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Illustration 10
Consolidated statement of financial position
On 1 May 20X7 K acquired 60% of S, paying $76,000 cash. The
summarised statements of financial position of the two entities at
30 November 20X7 were:
K S
$
$
Non
current assets:
Property, plant & equipment
138,000
115,000
Investments 98,000
–
Current assets:
Inventory 15,000
17,000
Receivables 19,000
20,000
Cash 2,000
–
–––––––
–––––––
272,000
152,000
–––––––
–––––––
Chapter 21
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Equity and liabilities:
Equity:
Share capital of $1 each
50,000
40.000
Retained earnings
189,000
69.000
–––––––
–––––––
239,000
109,000
Current liabilities:
33,000
43,000
–––––––
–––––––
272,000
152,000
–––––––
–––––––
The following information is relevant:
1
At 30 November 20X7, the inventory of S included goods purchased
at a cost of $8,000 from K at cost plus 25%. None of the goods had
been sold on by S by the reporting date.
2
The K Group values the non
controlling interest using the fair value
method. At the date of acquisition the fair value of the 40% non
controlling interest was $50,000.
3
S earned a profit after tax for the year of $9,000 in the year ended
30 November 20X7.
Calculate group retained earnings of K Group as at 30 November
20X7.
Solution to Illustration 10
Net assets
Acquisition
date
Reporting
date
$
$
Share capital of $1 shares
40,000
40,000
Retained earnings
63,750
69,000
–––––––
–––––––
103,750
109,000
–––––––
–––––––
RE @ acq'n (balance) (ß)
63,750
Post
acq profit (7/12 × $9,000)
5,250
–––––––
RE @ reporting date
69,000
–––––––
Consolidated statement of financial position
428
KAPLAN PUBLISHING
PURP – Inventory
Profit in inventory (25/125 × $8,000) = $1,600
Group retained earnings
$
100% K
189,000
PURP (1,600)
60% S post
acq profit
(60% × ($109,000 – $103,750 (W2)))
3,150
–––––––
190,550
–––––––
Test your understanding 5
Prepare the consolidated statement of financial position of K Group,
based upon the preceding illustration, as at 30 November 20X7.
Test your understanding 6
The following statements of financial position were extracted from the
books of two entities at 31 December 20X9.
Derek Clive
$
$
Non
current assets:
Property, plant & equipment
75,000
11,000
Investments (shares in Clive)
27,000
–––––––
102,000
Current assets
214,000
33,000
–––––––
–––––––
316,000
44,000
–––––––
–––––––
Chapter 21
KAPLAN PUBLISHING
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Equity and liabilities:
Equity:
Share capital
80,000
4,000
Share premium
20,000
6,000
Retained earnings
40,000
9,000
–––––––
–––––––
140,000
19,000
–––––––
–––––––
Current liabilities
176,000
25,000
–––––––
–––––––
316,000
44,000
–––––––
–––––––
Derek acquired all of the share capital of Clive on 1 January 20X9. The
retained earnings of Clive were $2,000 at the date of acquisition.
Required:
Complete the following tasks relating to the consolidated financial statement
of Derek and Clive.
Task 1:
(a)
Choose the correct calculation of goodwill upon acquisition of
Clive.
(2 marks)
Selected
answer
(i)
$27,000 – ($4,000 + 6,000 + $9,000)
(ii)
$27,000 – (4,000 + $2,000)
(iii)
$27,000 – ($4,000 + $6,000 + $2,000)
(b)
Identify which one of the following would be the correct
classification for goodwill in the consolidated statement of
financial position. (1
mark)
Selected
answer
(i) A
non
current liability
(ii)
An intangible non
current asset
(iii) A
tangible
non
current asset
Consolidated statement of financial position
430
KAPLAN PUBLISHING
Task 2
Complete the following table to state at what amount each of the
following items should be included in the consolidated statement of
financial position at 31 December 20X9.
$
(i)
Property, plant and equipment
86,000
(ii) Current
assets
247,000
(iii) Equity share capital
80,000
(iv) Share
premium
20,000
(v) Current
liabilities
201,000
Task 3
What amount should be included in the consolidated statement of
financial position for retained earnings as at 31 December 20X9?
$
47,000
Chapter 21
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Chapter summary
Consolidated statement of financial position
432
KAPLAN PUBLISHING
Test your understanding answers
Test your understanding 1
$
Fair value of consideration
78,000
FV of NCI at acquisition
19,000
––––––
97,000
Less:
Fair value of net assets at acquisition
(85,000)
––––––
Goodwill on acquisition
12,000
––––––
Test your understanding 2
Hazelnut consolidated statement of financial position at
31 December 20X4
$000
Goodwill (W3)
555
Property, plant & equipment ($5,500 + $1,500 + $200)
7,200
Current assets:
Inventory ($550 + $100)
650
Receivables ($400 + $200)
600
Cash ($200 + $50)
250
–––––
9,255
–––––
Chapter 21
KAPLAN PUBLISHING
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$000
Share capital
1,800
Revaluation surplus
200
Retained earnings (W5)
1,540
––––––
3,540
Non
controlling interest (W4)
415
––––––
3,955
Non
current liabilities ($3,000 + $400)
3,400
Current liabilities ($1,250 + $650)
1,900
––––––
9,255
––––––
Note that the revaluation surplus of the subsidiary is a pre
acquisition
balance and is therefore not part of group revaluation surplus at the
reporting date.
Workings
(W1)
Group structure
Hazelnut
2 years ago
80%
Note:
NCI = 20%
Peppermint
(W2)
Net assets of Peppermint
At date of
acquisition
At
reporting
date
$000
$000
Equity share capital
400
400
Revaluation surplus
100
100
Retained earnings
125
300
Fair value adjustment: plant
200
200
––––
–––––
825
1,000
––––
–––––
Note that, as there is no movement in revaluation surplus balance, all of
the movement in net assets relates to retained earnings.
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