Keen Inc. and Lax Inc. had the following balance sheets on October 31, 2018: $\begin{array}{|l|l|l|l|} \hline & \text { Keen Inc. } & \text { Lax Inc. } & \text { Lax Inc. } \\ \hline & \text { (carry ing value) } & \text { (carrying value) } & \text { (fair value) } \\ \hline \text { Cash } & \$ 300,000 & \$ 80,000 & \$ 80,000 \\ \hline \text { Accounts Receivable } & \$ 60,000 & \$ 24,000 & \$ 24,000 \\ \hline \text { Inventory } & \$ 30,000 & \$ 54,000 & \$ 50,000 \\ \hline \text { Plant and Equipment (net) } & \$ 310,000 & \$ 280,000 & \$ 300,000 \\ \hline \text { Trademark } & & \$ 12,000 & \$ 16,000 \\ \hline \text { Total Assets } & \$ 700,000 & \$ 450,000 & \\ \hline & & & \\ \hline \text { Accounts Payable } & \$ 150,000 & \$ 200,000 & \$ 200,000 \\ \hline \text { Bonds Payable } & \$ 400,000 & \$ 120,000 & \$ 100,000 \\ \hline \text { Common Shares } & \$ 100,000 & \$ 60,000 & \\ \hline \text { Retained Earnings } & \$ 50,000 & \$ 70,000 & \\ \hline \text { Total Labilities and Equiby } & \$ 700,000 & \$ 450,000 & \\ \hline & & & \\ \hline \end{array}$ Assuming that Keen Inc. purchases 80% of Lax Inc. for $240,000, prepare the consolidated balance sheet on the date of acquisition under the Entity Theory.

Keen Inc. Consolidated Balance Sheet as

Exam 4: Consolidation of Non-Wholly Owned Subsidiaries

Why might the fair value of the non-controlling interest in a subsidiary on the date that it is acquired in a business combination not be proportionate to the price per share paid by the parent company to acquire control? How do the IFRS recognize this?

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Question 1

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Reasons why the fair value of the non-controlling interest might not be proportionate to the price paid by the parent include:
· there may be synergies to the controlling interest that do not benefit the non-controlling interest in the subsidiary;
· often a premium is paid to achieve control;
· the acquisition may have taken place at different prices in a series of purchases, not as a single purchase on the acquisition date.
IFRS recognizes this by permitting both the entity method and the parent company extension methods of valuing the non-controlling interest at acquisition. The standards allow the NCI to be valued based either on its fair value or on the basis of the fair value of the subsidiary's identifiable net assets at acquisition.

The calculation of Goodwill and non-controlling interest (NCI) under the Entity Theory is derived :

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Question 2

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Keen Inc and Lax Inc had the following balance sheets on October 31, 2018: Keen Inc Lax Inc Lax Inc (carry ing value) (carrying value) (fair value) Cash \ 300,000 \ 80,000 \ 80,000 Accounts Receivable \ 60,000 \ 24,000 \ 24,000 Inventory \ 30,000 \ 54,000 \ 50,000 Plant and Equipment (net) \ 310,000 \ 280,000 \ 300,000 Trademark \ 12,000 \ 16,000 Total Assets \ 700,000 \ 450,000 Accounts Payable \ 150,000 \ 200,000 \ 200,000 Bonds Pay able \ 400,000 \ 120,000 \ 100,000 Common Shares \ 100,000 \ 60,000 Retained Earnings \ 50,000 \ 70,000 Total Labilities and Equiby \ 700,000 \ 450,000 Assuming that Keen Purchases 80% of Lax for a consideration of $240,000, prepare (under the Entity Theory): a) the journal entry that Keen Inc. would make to record the acquisition; b) the elimination entry necessary to produce consolidated balance sheet on the acquisition date.

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Question 3

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a) $\begin{array}{|l|l|l|}\hline & \text { Debit } & \text { Credit } \\\hline \text { Investment in Lax Inc } & \$ 240,000 & \\\hline \text { Cash } & & \$ 240,000 \\\hline\end{array}$ b)
$\begin{array}{|l|l|l|}\hline \text { Common Shares } & \$ 60,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \\\hline \text { Plant and Equipment } & \$ 20,000 & \\\hline \text { Trademark } & \$ 4,000 & \\\hline \text { Bonds Pay able } & & \$ 20,000 \\\hline \text { Goodwill } & \$ 130,000 & \\\hline \text { Non-Controlling Interest } & & \$ 60,000 \\\hline \text { I mentory } & \$ 4,000 & \\\hline \text { I mestment in Lax Inc } & & \$ 240,000 \\\hline\end{array}$

On the date of formation of a 100% owned subsidiary by the parent, which of the following statements pertaining to consolidated financial statements is TRUE?

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Question 4

Assuming Parent purchased 80% of Sub Inc. for $180,000; the assets section of Parent's consolidated balance sheet on the date of acquisition (August 1, 2018) would total what amount under the Entity Method?

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Question 5

Under the Parent Company Theory, which of the following statements pertaining to consolidated financial statements is TRUE?

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Question 6

A company owning a majority (but less than 100%) of another company's voting shares on the date of acquisition should account for its subsidiary (in its consolidated balance sheet):

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Question 7

When the Non-Controlling Interest's share of the subsidiary's goodwill cannot be reliably determined, the method used to prepare consolidated financial statements is:

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Question 8

Which consolidation theory should be used in preparing consolidated financial statements in accordance with IFRS?

