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    Suggested Solution Q15.1

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    swordshoes
    H owns 80% of company S and 75% of company W, giving it an effective interest of 60% in W. S's net assets were RM2000 and W's were RM1500. Using the old method, goodwill of RM275 was recognized. Using the full goodwill method, goodwill of RM360 was recognized and NCI increased to RM900. Under both methods, consolidated retained earnings were RM1255-1260.

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    Suggested Solution Q15.1

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    swordshoes
    2K views4 pages
    H owns 80% of company S and 75% of company W, giving it an effective interest of 60% in W. S's net assets were RM2000 and W's were RM1500. Using the old method, goodwill of RM275 was recognized. Using the full goodwill method, goodwill of RM360 was recognized and NCI increased to RM900. Under both methods, consolidated retained earnings were RM1255-1260.

    Original Description:

    Answer for "Company & Group Financial Reporting" by Jane Lazar, eight edition

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    H owns 80% of company S and 75% of company W, giving it an effective interest of 60% in W. S's net assets were RM2000 and W's were RM1500. Using the old method, goodwill of RM275 was recognized. Using the full goodwill method, goodwill of RM360 was recognized and NCI increased to RM900. Under both methods, consolidated retained earnings were RM1255-1260.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    2K views4 pages

    Suggested Solution Q15.1

    Uploaded by

    swordshoes
    H owns 80% of company S and 75% of company W, giving it an effective interest of 60% in W. S's net assets were RM2000 and W's were RM1500. Using the old method, goodwill of RM275 was recognized. Using the full goodwill method, goodwill of RM360 was recognized and NCI increased to RM900. Under both methods, consolidated retained earnings were RM1255-1260.

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    The document discusses two methods for recognising goodwill in a business combination: the old method where only parent's share of goodwill is recognised, and the full goodwill method where goodwill from both parent and non-controlling interests are recognised. It also shows how non-controlling interest is calculated under each method.

    The two methods for recognising goodwill are: 1) the old method where only the parent's share of goodwill is recognised, and 2) the full goodwill method where goodwill from both the parent and non-controlling interests are recognised.

    Under the old method, only the parent's share of goodwill is recognised. Under the full goodwill method, goodwill from both the parent and non-controlling interests are recognised. The full goodwill method also recognises the non-controlling interests' share of goodwill before any impairment.

    Q15.

    H in S
    No of shares bought in S 1,200,000
    No of shares issued in S 1,500,000
    % control 1200000 / 1500000 = 80%
    Pre-acquisition profits RM300,000 Date 1/1/x5

    Fair value of NCI = RM420,000

    S in W
    No of shares bought in W 750,000
    No of shares issued in W 1,000,000
    % control 750 / 1000 = 75% Effective interest of H in W
    Pre-acquisition profits RM200,000 Date 1/1/x6 80% x 75% = 60%
    Hence, NCI = 40%
    Fair value of NCI = RM540,000

    a) Goodwill is recognised for parent only


    This means using the old method
    W1 H in S H in W

    Consideration transferred 1800 800 80% x 1000


    NCI - share of net assets

    Fair value of identifiable net assets


    Share capital 1500 1000
    FV adjustment 100
    Pre acquisition profits 300 200
    1800 1300
    x 80% 1440 x 60% 780
    360 20
    Impairment of goodwill -85
    Total goodwill = 275
    Less: impairment of goodwill
    295

    Page 1 of 4
    W2 NCI
    S W
    Net assets per question 2000 1500
    Add: fair value adjustment 100
    Less: investments in W -1000
    1000 1600
    x 20% x40%
    Value 200 640
    Total NCI 840

    W3 Retained earnings
    H S W
    Per question 1000 500 500
    Pre-acq -300 -200
    Post acq 200 300

    Goodwill impaired -85


    Share of post acq
    S: 80% x 200 160
    W: 60% x 300 180
    1255

    Harry
    Consolidated Statement of Financial Position as at 31/12/X7
    Non current assets 1480 + 1525 + 1600 + 100 4705
    Goodwill 295
    Current assets 120 + 75 + 100 295
    5295

    Share capital 2000


    Group retained earnings 1255
    3255
    NCI 840
    4095
    10% debentures 300

    Page 2 of 4
    Trade and other payables 400 + 300 + 200 900
    5295

    b) Full goodwill is recognised


    W1 H in S NCI H in W NCI
    80% 20%
    Consideration transferred 1800 800 80% x 1000
    FV of NCI 420 540

    Fair value of identifiable net assets


    Share capital 1500 1000
    FV adjustment 100
    Pre acquisition profits 300 200
    1800 1300
    x80%/20% 1440 360 x 60% 780 520
    360 60 20 20
    Impairment 100 x 80%/20% -80 -20
    280 40
    Total goodwill = 360

    W2 NCI
    S W
    Net assets per question 2000 1500
    Add: fair value adjustment 100
    Less: investments in W -1000
    1000 1600
    x 20% x40%
    Value 200 640
    Add: goodwill b4 impairment 60 20
    Impairment of goodwill -20
    240 660
    Total NCI 900

    Page 3 of 4
    W3 Retained earnings
    H S W
    Per question 1000 500 500
    Pre-acq -300 -200
    Post acq 200 300

    Goodwill impaired -80


    Share of post acq
    S: 80% x 200 160
    W: 60% x 300 180
    1260

    Harry
    Consolidated Statement of Financial Position as at 31/12/X7
    Non current assets 1480 + 1525 + 1600 + 100 4705
    Goodwill 360
    Current assets 120 + 75 + 100 295
    5360

    Share capital 2000


    Group retained earnings 1260
    3260
    NCI 900
    4160
    10% debentures 300
    Trade and other payables 400 + 300 + 200 900
    5360

    Page 4 of 4

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