Exam 30: Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

When the parent sells some of its shares in the subsidiary,what are the implications,in consolidated accounting,for: (a)the comprehensive income statement; (b)the statement of financial position; and (c)the opening retained earnings balances?

Spock Ltd acquired a 10 per cent holding in Kirk Ltd on 1 July 2017 for $350 000 cash,being the fair value of consideration transferred. On 30 June 2018,Spock Ltd acquired a further 75 per cent of the contributed capital of Kirk Ltd for $3 300 000,which represents the fair value of consideration transferred.After the latest acquisition,Spock Ltd gained control of Kirk Ltd.The fair value of the net assets acquired and the liabilities assumed of Kirk Ltd at the acquisition date of 30 June 2018 was $3 500 000 and all assets were recorded at far value in the financial statements of Kirk Ltd. At that date fair value of the net assets of Kirk Ltd were represented by: Share capital 3000000 Retained earnings 500000 3500000 Goodwill is also attributed to the non-controlling interest. What is the consolidation entry to eliminate the investment in Kirk Ltd on consolidation for the financial year ended 30 June 2018?

Where a parent entity with a controlling interest in a subsidiary obtains additional equity,the carrying amounts of the controlling and non-controlling interests should be adjusted to reflect the changes in their relative interests in the subsidiary.Any difference between the fair value paid and the carrying amount of the additional interest acquired is recognised directly in profit or loss of the parent entity.

Which of the following is not a reason for a parent to lose control of a subsidiary?

Hill Ltd acquired an 80 per cent interest in Dale Ltd on 1 July 2014 for a cash consideration of $1 200 000.At that date the shareholders' funds of Dale Ltd were: Share capital 900000 Retained earnings The assets of Dale Ltd were recorded at fair value at the time of the purchase. On 1 July 2015 Hill Ltd purchased the remaining 20 per cent of the issued capital of Dale Ltd for a cash consideration of $336 000.At this date the fair value of the net assets of Dale Ltd were represented by: Share capital 900000 Retained earnings Impairment of goodwill amounted to $35 600,of which $16 000 related to the year ended 30 June 2016.There were no inter-company transactions.What are the consolidation entries to eliminate the investment in the subsidiary and account for goodwill for the period ended 30 June 2016?

The step-by-step method,where the need to revalue the subsidiary's assets,liabilities and contingent liabilities to fair value at each acquisition date,is not an indication that the acquirer has elected to apply the revaluation method for measuring assets,such as that prescribed by AASB 116 is no longer permitted by accounting standards.

Non-controlling interests arising in a business combination must be measured at fair value.

Under the single-date method,the aggregate costs of the investments would be eliminated against the parent's share of capital and reserves at the date control of the subsidiary has been ultimately established and only one amount of goodwill (or bargain gain on purchase)is calculated.

The following consolidation adjusting journal entries appeared at the end of a period in which the parent sold all of its shareholding in a subsidiary.It received $1 200 000 for the shares. Profit on sale of investment 500000 Loss on sales of subsidiary 250000 Profit after tax 179000 Retained earnings 271000 Revaluation reserve 300000 At the time of the sale of the shares,the parent was holding the investment in subsidiary at what amount,in its own books?