Question 24.Q4: Hinge Co acquired 80% of the ordinary shares of Singe Co on ...
Hinge Co acquired 80% of the ordinary shares of Singe Co on 1 April 20X5. On 31 December 20X4 Singe Co’s accounts showed a revaluation surplus of $4,000 and retained earnings of $15,000. The fair value of the non-controlling interest at acquisition was $7,000. The statements of financial position of the two companies at 31 December 20X5 are set out below.
Required
Prepare the consolidated statement of financial position of Hinge Co at 31 December 20X5. You should assume that profits have accrued evenly over the year to 31 December 20X5.
HINGE CO
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X5
| $ | $ | |
| Assets | ||
| Non-current assets | ||
| Property, plant and equipment | 32,000 | |
| 16,000 ordinary shares of 50c each in Singe Co | 50,000 | |
| 82,000 | ||
| Current assets | 85,000 | |
| Total assets | 167,000 | |
| Equity and liabilities | ||
| Equity | ||
| Ordinary shares of $1 each | 100,000 | |
| Revaluation surplus | 7,000 | |
| Retained earnings | 40,000 | |
| 147,000 | ||
| Current liabilities | 20,000 | |
| Total equity and liabilities | 167,000 |
SINGE CO
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X5
| $ | $ | |
| Assets | ||
| Property, plant and equipment | 30,000 | |
| Current assets | 43,000 | |
| Total assets | 73,000 |
| $ | $ | |
| Equity and liabilities | ||
| Equity | ||
| 20,000 ordinary shares of 50c each | 10,000 | |
| Revaluation surplus | 4,000 | |
| Retained earnings | 39,000 | |
| 53,000 | ||
| Current liabilities | 20,000 | |
| Total equity and liabilities | 73,000 |
Singe Co has made a profit of $24,000 ($39,000 – $15,000) for the year. This is assumed to have arisen evenly over the year; $6,000 in the three months to 31 March and $18,000 in the nine months after acquisition. The company’s pre-acquisition retained earnings are therefore as follows.
| $ | |
| Balance at 31 December 20X4 | 15,000 |
| Profit for three months to 31 March 20X5 ( 3/12 × 24,000) | 6,000 |
| Pre-acquisition retained earnings | 21,000 |
The balance of $4,000 on the revaluation surplus is all pre-acquisition.
HINGE CO
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X5
| $ | $ | |
| Assets | ||
| Non–current assets | ||
| Property, plant and equipment (32,000 + 30,000) | 62,000 | |
| Goodwill (W1) | 22,000 | |
| 84,000 | ||
| Current assets (85,000 + 43,000) | 128,000 | |
| Total assets | 212,000 | |
| Equity and liabilities | ||
| Equity attributable to owners of the parent | ||
| Ordinary shares of $1 each | 100,000 | |
| Revaluation surplus (W3) | 7,000 | |
| Retained earnings (W2) | 54,400 | |
| 161,400 | ||
| Non-controlling interest (W4) | 10,600 | |
| Total equity | 172,000 | |
| Current liabilities (20,000 + 20,000) | 40,000 | |
| Total equity and liabilities | 212,000 |
Workings
1 Goodwill
| $ | $ | |
| Fair value of consideration transferred | 50,000 | |
| Fair value of non-controlling interest | 7,000 | |
| Less net acquisition-date fair value of identifiable assets acquired and | ||
| liabilities assumed: | ||
| Ordinary share capital | 10,000 | |
| Retained earnings at acquisition (as above) | 21,000 | |
| Revaluation surplus | 4,000 | |
| (35,000) | ||
| Goodwill | 22,000 |
2 Retained earnings
| Hinge Co | Singe Co | |
| $ | $ | |
| Per question | 40,000 | 39,000 |
| Pre-acquisition retained earnings (W2) | (21,000) | |
| 18,000 | ||
| Group share of post-acq’n ret’d earnings | ||
| Singe Co: $18,000 × 80% | 14,400 | |
| 54,400 |
3 Revaluation surplus
| $ | |
| Hinge Co | 7,000 |
| Group share of post-acq’n revaluation surplus: Singe Co | – |
| 7,000 |
4 Non-controlling interest at reporting date
| $ | |
| Fair value of NCI at acquisition date | 7,000 |
| NCI share of post-acquisition retained earnings (20% x 18,000) | 3,600 |
| NCI | 10,600 |