Problem 5.

1
Acquisition date Percent
1/1/2012 Investment cost
Investment cost 70% 196,000
FV of NCI 30% 84,000
Total Fair Value 100% 280,000
Book value of Net aset 100% 200,000
Excess of FV over BV 80,000
Allocation of FV diff.
Building 10 40,000
40,000
DTL 20% - 8,000
32,000
Goodwill 48,000
Goodwill NCI (84.000-(30%*232.000)) 14,400

CJE1: Elimination of investment in Y Co

Dr Share capital 160,000
Dr Retained earnings 40,000
Dr Building 40,000
Dr Goodwill 48,000
Cr Deferred tax liability (DTL) 8,000
Cr Investment in S Co 196,000
Cr Non-controlling interests 84,000
288,000 288,000

CJE2: Allocate share of post-acq RE to NCI

Dr Opening RE 18,000
Cr NCI 18,000
RE at 1 Jan 20x3 100,000
RE at date of acquisition 40,000
Change in RE 60,000
NCI's share 18,000

CJE3: Amortization of Past and present fixed aset fv differential

Dr Opening RE 2,800
Dr NCI 1,200
Dr Depreciation exp 4,000
Cr Accumulated amortization of fixed aset 8,000

CJE4: Tax effects of amortization of past & present fixed aset fv differential
Dr Deferred tax liability(DTL) 1,600
 Cr Opening RE 560
Cr NCI 240
Cr Tax expense 800

CJE5: Past Impairment of Goodwill

Dr Opening RE 6,720
Dr NCI 2,880
Cr Goodwill 9,600

CJE6: Unrealized profit adjustment from upstream sales of Inventory

Dr RE 22,400
Dr NCI 9,600
Cr Cost of sales 18,000
Cr Inventory 14,000

CJE7: Tax effect on unrealized profit from upstream sales

Dr Tax expense 3,600
Dr Deffered Tax Aset (DTA) 2,800
Cr RE 4,480
Cr NCI 1,920

CJE8: Allocation of unrealized profit -->realized trough depreciation

Downstream sales
Dr RE 28,000
Cr Depreciation expense of FA 4,000
Cr Building 24,000
Gain on Sales of FA (down stream) :
Sales 64,000
Cost price (10 years) 40,000
Acc depreciation 8,000
Book value 32,000
Gain on sales FA 32,000

CJE9: Tax effect of CJE8

Dr DTA 4,800
Dr tax exp 800
Cr RE 5,600
Fire Wall Adjustment
Cost 10 40,000 64,000 - 24,000
Acc Depreciation 8,000 - 8,000
Depreciation expense/year 4,000 8,000 - 4,000
Profit on sales of FA 32,000 - 32,000
Tax on profit 6,400 6,400

CJE10: Adjustment from downstream sales

Dr Sales 180,000
Cr Cost of sale 144,000
Cr Inventory 36,000

CJE11: Tax effect of CJE10

Dr DTA 7,200
Cr Tax expense 7,200

CJE12: Allocate share of current income to NCI

Dr Income to NCI 17,760
Cr NCI 17,760
Profit 48,000
Amort. FA FV diff - 4,000
Tax effect on FA FV diff 800
Realized Profit 2012 32,000
Unrealized Pofit 2013 - 14,000
Tax effect on profit - 3,600
Adjusted NPAT 59,200
NCI share(30%) 17,760

CJE13: Eliminate dividends declared by S Co

Dr Dividend income 21,000
Dr Non-controlling interests 9,000
Cr Dividend declared 30,000
 2,012 2013 Bal of FV diff
- 4,000 - 4,000 32,000

800 800 - 6,400

- 9,600 38,400
- 2,880 11,520

Past
Dr Opening RE 2,800
Dr NCI 1,200
Cr Acc amort. Fixed aset fv diff 4,000
Present
Dr Depreciation exp 4,000
Cr Acc amort. Fixed aset fv diff 4,000

Past
Dr DTL 800
 Cr Opening RE 560
Cr NCI 240
Present
Dr DTL 800
Cr Tax exp 800

RE 96,000
RE
Begining Inventory-->sales-->realized profit COS 32,000
Dr RE 22,400 INV
Dr NCI 9,600
Cr Cost of Sales 32,000
Ending Inventory-->unrealized profit 20x3
Dr Cost of Sales 14,000
Cr Inventory 14,000 42000/96000*32000

Ending Inventory-->unrealized profit

Dr DTA 2,800 14.000*0,2
Cr Tax expense 2,800
Begining Inventory-->sales-->realized profit
Dr Tax expense 6,400
Dr RE 4,480
Dr NCI 1,920

To eliminate the unrealized profit of FA downstream sale at 20x2

Dr RE 32,000
Cr Accumulated depreciation FA 8,000
Cr Building 24,000
Allocation of the unrealized profit of FA downstream sales-->realized trough depreciation (20x2)
Dr Accumulated depreciation FA 4,000
Cr RE 4,000
Allocation of the unrealized profit of FA downstream sales-->realized trough depreciation (20x3)
Dr Accumulated depreciation of FA-ex DSS 4,000
Cr Depreciation expense of FA 4,000

Tax effect of unrealized profit-downstream sales of FA

Dr DTA 6,400
Cr RE 6,400
Tax effect of unrealized profit-->realized trough depreciation 20x2
Dr RE 800
Cr DTA 800
 Tax effect of unrealized profit-->realized trough depreciation 20x3
Dr Tax expense-depreciation 800
Cr DTA 800

Intra group transaction-downstream sales of merchandise 20x3

Dr Sales 180,000
Cr Cost of sales 180,000
Unrealized profit-from downstream sales(ending inventory 20x3)
Dr Cost of sales 36,000
Cr Inventory 36,000

ANALYTICAL CHECK

NCI : Debit Kredit NCI :

1 CJE1 84,000 1 SC 160,000
2 CJE2 18,000 RE 118,000
3 CJE3 1,200 278,000
4 CJE4 240 NCI 30% 83,400
5 CJE5 2,880
6 CJE6 9,600 2 Unamort. FV diff.
7 CJE7 1,920 FA net of 32,000
8 CJE12 17,760 Inv (not) - 14,000
9 CJE13 9,000 Total 18,000
DTL (20%) 3,600
22,680 121,920 14,400
Balance of 99,240 NCI 14,400 30% 4,320
121,920 121,920
3 Unimpaired Goodwill : 11,520
99,240
 96,000

32,000

iation (20x2)

iation (20x3)