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Question 9

Assuming that the Proprietary Theory was applied, what would be the amount of Goodwill appearing on the Consolidated Balance Sheet on the date of acquisition, assuming that Parent purchased 80% of Sub Inc. for $180,000 on August 1, 2018?

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Question 10

If Parent Company purchased 80% of Sub Inc. for $180,000, the liabilities section of Parent's consolidated balance sheet on the date of acquisition (August 1, 2018) would total what amount under the Entity Method?

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Question 11

Any goodwill on the subsidiary company's books on the date of acquisition:

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Question 12

IFRS permits several methods to be used to determine the fair value of the non-controlling interest in a subsidiary at the acquisition date. Which of the following is NOT an appropriate method to determine the fair value of the non-controlling interest (NCI)?

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Question 13

There are a number of theories of how financial statements should be prepared for non-wholly owned subsidiaries. Briefly discuss each theory and provide your reasoning to support the theory that is being adopted under IFRSs.

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Question 14

When the acquisition differential is calculated and allocated, what will the consequence be of a "bargain purchase"?

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Question 15

Keen Inc. and Lax Inc. had the following balance sheets on October 31, 2018: Keen Inc. Lax Inc. Lax Inc. (carry ing value) (carrying value) (fair value) Cash \ 300,000 \ 80,000 \ 80,000 Accounts Receivable \ 60,000 \ 24,000 \ 24,000 Inventory \ 30,000 \ 54,000 \ 50,000 Plant and Equipment (net) \ 310,000 \ 280,000 \ 300,000 Trademark \ 12,000 \ 16,000 Total Assets \ 700,000 \ 450,000 Accounts Payable \ 150,000 \ 200,000 \ 200,000 Bonds Payable \ 400,000 \ 120,000 \ 100,000 Common Shares \ 100,000 \ 60,000 Retained Earnings \ 50,000 \ 70,000 Total Labilities and Equiby \ 700,000 \ 450,000 Assuming that Keen Inc. purchases 80% of Lax Inc. for $240,000, prepare the consolidated balance sheet on the date of acquisition under the Entity Theory.

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Question 16

A negative acquisition differential:

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Question 17

If the non-controlling interest at acquisition is based on the fair value of the subsidiary's identifiable net assets, which consolidation theory is being applied?

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Question 18

A business combination involves a contingent consideration. It is considered 70% probable that a payment of $500,000 will become payable three years after the acquisition date. Using a 7% discount rate, how much interest expense should be recorded on the liability for the first year after acquisition?

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Question 19

Non-Controlling Interest (NCI) is presented under the Liabilities section of the Consolidated Balance Sheet using the:

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Question 20

Why might the fair value of the non-controlling interest in a subsidiary on the date that it is acquired in a business combination not be proportionate to the price per share paid by the parent company to acquire control? How do the IFRS recognize this?

The calculation of Goodwill and non-controlling interest (NCI) under the Entity Theory is derived :

On the date of formation of a 100% owned subsidiary by the parent, which of the following statements pertaining to consolidated financial statements is TRUE?

Assuming Parent purchased 80% of Sub Inc. for $180,000; the assets section of Parent's consolidated balance sheet on the date of acquisition (August 1, 2018) would total what amount under the Entity Method?

Under the Parent Company Theory, which of the following statements pertaining to consolidated financial statements is TRUE?

A company owning a majority (but less than 100%) of another company's voting shares on the date of acquisition should account for its subsidiary (in its consolidated balance sheet):

When the Non-Controlling Interest's share of the subsidiary's goodwill cannot be reliably determined, the method used to prepare consolidated financial statements is:

Which consolidation theory should be used in preparing consolidated financial statements in accordance with IFRS?

Assuming that the Proprietary Theory was applied, what would be the amount of Goodwill appearing on the Consolidated Balance Sheet on the date of acquisition, assuming that Parent purchased 80% of Sub Inc. for $180,000 on August 1, 2018?

If Parent Company purchased 80% of Sub Inc. for $180,000, the liabilities section of Parent's consolidated balance sheet on the date of acquisition (August 1, 2018) would total what amount under the Entity Method?

Any goodwill on the subsidiary company's books on the date of acquisition:

IFRS permits several methods to be used to determine the fair value of the non-controlling interest in a subsidiary at the acquisition date. Which of the following is NOT an appropriate method to determine the fair value of the non-controlling interest (NCI)?

There are a number of theories of how financial statements should be prepared for non-wholly owned subsidiaries. Briefly discuss each theory and provide your reasoning to support the theory that is being adopted under IFRSs.

When the acquisition differential is calculated and allocated, what will the consequence be of a "bargain purchase"?

A negative acquisition differential:

If the non-controlling interest at acquisition is based on the fair value of the subsidiary's identifiable net assets, which consolidation theory is being applied?

Non-Controlling Interest (NCI) is presented under the Liabilities section of the Consolidated Balance Sheet using the:

Conceptual and Case Analysis Frameworks for Financial Reporting

Investments in Equity Securities

Business Combinations

Consolidation Subsequent to Acquisition Date

Intercompany Inventory and Land Profits

A Intercompany Profits in Depreciable Assets B Intercompany Bondholdings

Consolidated Cash Flows and Changes in Ownership

Other Consolidation Reporting Issues

Foreign Currency Transactions

Translation and Consolidation of Foreign Operations

Accounting for Not-For-Profit and Public Sector Organizations

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