Question 24.3.2: non-controlling interests P Co purchased 75% of the share ca...
non-controlling interests
P Co purchased 75% of the share capital of S Co on 1 January 20X1 for $60,000 when the retained earnings of S Co were $5,000. The fair value of the non-controlling interest in S Co at that date was $15,000. The statements of financial position of P Co and S Co as at 31 December 20X1 are given below.
Required
Prepare the consolidated statement of financial position at 31 December 20X1.
P CO
STATEMENT OF FINANCIAL POSITION
| Assets | $ | $ |
| Non-current assets | ||
| Tangible assets | 50,000 | |
| 30,000 $1 ordinary shares in S Co at cost | 60,000 | |
| 110,000 | ||
| Current assets | 45,000 | |
| Total assets | 155,000 | |
| Equity and liabilities | ||
| Equity | ||
| 80,000 $1 ordinary shares | 80,000 | |
| Retained earnings | 55,000 | |
| 135,000 | ||
| Current liabilities | 20,000 | |
| Total equity and liabilities | 155,000 |
S CO
STATEMENT OF FINANCIAL POSITION
| $ | ||
| Assets | ||
| Tangible non-current assets | 35,000 | |
| Current assets | 40,000 | |
| Total assets | 75,000 | |
| Equity and liabilities | ||
| Equity | ||
| 40,000 $1 ordinary shares | 40,000 | |
| Retained earnings | 15,000 | |
| 55,000 | ||
| Current liabilities | 20,000 | |
| Total equity and liabilities | 75,000 |
All of S Co’s net assets are consolidated despite the fact that the company is only 75% owned. NCI is included in the statement of financial position at its fair value plus its share of post-acquisition retained earnings.
P GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| $ | $ | |
| Assets | ||
| Non-current assets | ||
| Tangible non-current assets (50,000 + 35,000) | 85,000 | |
| Goodwill (W1) | 30,000 | |
| 115,000 | ||
| Current assets (45,000 + 40,000) | 85,000 | |
| Total assets | 200,000 |
| $ | $ | |
| Equity and liabilities | ||
| Equity attributable to owners of the parent | ||
| Share capital (P Co only) | 80,000 | |
| Retained earnings (W2) | 62,500 | |
| 142,500 | ||
| Non-controlling interest (W3) | 17,500 | |
| Total equity | 160,000 | |
| Current liabilities (20,000 + 20,000) | 40,000 | |
| Total equity and liabilities | 200,000 |
Workings
1 Goodwill
| $ | $ | |
| Fair value of consideration transferred | 60,000 | |
| Plus fair value of non-controlling interest at acquisition | 15,000 | |
| Less net acquisition-date fair value of identifiable assets acquired | ||
| and liabilities assumed: | ||
| Ordinary share capital | 40,000 | |
| Retained earnings at acquisition | 5,000 | |
| (45,000) | ||
| Goodwill | 30,000 |
2 Retained earnings
| P Co | S Co | |
| $ | $ | |
| Per question | 55,000 | 15,000 |
| Pre-acquisition retained earnings | (5,000) | |
| 10,000 | ||
| Group share of post-acq ret’d earnings: | ||
| S Co (75% x 10,000) | 7,500 | |
| Group retained earnings | 62,500 |
3 Non-controlling interest at reporting date
| $ | |
| Fair value of NCI at acquisition | 15,000 |
| Plus NCI’s share of post-acquisition retained earnings (25% x 10,000) | 2,500 |
| NCI at reporting date | 17,500 |