P Co obtained control through acquiring ownership interest of 90% in X Co on 1 January 20x3.

Shareholders' equity of X Co at date of acquisition was as follows:
Share capital				$400,000
Retained earnings				800,000
				$1,200,000

On acquisition date, the fair value of fixed assets of X Co was $950,000 while the book value of fixed assets was $800,000. Fixed assets had a useful life of eight years as at the date of acquisition. The fixed assets were disposed at a price of $250,000 to third parties on 1 January 20x6.

Fair value of non-controlling interests of X Co as at acquisition date was $360,000. The financial statements for the year ended 31 December 20x6 are shown below.

Income Statement and partial Statement of Changes in Equity for year ended 31 December 20x6
				P Co	X Co
Profit before tax				6,200,000	1,600,000
Tax				(1,240,000)	(320,000)
Profit after tax				4,960,000	1,280,000
Dividends declared				(500,000)	(80,000)
Profit retained				4,460,000	1,200,000
Retained earnings, 1 Jan 20x6				1,100,000	600,000
Retained earnings, 31 Dec 20x6				5,560,000	1,800,000
Statement of Financial Position as at 31 December 20x6				P Co	X Co
Fixed assets, net book value				4,540,000	1,910,000
Investment in X, at cost				2,300,000
Inventory				800,000	290,000
Accounts receivable				300,000	210,000
Cash				80,000	70,000
Total assets				8,020,000	2,480,000
Accounts payable				1,160,000	280,000
Share capital				1,300,000	400,000
Retained earnings				5,560,000	1,800,000
Equity and Liabilities				8,020,000	2,480,000

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

Required

1. Prepare consolidation and equity accounting entries for the year ended 31 December 20x6.

2. Perform an analytical check of the balance in Non-controlling Interests as at 31 December 20x6, showing the workings clearly.

Answer rating: 100% (QA)

Answer Solution CONSOLIDATION AND EQUITY ACCOUNTING ENTRIES FOR THE YEAR ENDED 31 DECEMBER 2006 IN P ... View the full answer