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Solution – 1Parent limited acquired 80% stake in subsidiary limited and remaining 20% is with othershareholders, denominated as non-controlling interest. The accounting for thesetransactions involves following steps:STEP 1 is to prepare the acquisition analysis and find out the goodwill generated due toacquisition.Nate fair value of assets acquired during acquisitionShare Capital$ 200,000.00Retained Earnings$ 74,000.00Revaluation surplus$ 6,000.00Fair value: - Plant ((110000-100000)*(1-30%))$ 7,000.00 - Land ((76000-60000)*(1-30%))$ 11,200.00$ 298,200.00Consideration transferred$ 263,200.00NCI's share $ 63,000.00Aggregate value of Subsidiary $ 326,200.00Calculation of goodwill generatedGoodwill on acquisition =$ 28,000.00Fair value of Subsidiary Ltd.=63000/20%Fair value of Subsidiary Ltd.=$ 315,000.00Fair value of net assets=$ 298,200.00Goodwill of Subsidiary Ltd.=$ 16,800.00Goodwill acquired=$ 28,000.00Less: Goodwill of Subsidiary Ltd.=$ 16,800.00Goodwill of Parent Ltd. - Control Premium=$ 11,200.00Next Step-2 is to finalize the business combination valuation entries, which are as below:1. Business Combination Valuation EntriesParticulars Debit Credit Accumulated Depreciation$50,000.00Plant$40,000.00Deferred tax liability$3,000.00Business Combination Valuation Reserve$7,000.00(Being fair valuation of Plant)Depreciation expense$1,000.00Retained earnings (1/7/14)$
2,000.00Accumulated Depreciation$3,000.00(Being depreciation expense on above fair valuation)Deferred tax liability$900.00Income tax expense$300.00Retained earnings (1/7/14)$600.00(Being tax impact on depreciation)Retained earnings (1/7/14)$16,000.00Retained earnings (1/7/14) (16,000*30%)$4,800.00Transfer from Business Combination Valuation Reserve$11,200.00(Being sale of land in prior years)Goodwill$16,800.00Business Combination Valuation Reserve$16,800.00(Being goodwill on acquisition recorded)Transfer from Business Combination Valuation Reserve$11,200.00Business Combination Valuation Reserve$11,200.00(Being amount transferred)Next Step-3 is to record pre-acquisition entry and non-controlling interest entry as on thedate of acquisition2. Pre-Acquisition and NCI entry as on 1 July, 2014Particulars Debit Credit Share Capital$160,000.00Retained Earnings$59,200.00Revaluation Surplus$4,800.00Goodwill$11,200.00Business combination valuation reserve *$28,000.00investment in Subsidiary Ltd.$ 263,200.00(Being acquisition entry recorded)* (80% X (7000 (plant)+11200 (Land)+16800 (goodwill))
Share Capital$40,000.00Retained Earnings$14,800.00Revaluation Surplus$1,200.00Business combination valuation reserve**$7,000.00Non-controlling interest$63,000.00(Being NCI entry recorded)** (20% X (7000 (plant)+11200 (Land)+16800 (goodwill))Next Step-4 is to record pre-acquisition and non-controlling interest entry as on 30 June,2017. The above pre-acquisition and non-controlling interest entry is affected by sale ofland.Particulars Debit Credit Share Capital $ 160,000.00 Retained Earnings $ 68,160.00 Revaluation Surplus $ 4,800.00 Goodwill $ 11,200.00 Business combination valuation reserve $ 19,040.00 Investment in Subsidiary Ltd.$ 263,200.00(Being acquisition entry recorded)Share Capital$ 40,000.00 Retained Earnings $ 17,040.00 Revaluation Surplus $ 1,200.00 Business combination valuation reserve $ 4,760.00 Non-controlling interest$ 63,000.00(Being NCI entry recorded)Last and final Step-5 is to record other consolidation and inter-company transactionselimination entries. Particulars Debit Credit Retained earnings (1/7/14)$ 3,500.00Income tax expense$ 1,500.00Cost of Sales$ 5,000.00
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