The draft statements of financial position of Ping Co and Pong Co on 30 June 20X8 were as follows.
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 20X8
PING CO PONG CO
$ $
Assets
Non-current assets
Property, plant and equipment 50,000 40,000
20,000 ordinary shares in Pong Co at cost 30,000
80,000
Current assets
Inventory 3,000 8,000
Owed by Ping Co 10,000
Receivables 16,000 7,000
Cash 2,000 –
21,000 25,000
Total assets 101,000 65,000
Equity and liabilities
Equity
Ordinary shares of $1 each 45,000 25,000
Revaluation surplus 12,000 5,000
Retained earnings 26,000 28,000
83,000 58,000
Current liabilities
Owed to Pong Co 8,000 –
Trade payables 10,000 7,000
18,000 7,000
Total equity and liabilities 101,000 65,000
Ping Co acquired its investment in Pong Co on 1 July 20X7 when the retained earnings of Pong Co stood
at $6,000. The agreed consideration was $30,000 cash and a further $10,000 on 1 July 20X9. Ping Co's
cost of capital is 7%. Pong Co has an internally-developed brand name – 'Pongo' – which was valued at
$5,000 at the date of acquisition. There have been no changes in the share capital or revaluation surplus of
Pong Co since that date. At 30 June 20X8 Pong Co had invoiced Ping Co for goods to the value of $2,000
and Ping Co had sent payment in full but this had not been received by Pong Co.
There is no impairment of goodwill. It is group policy to value non-controlling interest at full fair value. At
the acquisition date the non-controlling interest was valued at $9,000.
Required
Prepare the consolidated statement of financial position of Ping Co as at 30 June 20X8.
1 Calculate goodwill
Goodwill
Group
$
Consideration transferred (W2)
Fair value of NCI
38,734
9,000
Net assets acquired as represented by:
Ordinary share capital 25,000
Revaluation surplus on acquisition 5,000
Retained earnings on acquisition 6,000
Intangible asset – brand name 5,000
(41,000)
Goodwill 6,734
This goodwill must be capitalised in the consolidated statement of financial position.
2 Consideration transferred
$
Cash paid 30,000
Fair value of deferred consideration (10,000 x 1 / (1.072
*)) 8,734
38,734
*Note. The deferred consideration has been discounted at 7% for two years (1 July 20X7 to 1 July
20X9).
However, at the date of the current financial statements, 30 June 20X8, the discount for one year
has unwound. The amount of the discount unwound is:
$
(10,000 × 1 / 1.07) – 8,734 612
So this amount will be charged to finance costs in the consolidated financial statements and the
deferred consideration under liabilities will be shown as $9,346 (8,734 + 612).
3 Calculate consolidated reserves
Consolidated revaluation surplus
$
Ping Co 12,000
Share of Pong Co's post acquisition revaluation surplus –
12,000
Consolidated retained earnings
Ping Pong
$ $
Retained earnings per question 26,000 28,000
Less pre-acquisition (6,000)
Discount unwound – finance costs (612) 22,000
Share of Pong: 80% ? $22,000 17,600
42,988
4 Calculate non-controlling interest at year end
$
Fair value of non-controlling interest 9,000
Share of post-acquisition retained earnings (22,000 x 20%) 4,400
13,400
5 Agree current accounts
Pong Co has cash in transit of $2,000 which should be added to cash and deducted from the
amount owed by Ping Co.
Cancel common items: these are the current accounts between the two companies of $8,000 each.
6 Prepare the consolidated statement of financial position.
PING CO
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 20X8
$ $
Assets
Non-current assets
Property, plant and equipment (50,000 + 40,000) 90,000
Intangible assets: Goodwill (W1) 6,734
Brand name (W1) 5,000
Current assets
Inventories (3,000 + 8,000) 11,000
Receivables (16,000 + 7,000) 23,000
Cash (2,000 + 2,000) 4,000
38,000
Total assets 139,734
Equity and liabilities
Equity
Ordinary shares of $1 each 45,000
Revaluation surplus (W3) 12,000
Retained earnings (W3) 42,988
99,988
Non-controlling interest (W4) 13,400
113,388
Current liabilities
Trade payables (10,000 + 7,000) 17,000
Deferred consideration (W2) 9,346
Total equity and liabilities 139,734
How do they get 20% and 80% proportion for NCI and parent share?