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Hi Sir,
Thanks loads for your lectures on this, I found them very helpful!
I am just confused by an answer in my Kaplan Book, could you help?
H bought 90% of the equity share capital of S, two years ago on 1January 20X2 when the retained earnings of S stood at $5,000.Statements of financial position at the year end of 31 December 20X3 areas follows:
PPE: H 100 S 30
Investment in S. H 30Inventory H 90 S 20
Receivables H 110 S 25
Bank H 10 S 5Share Capital H 15 S 5
Retained Earnings H 159 S 31Non Current Liabilities H 120 S 28
Current Liabilities H 50 S 16S transferred goods to H at a transfer price of $18,000 at a mark-up of 50%. Two-thirds remained in inventory at the year end. The current account in H and S stood at $22,000 on that day. The H group uses the fair value method to value the non-controlling interest. The fair value of the non-controlling interest at acquisitionwas $4,000. Prepare the consolidated statement of financial position at 31/12/X3.
I just don’t understand the NCI part. I thought it would be;
Fair Value + (10% of post-acquisition profits)
4 + ((31-5)*0.1)) = 6.6But the answer is 6.2, can you help me understand, please?
S had sold goods to H during the year and will have recorded a profit of 50/150 x 18,000 = $6,000, which will be included in their retained earnings.
At the end of the year, 2/3 of these sales are still in S’s inventory and therefore the profit has not been realised by the group as a whole. So the unrealised profit is 2/3 x $6,000 = $4,000.
When we consolidate, this needs removing from S’s retained earnings. So the NCI becomes
4 + ((31 – 5 – 4)*0.1) = 6.2
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