Calculation of Goodwill of Serene Limited

QUESTION 1 TOPIC 3
At 1 July 2016:
Serene Limited:Goodwill $22,000
Accumulated Impairment losses ($16,000 - $4,000) $12,000
$10,000
Net fair valuation of identifiable assets,
liabilities and contingent liabilities
of Serene Limited = $300,000 + $30,000 + $10,000 + $20,000
+ $10,000*(1 – 30%) (Business Combination
Valuation Reserve – Inventory)
+ $5,000*(1 – 30%) (Business Combination
Valuation Reserve – Machine)
- $7,000 (1 – 30%) (Business Combination
Valuation Reserve – provision)
+ $12,000 (1 – 30%) (Business Combination
Valuation Reserve – equip. design)
- $10,000 (Residual Goodwill)
= $364,000
(a) Consideration = $305,600
(b) Non-controlling interest (NCI) = $75,000
Total of (a) and (b) = $380,600
Net Goodwill = $16,600
Calculation of Goodwill of Serene
Limited:
Fair valuation of Serene Limited = $75,000/20%
= $375,000
Net fair valuation of identifiable assets
and
liabilities of Serene Limited = $364,000
Goodwill of Serene Limited = $11,000
Recorded goodwill = $10,000
Unrecorded goodwill = $1,000
Goodwill of Peaceful Limited:
Goodwill acquired = $16,600
Goodwill of Serene Limited = $11,000
Goodwill of Peaceful Limited = $5,600
JOURNAL ENTRIES FOR CONSOLIDATION
1. Business combination entries
Equipment design
Deferred tax liability (DTL)
Dr
Cr
12,000
3,600
Business combination valuation reserve Cr 8,400
Amortizations expense Dr 1,200

Retained earnings
Accumulated amortization
(1/10 x $12 000 p.a. for 3 years)
Dr
Cr
2,400
3,600
Deferred tax liability (DTL) Dr 1,080
Income tax expense Cr 360
Retained earnings Cr 720
Depreciation Dr 750
Gain on sale of machinery Dr 2,250
Income tax expense
Retained earnings
Transfer from business combination
valuation reserve
Cr
Dr
Cr
1,400
900
3,500
(Depreciation is 1/5 x $5,000 p.a.)
Accumulated impairment losses – goodwill
Goodwill
Dr
Cr
12,000 12,000
Goodwill
Business combination valuation reserve
Dr
Cr
1,000 1,000
2. Pre-acquisition entries
At 1 July 2016:
Retained earnings (1/7/16) Dr 16,000
Share capital Dr 240,000
Other reserves (1/7/16) Dr 24,000
Other components of equity (1/7/16) Dr 8,000
Business combination valuation reserve Dr 12,000
Goodwill Dr 5,600
Shares in Serene Limited Cr 305,600
At 30 June 2019:
Retained earnings Dr 15,280
Share capital Dr 240,000
Other reserves Dr 26,400
Other components of equity Dr 8,000
Business combination valuation reserve Dr 10,320
Goodwill Dr 5,600
Shares in Serene Limited Cr 305,600
Retained Earnings [RE] - 80%[$20,000 + $7,000 (BCVR – inv) - $4,900 (BCVR –prov)
- $3,000 (transfer to other reserves)]
Other reserves[OR] - 80% ($30,000 + 3,000)
BCVR - 80%($3,500 + $8,400 + $1,000)
Share capital
Other reserves: bonus issue
Dr
Cr
24,000
24,000

(Bonus issue: 80% x $30 000)
Transfer from other reserves [RE] Transfer
to retained earnings [OR]
Dr
Cr
1,600 1,600
(80% x $2 000)

Transfer from business combination
valuation reserve Dr 2,800
Business combination valuation reserve Cr 2,800
(80% x $3500)
3. NCI share of equity at acquisition date 1/7/16
Retained earnings Dr 4,000
Share capital Dr 60,000
Other reserves Dr 6,000
Other components of equity Dr 2,000
Business combination valuation reserve * Dr 3,000
NCI Cr 75,000
(20% of balances)
* 20% x ($7,000 inventory + $3,500 machinary - $4,900 liabilities. + $8,400 eq design + $1000 goodwill)
4. NCI share of changes in equity from 1/7/16 to 30/6/18
Other reserves Dr 600
Other components of equity Dr 12,400
Retained earnings Cr 1,416
Business combination valuation reserve Cr 420
NCI Cr 11,164
RE: 20% [$16 000 - $20 000 - $1 400 – ($2 400 - $720)]
BCVR: 20% ($7 000 - $4 900)
Other reserves: 20% ($33 000 - $30 000)
Other components: 20% ($72 000 - $10 000)
5. NCI share of changes in equity from 1/7/18 to 30/6/19
NCI share of profit
NCI
Dr
Cr
9 ,412
9 ,412
(20% [$50 000 – ($1 200 - $360) – ($750 + $2 250 - $900)]
NCI
Dividend paid
(20% x $6 000)
Dr
Cr
1, 200 1 ,200
NCI
Dividend declared
(20% x $4 000)
Dr
Cr
8,00 8,00
Transfer from other reserves [RE] Transfer
to retained earnings [OR]
(20% x $2 000)
Dr
Cr
4,00 4,,00
Share capital
Other reserves: bonus issue
Dr
Cr
6 ,000 6, 000
(20% x $30 000)