ACCOUNTANCY REVIEW

ASSIGNMENT LPU REVIEW

FOR SUBMISSION AFTER APRIL 30, 2020

FURTHER CONSOLIDATION ISSUES III – INDIRECT OWNERSHIP

INSTRUCTION: Present solutions in excel format.

REVIEW QUESTIONS
1 What is a direct equity interest and what is an indirect equity interest?  

2 Why do we need to know which part of non-controlling interest is direct, and which part is
indirect?  

3 Where in the statement of financial position would indirect non-controlling interests be

disclosed?  

4 What is the difference in the consolidation accounting used for sequential and non-sequential
acquisitions?  

5 If an intermediate parent acquires a subsidiary and, in doing so, purchases goodwill, then how
will any impairment of that goodwill be treated when working out the non-controlling interest
in profits and retained earnings?  

6 A Ltd has a 60 per cent interest in B Ltd and B Ltd has an 80 per cent interest in C Ltd. Both
acquisitions were made in 2012. During the financial year ended 30 June 2015, A Ltd paid a
dividend of $300 000, B Ltd paid a dividend of $200 000 and C Ltd paid a dividend of $100
000. What amount of dividends paid would be shown in the consolidated financial statements
of A Ltd and its controlled entities for the year ending 30 June 2015? 

7 __________________

8 Maroubra Ltd holds 70 per cent of the ownership equity of Coogee Ltd and Coogee Ltd holds
80 per cent of the ownership equity of Clovelly Ltd. During the financial year the following
dividends are paid by the respective companies:
Maroubra Ltd $120 000
Coogee Ltd $80 000
Clovelly Ltd $60 000
REQUIRED
What amount of dividend payments would be shown in the consolidated financial
statements?  

9 When eliminating the pre-acquisition capital and reserves of a subsidiary for the purposes of
presenting consolidated financial statements, should both direct and indirect ownership
interests be considered?  

10 Consider the corporate structure represented below.

 REQUIRED
Determine A Ltd’s interest (direct and indirect) and the non-controlling interest in the separate
legal entities under the control of A Ltd.  

11 A Ltd acquires a 60 per cent interest in B Ltd on 1 July 2014 for a cost of $2 million
representing the fair value of consideration transferred. The management of A Ltd values any
non-controlling interest at acquisition date at the proportionate share of B Ltd’s net
identifiable assets at acquisition date. All assets are assumed to be fairly valued in the books
of B Ltd. The share capital and reserves of B Ltd at the date of acquisition are:
Share capital $2 000 000
Retained earnings    $600 000
$2 600 000
B Ltd acquires a 60 per cent interest in C Ltd on 1 July 2014 for $1.6 million representing the
fair value of consideration transferred. Any non-controlling interest in C Ltd at acquisition
date is based on fair value. The share capital and reserves of C Ltd at the date of acquisition
are:
Share capital $1 600 000
Retained earnings    $800 000
$2 400 000
The statements of comprehensive income and statements of financial position of the entities at
30 June 2015 (one year after the acquisition) are as follows:
A Ltd B Ltd C Ltd
($000) ($000) ($000)
Abbreviated statement of comprehensive
income
Retained earnings
Profit before tax 1 000 160 200
Tax expense     540      50      80
 Profit after tax     460    110    120
Statement of changes in equity
Profit after tax (extract) 460 110 120
Retained earnings—30 June 2014   2 000    600    800
2 460 710 920
Dividends declared      400    100      60
Retained earnings—30 June 2015   2 060    610    860
Statement of financial position
Shareholders’ equity
Retained earnings   2 060 610 860
Share capital   8 000 2 000 1 600
Current liabilities
Accounts payable 340 80
Dividends payable 400 100 60
Non-current liabilities
Loans    800    500     –
11 600 3 290 2 520
Current assets
Cash 590    74 200
Accounts receivable 250 350 400
Dividends receivable   60    36     –
Inventory   1 000 600 800
Non-current assets
Land   4 700 – 400
Plant   3 000 630 720
Investment in B Ltd   2 000 –
Investment in C Ltd         – 1 600        –
11 600 3 290 2 520

Additional information
It is assumed that goodwill acquired has been subject to an impairment loss of 20 per cent of
the original goodwill value.
REQUIRED
Present consolidated financial statements for A Ltd and its controlled entities as at 30 June
2015.  

