On 1 January 20x3, P Co acquired a 90% interest in Y Co. On that date, the fair value of non-controlling interests in Y Co was $180,000. A year later, on 1 January 20x4, P Co acquired a 30% interest in Z Co. Book values of equity and fair values of identifiable net assets of the acquired companies are shown below

Additional information

(a) Unrecognized intangible asset of Z Co was impaired in 20x5 to the extent of 30% of its original fair value.
Unrecognized intangible asset of Y Co was unimpaired.

(b) On 1 January 20x5, Y Co sold equipment to P Co at an invoiced price of $150,000. At the date of the sale, the net book value of the equipment was $48,000. Its original cost was $120,000. The original useful life of the equipment was five years; it had no estimated residual value. On 1 January 20x5, the remaining useful life was estimated at three years; estimated residual value remains at nil value.

(c) P Co sold inventory to Y Co in December 20x4 at market price of $60,000. The original cost of the inventory was $70,000. The inventory was resold to third parties in 20x5.

(d) Assume a tax rate of 20%. Recognize tax on fair value adjustments.

Required
1. Prepare the consolidation and equity accounting entries for the year ended 31 December 20x5 (with narratives and workings).
2. Perform analytical checks on the following balances as at 31 December 20x5:

(a) Non-controlling interests; and

(b) Investment in associate.

Transcribed Image Text:

Date of acquisition.... Shareholders' equity at date of acquisition: Share capital.... Retained earnings.. Intangibles Other identifiable net assets.... Total identifiable net assets..... Book value 5 0 1,500,000 $1,500,000 The fair and book values of identifiable net assets of each company at date of acquisition are shown below: Z Co Y Co Y Co 1 January 20x3 Fair value $ 200,000 1,500,000 $1,700,000 $ 500,000 1,000,000 $1,500,000 Z Co 1 January 20x4 Book value S 0 1,000,000 $1,000,000 $ 300,000 700,000 $1,000,000 Fair value $ 300,000 1,000,000 $1,300,000