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I want to ask about the answer of example 8: Step acquisition in Chapter 16: Changes in shareholdings in ACCA studyhub.
The question: A acquired 75% control of B, a number of years ago, for $90,000.
On acquisition, the fair value of B’s net assets was $100,000.
Fair value of the NCI on acquisition was $28,000.
Since the initial acquisition, the fair value of B’s net assets has increased by $20,000.
A further 15% of shares were then acquired for $21,000.
Required: Prepare the journal entry required to reflect the increase in controlling shareholding.Answer in studyhub:
Carrying amount of NCI
NCI in net assets (28,000 + 25% x 20,000) 33,000
NCI goodwill 3,000
Fair value of B’s net assets 36,000In carrying amount of NCI, the answer added NCI goodwill twice.
The NCI in net asset has included GW with the amount of $28,000 (GW: $3,000) and then added again.
I want to ask the reason why the answer added in the carrying amount of NCI.Please can you type in the JOURNAL that is in the answer.
Then I can have a think. 🙂
This is the answer that ACCA prepared:
Goodwill
Group NCI
$ $
Fair value of consideration given 90,000
NCI @ fair value /28,000
Fair value of B’s net assets (75%/25%) (75,000)/ (25,000)
Goodwill 15,000/ 3,000
The adjustment to the NCI is usually calculated based on the carrying amount of the NCI.
Carrying amount of NCI
$
NCI in net assets (28,000 + 25% x 20,000) 33,000
NCI goodwill 3,000
Fair value of B’s net assets (75%/25%) 36,000
Transfer to A (15/25) 21,600
The increase in shareholding is therefore accounted for by:
Dr NCI 21,600
Cr Retained earnings 600
Cr Cash 21,000FV NCI AT ACQUISITION 28000
NCI AT DATE OF CHANGE 28000 + 5000 = 33000
NCI REDUCTION = 15/25 X 33000 = 19800
So my Dr to NCI would be 19800 not 21600
There’s always been contention over the change in NCI calculation
Time to move on – don’t forget that your numbers don’t all have to be the same; but your explanations must be clear
🙂
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