Mike Ltd had acquired its 100% interest in Ross Ltd on 1 July 2018 which is four
Question:
Mike Ltd had acquired its 100% interest in Ross Ltd on 1 July 2018 which is four years earlier
for $1,094,600. At that date the owners’ equity of Ross Ltd was as follows:
Share capital 500,000
Retained earnings 425,000
At the date of acquisition all the assets of Ross Ltd were considered to be fairly valued except for the following:
Carrying amount Fair value
Plant (Cost $50,000) 40,000 70,000
Brand Name Not recognized 110,000
The plant has a remaining useful life of 5 years. The brand name was internally developed by Ross Ltd and is considered to have an indefinite life. All fair value adjustments are recorded on consolidation.
Other information
- The opening inventory of Mike Ltd as of 1 July 2021 included inventory purchased from Ross Ltd for $105,000. The original cost of the inventory was $87,500. All the inventory was sold outside the group during the 2022 financial year.
- During the year ended 30 June, 2022 Mike Ltd sold inventory to Ross Ltd for
$162,500. The original cost of the inventory was $100,000. Ross Ltd had sold 60% of the inventory outside the group by 30 June 2022.
- On 1 July 2020, Ross Ltd sold the plant to Mike Ltd for $120,000. The plant originally cost $100,000 and had a carrying amount at the date of sale of $80,000. At the date of sale the plant had a remaining useful life of ten years.
- Mike Ltd charges Ross Ltd a management fee of $66,250 each year.
- As of 30 June 2022 Ross Ltd owes Mike Ltd $100,000 for an interest-free loan.
- Management of Mike Ltd believes goodwill was impaired by $5,000 in the current financial year. Impairments of goodwill recorded in prior years total $6,500.
- During the year ended 30 June 2022, Ross Ltd declared and paid a dividend of $232,500. The applicable tax rate is 30%.
Required
- Prepare all necessary consolidation adjustment entries needed to prepare the consolidated financial statements as of 30 June 2022.
- If Mike’s acquisition was not 100%, describe how NCI is affected by intra-group transactions
- What are reporting/disclosures would Mike need to do to account for the non-controlling interest?
International Financial Reporting And Analysis
ISBN: 9781473766853
8th Edition
Authors: David Alexander, Ann Jorissen, Martin Hoogendoorn