Additional Depreciation ,goodwill impairment and NCI

Hello Sir, Where should the following go to the subsidiary account or parent accounts: Impairment of goodwill Additional Depreciation due to fare value difference as in the following question it is asking for calculation of group retained earnings so they deducted these two from subsidiary but shouldn't them be included in consolidated P&L and consequently affecting the profit for the year, Please clarify Sir, Thanks _________________________________________________________________________________ Q 301 Plastik Co (Dec14 amended) 36 mins On 1 January 20X4, Plastik Co acquired 80% of the equity share capital of Subtrak Co. The consideration was satisfied by a share exchange of two shares in Plastik Co for every three acquired shares in Subtrak Co. At the date of acquisition, shares in Plastik Co and Subtrak Co had a market value of $3 and $2.50 each respectively. Plastik Co will also pay cash consideration of 27.5 cents on 1 January 20X5 for each acquired share in Subtrak Co. Plastik Co has a cost of capital of 10% per annum. None of the consideration has been recorded by Plastik Co. Below are the summarised draft financial statements of both companies. STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 20X4 Plastik Co Subtrak Co $'000 $'000 Revenue 62,600 30,000 Cost of sales (45,800) (24,000) Gross profit 16,800 6,000 Distribution costs (2,000) (1,200) Administrative expenses (3,500) (1,800) Finance costs (200) – Profit before tax 11,100 3,000 Income tax expense (3,100) (1,000) Profit for the year 8,000 2,000 Plastik Co Subtrak Co Other comprehensive income: Gain on revaluation of property 1,500 – Total comprehensive income 9,500 2,000 STATEMENTS OF FINANCIAL POSITION AS AT 30 SEPTEMBER 20X4 Plastik Co Subtrak Co $'000 $'000 ASSETS Non-current assets Property, plant and equipment 18,700 13,900 Current assets Inventories (note(ii)) 4,300 1,200 Trade receivables 5,700 2,500 Cash and cash equivalents – 300 10,000 4,000 Total assets 28,700 17,900 EQUITY AND LIABILITIES Equity Equity shares of $1 each 10,000 9,000 Revaluation surplus (note(i)) 2,000 – Retained earnings 6,300 3,500 18,300 12,500 Non-current liabilities 10% loan notes (note(ii)) 2,500 1,000 Current liabilities Trade payables (note(iv)) 3,400 3,600 Bank 1,700 – Current tax payable 2,800 800 7,900 4,400 Total equity and liabilities 28,700 17,900 The following information is relevant: (i) At the date of acquisition, the fair values of Subtrak Co's assets and liabilities were equal to their carrying amounts with the exception of Subtrak Co's property which had a fair value of $4 million above its carrying amount. For consolidation purposes, this led to an increase in depreciation charges (in cost of sales) of $100,000 in the post-acquisition period to 30 September 20X4. Subtrak Co has not incorporated the fair value property increase into its entity financial statements. The policy of the Plastik Co group is to revalue all properties to fair value at each year end. On 30 September 20X4, the increase in Plastik Co's property has already been recorded, however, a further increase of $600,000 in the value of Subtrak Co's property since its value at acquisition and 30 September 20X4 has not been recorded. (ii) Sales from Plastik Co to Subtrak Co throughout the year ended 30 September 20X4 had consistently been $300,000 per month. Plastik Co made a mark-up on cost of 25% on all these sales. $600,000 (at cost to Subtrak Co) of Subtrak Co's inventory at 30 September 20X4 had been supplied by Plastik Co in the post-acquisition period. (iii) Plastik Co's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose Subtrak Co's share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest. (iv) Due to recent adverse publicity concerning one of Subtrak Co's major product lines, the goodwill which arose on the acquisition of Subtrak Co has been impaired by $500,000 as at 30 September 20X4. Goodwill impairment should be treated as an administrative expense. (v) Assume, except where indicated otherwise, that all items of income and expenditure accrue evenly throughout the year. Required (a) Calculate the goodwill arising on the acquisition of Subtrak Co on 1 January 20X4. (4 marks) (b) Calculate the following amounts for presentation in the consolidated statement of financial position: (i) Group retained earnings (ii) Non-controlling interest (6 marks) (c) Prepare the consolidated statement of profit or loss and other comprehensive income for Plastik Co for the year ended 30 September 20X4. _______________________________________________________________________________ Answer (a) Goodwill $'000 $'000 Consideration transferred – 4.8m shares @ $3 14,400 Deferred consideration (7.2m × $0.275 × 1/1.1) 1,800 16,200 Fair value of NCI (1.8m shares @ $2.50) 4,500 20,700 Fair value of net assets: Shares 9,000 Retained earnings (3,500 – (2,000 × 9/12)) 2,000 Fair value adjustment – property 4,000 (15,000) Goodwill at acquisition 5,700 (b) Retained earnings Plastik Subtrak $'000 $'000 Per question 6,300 3,500 Less pre-acquisition (1,500 + (2,000 × 3/12)) (2,000) Goodwill impairment (500) Unwinding of discount on deferred consideration (1,800 (a) × 10% × 9/12) (135) Depreciation on FVA (100) PURP (600,000 × 25/125) (120) 6,045 900 Share of Subtrak Co (900 × 80%) 720 6,765 Non-controlling interest $'000 NCI at acquisition (see goodwill) 4,500 Share of post-acquisition retained earnings (900 × 20%) 180 Share of property revaluation gain (600 × 20%) 120 4,800 (c) CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 20X4 $'000 Revenue (62,600 + (30,000 × 9/12) – 2,700 (W2)) 82,400 Cost of sales (45,800 + (24,000 × 9/12) – 2,580 (W2) + 100 (b)) 61,320 Gross profit 21,080 Distribution costs (2,000 + (1,200 × 9/12)) (2,900) Administrative expenses (3,500 + (1,800 × 9/12) + 500 (goodwill)) (5,350) Finance costs (200 + 135 (see retained earnings)) (335) Profit before tax 12,495 Income tax (3,100 + (1,000 × 9/12)) (3,850) 8,645 Other comprehensive income Gain on revaluation of property (1,500 + 600) 2,100 Total comprehensive income 10,745 Profit for the year attributable to: Owners of the parent (?) 8,465 Non-controlling interest (W1) 180 8,645 Total comprehensive income attributable to: Owners of the parent (?) 10,445 Non-controlling interest (W1) 300 10,745 Workings 1 Non-controlling interests Profit for year Total comprehensive income $'000 $'000 Per (b) above 900 900 Gain on property revaluation 600 900 1,500 NCI 20% 180 300 2 Intragroup trading $'000 $'000 (1) Cancel intragroup sales/purchases DEBIT Group revenue (300,000 × 9) 2,700 CREDIT Group cost of sales 2,700 (2) Eliminate unrealised profit DEBIT Cost of sales (600,000 × 25/125) 120 CREDIT Group inventories 12