Current accounts (elimination of account receivable)
Inventory transactions (unrealized profit in ending inventory)
Equipment transaction (unamortized balance of deferred loss)
Bond transaction (carrying amount of investment in bonds)
Consolidated total assets
5,664,000
720,000
(488,000)
134,000
20,000
(8,000)
(26,000)
3,200
(238,000)
5,781,200
(8,000)
(200,000)
559,200
3,200,000
1,939,200
5,139,200
82,800
5,222,000
82
684,000
83,200
-
Total
The consideration transferred is computed as follows:
Shares of Big effectively transferred to Small
Multiply by: Fair value per share of Bigs shares
83
60
60%
40
100
20%
40
480
19,200
7,200
19,200
26,400
Big Co.
Identifiable assets
Goodwill
Total assets
Liabilities
Share capital:
100 ordinary shares
60 ordinary shares
250 ordinary shares
(7,200 + 19,200)
Retained earnings
Total liabilities and equity
Small Co.
(Consolidated FS
in the name of the
legal parent)
21,600
44,400
21,600
44,400
68,400*
3,600
72,000
7,400
20,400
28,800
3,600
7,200
9,600
21,600
16,800
44,400
26,400
16,800
72,000
84
Total
The consideration transferred is computed as follows:
Shares of Big effectively transferred to Small
Multiply by: Fair value per share of Bigs shares
Fair value of consideration effectively transferred
54
57.45%
40
94
42.55%
100%
40
480
19,200
85
24,000
10%
2,400
7,200
90%
6,480
19,200
25,680
16,800
90%
15,120
Big Co.
Identifiable assets
Goodwill
Total assets
Liabilities
Share capital:
100 ordinary shares
60 ordinary shares
235 ordinary shares
(6,480 + 19,200)
Retained earnings
Non-controlling interest
Total liabilities and equity
Small Co.
(Consolidated FS
in the name of the
legal parent)
21,600
44,400
21,600
44,400
68,400
3,600
72,000
8,400
20,400
28,800
3,600
7,200
9,600
16,800
21,600
44,400
86
25,680
15,120
2,400
72,000
87