CHALLENGING QUESTIONS
12 On 1 July 2012 Anglesea acquired a 70 per cent interest in Bells Ltd at a cost of $1 000 000,
and Bells Ltd acquired an 80 per cent interest in Torquay Ltd at a cost of $750 000. Both
payments represent the fair value of consideration transferred. All assets are assumed to be
recorded at their fair value. At the date of acquisition the share capital and reserves of Bells
Ltd and Torquay Ltd were as follows:
Bells Ltd ($) Torquay Ltd ($)
Share capital 500 000 400 000
Revaluation surplus 150 000 100 000
Retained earnings 250 000 100 000
 Bells Ltd ($) Torquay Ltd ($)
900 000 600 000

For the year ending 30 June 2015, Bells Ltd and Torquay Ltd generated the following results:
Bells Ltd ($) Torquay Ltd ($)
Profit before tax 250 000 100 000
Tax expense 100 000   40 000
Profit after tax 150 000 60 000
Retained earnings—1 July 2014 280 000 130 000
430 000 190 000
Dividends paid   30 000   10 000
Retained earnings—30 June 2015 400 000 180 000

Non-controlling interests are measured at the non-controlling interest’s proportionate share of

the acquiree’s identifiable net assets. In relation to goodwill, the recoverable amount of the
goodwill acquired in Bells Ltd was assessed as being $250 000 at 30 June 2015, with $15 000
of the accumulated impairment occurring in the 2015 financial year. The goodwill acquired in
Torquay Ltd was assessed as having a recoverable amount of $150 000 as at 30 June 2015
with $10 000 of the total impairment occurring in the year ending 30 June 2015.
REQUIRED
Determine the total non-controlling interest in closing retained earnings as at 30 June 2015.  

13 On 30 June 2011, Maroubra Ltd purchased 70 per cent of the shares of Clovelly Ltd for $2
640 000 cash. On the same date, Clovelly Ltd purchased 60 per cent of the shares of Bronte
Ltd for $1 680 000 cash. Any non-controlling interest is valued at fair value.
The statements of financial position of Clovelly Ltd and Bronte Ltd immediately before the
investments were as follows:

Statements of financial position of Clovelly Ltd

and Bronte Ltd as at 30 June 2011
Clovelly Ltd ($) Bronte Ltd ($)
Assets
Cash 1 860 000 120 000
Accounts receivable 720 000 320 000
Inventory 800 000 520 000
Land 420 000 840 000
Plant and machinery 4 000 000 1 440 000
Accumulated depreciation (2 800 000)   (288 000)
Total assets 5 000 000 2 952 000
Liabilities
Accounts payable 1 800 000 1 032 000
Shareholders’ equity
Share capital 2 240 000 640 000
Retained earnings    960 000 1 280 000
Total equities 5 000 000 2 952 000

Additional information
 (i) At the date of investment, all the identifiable net assets of Clovelly Ltd and Bronte Ltd
were considered to be recorded at fair value in the respective statements of financial
position of Clovelly Ltd and Bronte Ltd, except Bronte Ltd’s plant and machinery, which
had a fair value of $1 664 000, and a carrying value of $1 152 000 (cost of $1 440 000,
accumulated depreciation of $288 000). At 30 June 2011, the plant and machinery had a
remaining useful life of 16 years.
(ii) It is assumed that there has been no impairment in any goodwill acquired.
(iii) During the 2015 financial year Bronte Ltd sold goods to Maroubra Ltd for $8 000 000.
These goods originally cost Bronte Ltd $6 400 000. On 30 June 2015, 30 per cent of these
goods remained in Maroubra Ltd’s closing inventory.
(iv) Bronte Ltd’s opening inventory included goods purchased from Clovelly Ltd for $1 280
000. These goods originally cost Clovelly Ltd $1 960 000.
(v) On 30 June 2015 Maroubra Ltd sold plant and machinery to Clovelly Ltd for $3 200 000.
Maroubra Ltd originally purchased the plant and machinery for $3 600 000, on 1 July
2009. The original estimated useful life of the factory building was 20 years. The
expected residual value is $nil.
(vi) The income tax rate is 30 per cent.
(vii)The accounts of Maroubra Ltd, Clovelly Ltd and Bronte Ltd revealed the following
balances as at 30 June 2015.

