Seminar 4

Question 1
On 1 Jan 20x4
Acquired Yeny 90%

Fair value differential of undervalued inventory 100,000

Less: Deferred Tax Liability -20000
Total fair value differential 80,000 a

Share capital at 1 Jan 20x4 1,200,000

Retained earnings at 1 Jan 20x4 500,000
Total Book Value 1,700,000 b

Fair value of identifiable net asset(FVINA)-100% 1,780,000

FVINA-90% 1602000
FVINA-10% 178000

Investment paid by Prince-90% 2,600,000

Fair value of Non-controlling interest(NCI) 260,000
Total consideration paid 2,860,000 c

Goodwill on consolidation (P&NCI) 1,080,000

Consideration paid by P 2,600,000

Less: FVINA-90% -1602000
Goodwill(P) 998,000 0.92407407

Fair value of NCI 260,000

Less: FVINA-10% -178000
Goodwill (NCI) 82,000 0.07592593

Date Entries Dr Cr Workings/Note

CJE1: Elimination investment
in Yenny

31/12/20x6 Dr. Retained earnings 500,000

Dr. Share capital 1,200,000

 Dr. Goodwill 1,080,000

Dr. Inventory 100,000

Cr. Deferred Tax Liability(DTL) 20,000

Cr. Investment in Yenny 2,600,000

Cr. Non-controlling
interest(NCI) 260,000

CJE2: Allocation of change in 10%*(1,200,000-

31/12/20x6 retained earnings 500,000)

Dr. Opening retained earnings 70,000

Cr. Non-controlling interest 70,000

31/12/20x6 CJE3: Elimination of dividend

Dr. Dividend Income(P/L) 486000 90%*540,000

Dr. NCI(P/L) 54,000 10%*540,000

Cr. Dividend declared 540,000

CJE4: Elimination of intra-

31/12/20x6 group loan
Dr. Non-current receivable to
Prince 120,000
Cr. Non-current receivable
from Prince 120,000

CJE5: Elimination of
31/12/20x6 undervalued inventory
Dr. Opening retained
earnings(ORE) 90,000

Dr. NCI 10,000

Cr. Inventory 100,000

31/12/20x6 CJE6: Tax effect of CJE5

Dr. Deferred tax liability 20,000

Cr. Opening retained earnings 18,000

 Cr. NCI 2,000

CJE7: Elimination transfer of

31/12/20x6 fixed asset Note 1

Dr. NCI 12,000

Dr. Opening retained earnings 108,000

Dr. Equipment 180,000 600k-420k

Cr. Accumulated depreciation-
Equipment 300,000

31/12/20x6 CJE8: Tax Effect of CJE8

20% x gain of
Dr. Deferred Tax Asset 24,000 120k

Cr. Opening retained earnings 21,600

Cr. NCI 2,400

CJE9: Prior year Excess

31/12/20x6 depreciation Note 2
Since we assume
Dr. Accumulated depreciation- it still exist in
Equipment 30,000 subsidiary's book

Cr. Opening retained earnings 27,000

Cr. NCI 3,000

31/12/20x6 CJE10: Tax effect of CJE9

Dr. Opening retained earnings 5,400

Dr. NCI 600

20%*AD-Eq
Cr. Deferred Tax Asset 6,000 (30,000)

CJE11: Current year excess

31/12/20x6 depreciation Note 2
Dr. Accumulated depreciation-
Equipment 30,000

Cr. Depreciation expense(P/L) 30,000

31/12/20x6 CJE12: Tax effect of CJE11

Dr. Tax expense(P/L) 6,000 20%x30,000

Cr. Deferred Tax Asset 6,000

CJE13: Eliminate downstream

31/12/20x6 sale Note 3

Dr. Sales 110,000

Cr. Inventory 70,000

Cr. COGS 40,000

31/12/20x6 CJE14: Tax Effect of CJE13

Dr. DTA 14,000

Cr. Tax expense income 14,000

CJE15: Allocate adjusted net

31/12/20x6 profit of Yenny Note 4

Dr. NCI(P/L)-10% 146,400

Cr. NCI(B/S) 146,400

E1: Reclassification of
31/12/20X6 dividend income

Dr. Dividend income 27,000 30%*90,000

Cr. Investment in Z 27,000

E2: Change in retained

31/12/20X6 earnings
30%*(700,000-
Dr. Investment in associate Z 90,000 400,000)

