In December 2012 Kandlin made an offer to the shareholders
In December 2012, Kandlin made an offer to the shareholders of Delvco to acquire a controlling interest in the company. Kandlin was prepared to pay $1.50 cash per share, provided that 70% of the shares could be acquired (enough shares to gain control).
The directors of Delvco recommended that the offer be accepted. By January 1, 2013, when the offer expired, 75% of the shares had changed hands and were now in the possession of Kandlin. The statement of financial position of Delvco on that date is shown below.
Current assets........ $368,000
Non-current assets ....... 244,000
................ $612,000
Share capital—400,000 shares.. $400,000
Other components of equity... 30,000
Retained earnings ...... 130,000
Current liabilities....... 52,000
.............. $612,000
At January 1, 2013, all the identifiable assets and liabilities of Delvco were recorded at amounts equal to fair value. Kandlin uses the full goodwill method. The fair value of the non-controlling interest at January 1, 2013, was $147,000.
The draft financial statements of the two companies on December 31, 2013, revealed the following details:
Additional information:
1. Kandlin had made an advance of $80,000 to Delvco. This advance was repayable in December 2014.
2. The directors of Kandlin and Delvco had declared dividends of $50,000 and $10,000, respectively.
3. Delvco holds at the end of the reporting period inventory purchased from Kandlin during the year for $55,000.
Kandlin invoices goods to its subsidiary at cost plus 10%.
4. On January 1, 2013, Delvco sold to Kandlin some display equipment for $60,000. At that date, the equipment’s carrying amount was $52,000 and the equipment was estimated to have a useful life of 10 years if used constantly over that period.
5. Assume a tax rate of 30%.
6. For Kandlin, balances of cumulative other comprehensive income at January 1, 2013, was $25,000.
Prepare the consolidated financial statements for Kandlin and its subsidiary, Delvco, as at December 31, 2013.
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