P Co acquired a controlling interest of 90% in X Co on 1 January 20x3. The financial statements for the year ended 31 December 20x6 and other information are provided below.

Additional information

(a) The undervalued equipment had an estimated useful life of six years as at acquisition date.

(b) During 20x5, X Co sold raw materials to P Co at transfer price of $150,000 when the carrying amount was $135,000. Subsequently:

(c) P Co constructed a warehouse during 20x5. As X Co could borrow from banks at more competitive rates, X Co borrowed $1 million from third party banks and extended a loan of $1 million to P Co in July 20x5 to fund P’s construction of the warehouse. X Co charged interest on the loan to P Co at P Co’s cost of debt, and recognized interest income during the period of the loan. P Co capitalized the interest charged by X Co into the cost of the warehouse in accordance with IAS 23 Borrowing Costs. The warehouse was completed on 1 October 20x6, and had an economic useful life of 20 years. Details of the interest charges were as follows:

4. Tax rate was 20% throughout. Recognize tax effects on fair value adjustments.

Required

1. If the cost of the warehouse (including the capitalized interest) in P Co’s books as at 1 October 20x6 was $3,500,000, determine the:

a. Cost of the warehouse for the economic entity as at 1 October 20x6; and

b. Net book value of the warehouse for the legal entity (P Co) and the economic entity as at 31 December 20x6.
2. Prepare consolidation entries for the year ended 31 December 20x6, with narratives (brief headers) and workings in accordance with IFRS 3 and IFRS 10.
3. Perform an analytical check on the balance of non-controlling interests as at 31 December 20x6, showing the workings clearly.
4. Perform an analytical check on the following balances:

a. Consolidated retained earnings as at 31 December 20x6.

b. Consolidated fixed assets as at 31 December 20x6.

c. Consolidated inventory as at 31 December 20x6

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Partial Income Statement and Statement of Changes in Equity For Year Ended 31 December 20x6 Profit before tax. Tax..... Profit after tax.. Dividends declared. Profit retained.... Retained earnings, 1 Jan 20x6... Retained earnings, 31 Dec 20x6. P Co X Co $2,200,000 $800,000 (440,000) (160,000) $1,760,000 $ 640,000 (100,000) (90,000) $1,660,000 $ 550,000 1,200,000 650,000 $2,860,000 $1,200,000