Cr. Opening retained profits 90,000

 E3: Adjustment of unrealized
31/12/20X6 profit from 20x5 Note 5

Dr. Opening retained earnings 4,800

Cr. Investment in Z 4,800

31/12/20X6 E4: Share of associate's profit Note 6

Dr. Investment in associate A 286,200

Cr. Share of associate A's profit
after tax 286,200

Note 1
Original price 600,000
Depreciation = 600,000/8 75000
Used for 4 years
Acc. Depreciation of
equipment 300000
Carrying amount = 600,000-
300,000 300000

Sold at 420,000
Gain recognized by Yenny 120,000
Since it's subsi, and gain was happen last year, so it would be distributed for BRE & NCI

Note 2
Original depreciation
Carrying amount 300,000
Remaining useful life 4
Depreciation 75000 per year
Depreciation recorded by
Prince
Equipment 420,000
Remaining useful life 4
Depreciation 105000 per year
Excess(105,000-75,000) 30000
Prior year excess 1

Note 3
Sales 110,000
original cogs -40,000
Profit by Prince 70,000
100% unsold
Unrealized profit= 70,000

Prince Yenny Dr Cr Group

Sales 110,000 0 110,000 0

COGS -40,000 0 -40,000 0
Profit 70,000

Ending inventory 0 110,000 70,000 40,000

Note 4
Yenny's profit after tax 1,440,000

Add: Depreciation expense 30,000

Less: Tax expense (6,000)

Adjusted net profit 1,464,000

Note 5
As at 1 Jan 20x6
Unsold inventory 40%
Sales 340,000
COGS 290,000 Adjusted net profit 1,200,000
URP= unsold % x (sales-
cogs) 20000 Investor-30% share 360000
URP after tax = URP x (1-0.2) 16000
URP after tax belong to
investor 30% 4800

Note 6
Associate's net profit before
tax 900,000
Add back contigent liability ^^the contigent liability was recorded correctly with
expenses 300,000 associate
Add realized profit from
intercompany transfer 15000 30% sold*(340k-290k)
Adjusted net profit before tax 1,215,000

Tax expense ofZ 198,000

Add tax on write back of
contigent liability expense 60,000
Add tax on realized profit 3000
Adjusted tax of Z 261,000

Adjusted Z net profit after tax 954,000

Investor-30% 286200
^^
Dr. Investment in associate 300,000
Cr. Share of associate's
profit 300,000
(b) Analytical check of NCI
Share capitalof Yenny at 31 Dec 20x6 1,200,000
Retained earnings of Yenny at 31 Dec 20x6 2,100,000
Book value 3,300,000

Less: Unrealized gain -48000

Total FVINA 3,252,000 #1
10% of FVINA 325200
Unimpaired goodwill 82,000

NCI as at 31 Dec 20x6 407,200

Question 2
a) Associate's net profit after tax in JUP on 31 Dec 20x4
Note
Terry's net profit 31 Dec 20x4 220,000.00

Less: Depreciation of machine (3,600.00) 1

Add: Tax expense income 720.00

Adjusted net profit of Terry 217,120.00

Jup-35% 75,992.00

Less: Impairment (5,120.00)

Total adjusted net profit attributable to Terry 70,872.00

b) Net amount of investment in Terry Note

Investment in Terry 180,000.00

Add: Change in retained earnings-35% 5,600.00 2

Adjusted net profit of Terry 75,992.00

Less: Impairment of investment in Terry (5,120.00)

Less: Accumulated depreciation of excess FV-BV (3,780.00) 3

Add: Tax effect of depre FV-BV 756.00 4

Carrying amount of net amount of investment in Terry 253,448.00

c) Share of associate's net profit

Terry's loss 31 Dec 20x5 (2,000,000.00)

Add: Depreciation of machine (36,000.00) 1

Less: Tax expense income- 20%*36,000 7,200.00 4

Adjusted net profit of Terry (2,028,800.00)

Jup's share-35% (710,080.00)

Note 1
Depre (=120,000-84,000)/10 3600
Note 2
Change in RE = Beginning RE @start of year-RE @acq date
or ending RE = RE @acq date + profit retained-dividend @beginning of the year (current year
not included)
Beginning RE @current year= 192,000+(236,000-220,000) 208,000.00
RE @acq date 192,000.00

Change in RE= 16,000.00

Note 3
Acc depre= (1/1/20x1-1/1/20x4) = 3 yrs x 3,600 x 35%

Note 4:
Tax effect:
DTA -> Increase Investment in A -> 20%x3*3,600*35%