Colours Limited owns shares in two entities of which the details are as follows: Investment in Blue
Question:
Colours Limited owns shares in two entities of which the details are as follows: Investment in Blue Limited Colours Limited acquired 70% and control over Blue Limited for R580 000 on 1 January 2021.
At the acquisition date, Blue Limited had the following balances:
Share Capital - R200 000
Retained earnings - R575 000
At the acquisition date, Colours Limited considered the net assets of Blue Limited to be fairly valued.
Colours Limited measures the non - controlling interest at its proportionate share of the identifiable net assets of Blue Limited.
Blue Limited's retained earnings amounted to R750 000 at 31 December 2021.
Investment in Red Limited
Colours Limited acquired 90% and control over Red Limited for R360 000 on 1 January 2020.
At the acquisition date, Red Limited had the following balances:
Share capital - R150 000
Retained earnings - R250 000
At the acquisition date, Colours Limited considered the net assets of Red Limited to be fairly valued.
Colours Limited measures the non - controlling interest at its proportionate share of the identifiable net assets of Red Limited.
Red Limited had a retained earnings balance of R260 000 on 1 January 2021 and made a loss of R155 000 for the year ending 31 December 2021.
Required:
1. Calculate the amount of goodwill that arises with the purchase of the shares in Blue Limited.
2. Assume that Colours Limited determined the recoverable amount of Blue Limited to be R955 000 as at 31 December 2021.
Prepare the pro-forma journals required to account for the impairment loss on the Blue Limited investment in the consolidated financial statements of the Colours Limited Group as at 31 December 2021. Round all answers to the nearest Rand.
3. Prepare the pro-forma journal entries required to include the Red Limited investment in the consolidated financial statements of the Colours Limited Group for the year ended 31 December 2021
Intermediate Accounting
ISBN: 978-0176509736
10th Canadian Edition, Volume 1
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,