Statements of comprehensive income of

Maroubra Ltd, Clovelly Ltd, and Bronte Ltd
for the year ended 30 June 2015
Maroubra Ltd ($) Clovelly Ltd ($) Bronte Ltd ($)
Sales 30 000 000 16 000 000 14 000 000
Cost of goods sold 24 400 000 13 040 000 11 600 000
Gross profit 5 600 000 2 960 000 2 400 000
Depreciation expense (520 000) (200 000) (72 000)
Other expenses (2 972 000) (1 904 000) (1 048 000)
Dividend revenue 252 000 264 000 –
Gain on sale of plant and machinery      680 000                 –                 –
Profit before income tax expense   3 040 000   1 120 000   1 280 000
Income tax expense   1 216 000      448 000      512 000
Profit after income tax expense   1 824 000      672 000      768 000

Statements of financial position of

Maroubra Ltd, Clovelly Ltd and Bronte Ltd
as at 30 June 2015
Maroubra Ltd ($) Clovelly Ltd ($) Bronte Ltd ($)
Assets
Cash 304 000 24 000 148 000
Accounts receivable 688 000 208 000 272 000
Dividends receivable 252 000 – –
Inventory 4 400 000 1 760 000 2 800 000
 Land 2 880 000 420 000 840 000
Plant and machinery 10 400 000 7 200 000 1 440 000
Accumulated depreciation (520 000) (3 600 000) (576 000)
Investment in Clovelly Ltd 2 640 000 – –
Investment in Bronte Ltd                – 1 680 000                –
Total assets 21 044 000 7 692 000 4 924 000
Liabilities
Accounts payable 3 640 000 2 860 000 1 276 000
Dividends payable 1 040 000 360 000 –
Shareholders’ equity
Share capital 13 200 000 2 240 000 640 000
Retained earnings  3 164 000 2 232 000 3 008 000
Total equities 21 044 000 7 692 000 4 924 000

Maroubra Ltd
Statement of changes in equity for the year ending 30 June 2015
Share Retained
capital ($) earnings ($) Total ($)
Balance at 1 July 2014 13 200 000 2 880 000 16 080 000
Total comprehensive income for the year – 1 824 000 1 824 000
Dividend—interim dividend – (500 000) (500 000)
Dividend—final dividend                 – (1 040 000) (1 040 000)
Balance at 30 June 2015 13 200 000 3 164 000 16 364 000

Clovelly Ltd
Statement of changes in equity for the year ending 30 June 2015
Share capital Retained
($) earnings ($) Total ($)
Balance at 1 July 2014 2 240 000 1 920 000 4 160 000
Total comprehensive income for the year – 672 000 672 000
Dividend—final dividend               – (360 000) (360 000)
Balance at 30 June 2015 2 240 000 2 232 000 4 472 000

Bronte Ltd
Statement of changes in equity for the year ending 30 June 2015
Share capital Retained earnings
($) ($) Total ($)
Balance at 1 July 2014 640 000 2 680 000 3 320 000
Total comprehensive income for the year – 768 000 768 000
Dividend—interim dividend            – (440 000) (440 000)
Balance at 30 June 2015 640 000 3 008 000 3 648 000

REQUIRED
Prepare a consolidated statement of comprehensive income, a consolidated statement of
changes in equity, and consolidated statement of financial position for Maroubra Ltd and its
controlled entities for the year ended 30 June 2015, disclosing separately the parent entity
interest and non-controlling interest, as required by IAS 27.  
14 Use the same information as in Review Question 13, except that the acquisition dates are as
follows:
• On 30 June 2011 Clovelly Ltd acquired 60 percent of the shares of Bronte Ltd for $1 680
000 (same date as in Review Question 13).
• On 30 June 2012 (one year later) Maroubra Ltd acquired a 70 per cent interest in Clovelly
Ltd for $2 640 000.
Both amounts represent the fair value of consideration transferred. Any non-controlling
interests are measured at fair value. At 30 June 2012 the share capital and reserves of Clovelly
Ltd and Bronte Ltd were as follows:
Clovelly Ltd ($) Bronte Ltd ($)
Share capital 2 240 000 640 000
Retained earnings 1 360 000 1 480 000
3 600 000 2 120 000

REQUIRED
Prepare a consolidated statement of comprehensive income, a consolidated statement of
changes In equity, and consolidated statement of financial position for Maroubra Ltd and its
controlled entities as at 30 June 2015. You should also provide details of the non-controlling
interests as required by AASB 10.  LO 30.5