Question 5 (22 marks) Part A (14 marks) Computer Patch Ltd acquired 100% shares in Microchips Ltd on the 1 July 2019 for a cost of $ 2 million. The following financial statements of Computer Patch Ltd and Microchips Ltd have been extracted at the time of acquisition: Computer Patch Ltd (5000) Microchips Ltd (5000) 671.4 540 (238) 302 207.4 93 26.5 40 35 Reconciliation of opening and closing retained earnings Sales revenue less Cost of goods sold Gross Profit Dividends received from Microchips Ltd Management fee revenue from Microchips Ltd Gain on sale of plant Expenses: Administrative expenses Depreciation Management fee expense Other expenses Profit before tax Tax expense Profit for the year Retained earnings - 30 June 2019 (30.8) (29.5) (38.7) (56.8) (26.5) 172 (101.1) 205.5 615 144 319.4 463.4 (137.4) 326.00 143 42.2 100.8 750.0 850.8 (93) 757.80 Dividends paid Retained earnings - 30 June 2020 Statement of financial position Shareholders' equity Retained earnings Share capital Current liabilities Accounts payable Non-current liabilities Loans 326 1,350 757.80 1,500 95.7 46.3 817.8 2,589.50 116 2.420.10 59.4 92 448.10 829 Current assets Accounts receivable Inventory Non-current assets Land Plant - at cost Accumulated depreciation Investment in Microchips Ltd 224 299.85 (85.75) 2.000 2589.50 926 355.8 (138.8) 2.420.10 Page 10 of 12 At the time of acquisition, the equity accounts of Microchips were: Share capital 1,500,000 Retained earnings 750,000 All assets are fairly stated During the 2019/20 financial year Computer Patch Ltd sells inventory to Microchips Ltd for $250,000. The inventory cost Computer Patch $200,000 to produce. At year end, 25% of the inventory was still on hand with Microchips Ltd. Required: Provide the consolidation elimination joumals at 30 June 2020. Part B (6 marks) Satellite Ltd is a company that is hurt by COVID-19 crisis and experiencing major trading difficulties. Of late the company has defaulted on its loan with its bank. Consequently, the bank has used the powers in the loan agreement to monitor the company's activities closely in order to obtain repayment of its debt. The company must now obtain the bank's authorisation for any expenditure over $10000 and no changes in operations of the company are permitted without the bank's approval. Required: Evaluate whether control exists and if so by which party. Part C (2 marks) What is meant by the term 'non-controlling interest (NCT) and is it entitled to a share of the subsidiary equity or some other amount? Question 5 (22 marks) Part A (14 marks) Computer Patch Ltd acquired 100% shares in Microchips Ltd on the 1 July 2019 for a cost of $ 2 million. The following financial statements of Computer Patch Ltd and Microchips Ltd have been extracted at the time of acquisition: Computer Patch Ltd (5000) Microchips Ltd (5000) 671.4 540 (238) 302 207.4 93 26.5 40 35 Reconciliation of opening and closing retained earnings Sales revenue less Cost of goods sold Gross Profit Dividends received from Microchips Ltd Management fee revenue from Microchips Ltd Gain on sale of plant Expenses: Administrative expenses Depreciation Management fee expense Other expenses Profit before tax Tax expense Profit for the year Retained earnings - 30 June 2019 (30.8) (29.5) (38.7) (56.8) (26.5) 172 (101.1) 205.5 615 144 319.4 463.4 (137.4) 326.00 143 42.2 100.8 750.0 850.8 (93) 757.80 Dividends paid Retained earnings - 30 June 2020 Statement of financial position Shareholders' equity Retained earnings Share capital Current liabilities Accounts payable Non-current liabilities Loans 326 1,350 757.80 1,500 95.7 46.3 817.8 2,589.50 116 2.420.10 59.4 92 448.10 829 Current assets Accounts receivable Inventory Non-current assets Land Plant - at cost Accumulated depreciation Investment in Microchips Ltd 224 299.85 (85.75) 2.000 2589.50 926 355.8 (138.8) 2.420.10 Page 10 of 12 At the time of acquisition, the equity accounts of Microchips were: Share capital 1,500,000 Retained earnings 750,000 All assets are fairly stated During the 2019/20 financial year Computer Patch Ltd sells inventory to Microchips Ltd for $250,000. The inventory cost Computer Patch $200,000 to produce. At year end, 25% of the inventory was still on hand with Microchips Ltd. Required: Provide the consolidation elimination joumals at 30 June 2020. Part B (6 marks) Satellite Ltd is a company that is hurt by COVID-19 crisis and experiencing major trading difficulties. Of late the company has defaulted on its loan with its bank. Consequently, the bank has used the powers in the loan agreement to monitor the company's activities closely in order to obtain repayment of its debt. The company must now obtain the bank's authorisation for any expenditure over $10000 and no changes in operations of the company are permitted without the bank's approval. Required: Evaluate whether control exists and if so by which party. Part C (2 marks) What is meant by the term 'non-controlling interest (NCT) and is it entitled to a share of the subsidiary equity or some other amount