On 1 July 2017, Adam Ltd acquired all of the shares of Beyer Ltd, on a cum-div. basis, for
$2,700,000. At this date, the equity and liability sections of Beyer Ltd’s statement of financial position showed the following balances:
Share capital – 400 000 shares $ 1,200,000
General reserve 350,000
Retained earnings 960,000
Revaluation surplus 60,000
Dividend payable 25,000
On 1 July 2017, Beyer Ltd’s assets included $46,000 of recorded goodwill. The dividend payable at the acquisition date was subsequently paid in August 2017.
At the acquisition date, all the identifiable assets and liabilities of Beyer Ltd were recorded at amounts equal to fair value except for the following:
Carrying amount Fair value
Land $500 000 $550 000
Inventory 45 000 55 000
Plant (cost $300 000) 240 000 280 000
The inventory on hand in Beyer Ltd on 1 July 2017 was sold in November 2017. The plant was estimated to have a further 5-year life with zero residual value. The land on hand at the acquisition date was sold in March 2019. On 1 January 2019, the plant was sold to Autumn leaves Ltd for $230,000.
On 30 June 2018, goodwill was impaired by $8 500. The company applies the partial goodwill method. The tax rate is 30%.
During the period 1 July 2017 to 30 June 2019, the following intragroup transactions have occurred between Adam Ltd and Beyer Ltd:
(T1) On 30 June 2019, Adam Ltd approved and declared a final dividend of $12,000, and Beyer Ltd approved and declared a final dividend of $18,000.
(T2) On 1 January 2018, Adam Ltd provided a $500,000 loan to Beyer Ltd. The interest rate on this loan is 10% p.a,, and interest is paid each year on 30 June. On 30 June 2019, no principal repayments have been made on the loan.
(T3) In April 2018, Adam Ltd sold inventory to Beyer Ltd for $24,000. The inventory had previously cost Adam Ltd $18,000. By 30 June 2018, three-quarters of this inventory had been sold to Scarf Ltd for $22,000. The remainder of the inventory was sold to Fluffy Jacket Ltd in August 2018 for $7,500.
(T4) On 3 June 2019, Beyer Ltd sold inventory to Adam Ltd for $42,000. The transfer price included a mark-up of 20% on cost. On 30 June 2019, one-half of this inventory was still on hand.
(T5) In November 2017, Beyer Ltd sold inventory to Adam Ltd at a transfer price of
$45,000. The inventory had previously cost Beyer Ltd $31,000. All of this inventory was subsequently sold to Boots Ltd in June 2019 for $52,500.
(T6) On 1 January 2018, Adam Ltd sold machinery to Beyer Ltd for $120,000. The machinery had a written-down value at the time of sale of $90,000. For this type of machinery, both entities charge depreciation at a rate of 20% p.a. straight-line.
(T7) On 1 March 2019, Beyer Ltd sold equipment to Adam Ltd for $55 000, this asset having a carrying amount at the time of sale of $46,000. Beyer Ltd had treated the asset as a depreciable non-current asset, being depreciated at 15% on cost, whereas Adam Ltd records the equipment as inventory. Adam Ltd sold this asset to Beanie Ltd on 15 June 2019 for $61,500.
a. Show the acquisition analysis on 1 July 2017, i.e. Step 1 of the consolidation process.
b. Prepare the BCVR entries on 30 June 2019, i.e., Step 2 of the consolidation process.
c. Prepare the pre-acquisition entries on 30 June 2019, i.e., Step 3 of the consolidation process.
d. Prepare the intragroup transaction adjustment entries on 30 June 2019, i.e., Step 4 of the consolidation process.
On 1 July 2019, the parent company acquired 75% of the shares of the subsidiary company at a certain amount. At this date, the equity of the subsidiary company consisted of share capital, general reserve, and retained earnings.
At the date of acquisition, all the identifiable assets and liabilities of the subsidiary company were recorded at amounts equal to fair value except for the following assets: inventory, land, and patent. At the date of acquisition, the fair value of patent was $70,000 higher than its carrying amount. The inventory was sold in November 2019. The land and patent are still on hand at 30 June 2021. The tax rate is 30%. The parent company uses the partial goodwill method.
Suppose that the following NCI journal entries are made for the calculation of the NCI share of equity on 30 June 2021. The amounts for each account are not provided for the sake of simplicity.
Share capital Dr XXX
General reserve Dr XXX
RE (op) Dr XXX
OPAT Dr XXX
BCVR Dr XXX
NCI Cr XXX
Now, if the BCVR patent was fully impaired during the fiscal year ended on 30 June 2021 (rather than still on hand), what changes will need to be made to the NCI journal entries shown above? Explain the changes and provide reasons for them.