University Nanyang Polytechnic (NYP)
Subject Contemporary Financial Accounting

Assignment Overview:

Case Scenario 1:

Apple Ltd purchased 60% of the shares totaling $65,000 in Banana Ltd and Banana Ltd wholly owns Cherry Ltd which was purchased for $52,000. Both investments were acquired on 1 July 2018. On this date, shareholders’ equity was valued at:

Banana LtdCherry Ltd
Share capital75,00020,000
General reserve10,0001,000
Retained earnings16,0004,500

The financial statements of the entities within the group at 30 June 2020 are as follows:’

Apple Ltd:

Total assets295,000
Total liabilities126,000
Share capital100,000
General reserve30,000
Retained earnings39,000

Banana Ltd:

Debentures in Cherry Ltd20,000
Total assets147,000
Total liabilities17,750
Share capital75,000
General reserve16,250
Retained earnings38,000

Cherry Ltd:

Total assets66,500
Debentures25,000
Total liabilities30,250
Share capital20,000
General reserve2,250
Retained earnings14,000

The tax rate is 30%. All non-controlling interests are valued at the proportionate share of the acquiree’s identifiable net assets. Inventory on hand at 30 June 2020 included goods obtained from within the group as follows:

  • Apple Ltd purchased from Banana Ltd, the sale price was $10,000 and cost $7,500.
  • Apple Ltd purchased from Cherry Ltd, the sale price was $20,000 and cost $18,500.
  • Banana Ltd purchased from Cherry Ltd, the sale price was $15,000 and cost $13,800.

The directors had applied the impairment test for goodwill annually and determined that a write-down of $3,090 is required for consolidation purposes at 30 June 2020 (write-down of goodwill in Banana Ltd is $440 and write-down of goodwill in Cherry Ltd is $2,650) with the same amounts deemed to be attributable for the prior period. All debentures (including the debenture from Cherry Ltd to Banana Ltd) are due 30 June 2030.

Required:

In the space provided – show goodwill entries, intragroup transactions, and calculate direct and indirect non-controlling interest.

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Case Scenario 2:

On 1 July 2019, ABC Ltd acquired a portion of XYZ Ltd and they use the partial method to account for the 10% share of the NCI. ABC Ltd acquired their portion of the equity at a cost of $500,000 when share capital had a balance of $350,000 and retained earnings was $100,000. The property was required to be revalued on the acquisition date. On the books of XYZ Ltd, the property was recorded as $950,000. ABC Ltd had an independent valuation completed which confirmed the asset could be sold for $1,000,000. On 1 July 2019, XYZ Ltd sold the plant to ABC Ltd that cost $50,000 and had accumulated depreciation $20,000. The selling price of the plant was $40,000. At the date of sale, the plant could be depreciated straight line, 25% per year.

Pre-tax profit for 30 June 2020 is $100,000. During this year there was intragroup sales totaling $60,000 that had a cost price of $30,000. A quarter of this inventory was still on hand at the end of this year. The tax rate relating to all transactions to both entities is 30%. A consultancy fee of $10,000 was paid by the subsidiary to the parent.

Required:

Calculate any non-controlling interest and write it in the space provided below. Show all intragroup entries and full workings.

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