Exam 21: Changes to Parent Investment in Subsidiaries

AASB 127 contains rules dealing with the effect of post-control changes in ownership on the calculation of the amount of goodwill recognised and the impact on consolidated owners' equity (parent entity and non-controlling interest).

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd. -If the full method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X0 acquisition?

Using the full goodwill method rather than the partial goodwill method does not change the amount recognised as an equity transaction when there is a post-control change in the parent's ownership interest.

A post-control decrease in the percentage of shares held by the parent entity does not affect the consolidated profit or loss statement.

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd. -How much paid-up capital is eliminated in the consolidation entry to eliminate pre-acquisition equity acquired by Mobile Ltd in the consolidation worksheet for the reporting period ending 30 June 20X2?

Magic Ltd acquired 4 million of the issued shares of Man Ltd on 1 November 20X0 when the equity of Man Ltd (at fair value) was as follows: \0 00s Paid up capital (5 million shares) 4000 Retained profits 500 Asset revaluation reserve 500 Magic Ltd paid $6 million for this acquisition. On 31 October 20X1 Magic Ltd sold 500 000 of these shares at an average price of $2.10 per share. What was the net result on period profit or loss of Magic Ltd resulting from the sale of these shares?

The total amount of (consolidation) goodwill recognised is: I $\quad$ not affected by post-control date changes in parent entity ownership percentage II $\quad$ reflects any post-control impairment III $\quad$ only depends on the amount of goodwill at control date adjusted for subsequent impairment and subsequent changes in percentage ownership interest IV $\quad$ the sum of goodwill at control date plus goodwill arising from post control date acquisitions both adjusted for post-control date impairment Which of the above propositions are correct?

On 1 January 20X0 Langer Ltd bought 80% of Slater Ltd by paying $2 000 000 cash and issuing 100 000 ordinary Langer Ltd shares with a fair value of $5.50 per share.The fair value of net assets of Slater Ltd at that date was $2 500 000.The control date fair value of the ownership interests of non-controlling shareholders was $650 000.On 1 January 20X3 Langer Ltd bought the remaining 20% of Slater Ltd on the share market for a total of $1 000 000 cash.The fair value of Slater Ltd's net assets at that date was $4 000 000. -On 31 December 20X4 it was determined that goodwill (measured using the full method) was impaired by an amount of $512 500.What is the carrying amount of goodwill in the consolidated balances sheet at the 31 December 20X4 reporting date?

Cool Ltd acquired 4.5 million of the issued shares of Cat Ltd on 1 July 20X0 when the equity of Cat Ltd (at fair value) was as follows: \0 00s Paid up capital (5 million shares) 4000 Retained profits 1000 General reserve 1000 Cool Ltd paid $6.5 million for this acquisition. On 1 July 20X1 Cat Ltd issued bonus shares in lieu of paying a dividend. The terms of the issue were 1 bonus share for every 4 shares held. -What is the change in consolidation goodwill recognised in Cool Ltd's consolidated balance sheet as a result of this bonus issue?

On 1 January 20X0 Langer Ltd bought 80% of Slater Ltd by paying $2 000 000 cash and issuing 100 000 ordinary Langer Ltd shares with a fair value of $5.50 per share.The fair value of net assets of Slater Ltd at that date was $2 500 000.The control date fair value of the ownership interests of non-controlling shareholders was $650 000.On 1 January 20X3 Langer Ltd bought the remaining 20% of Slater Ltd on the share market for a total of $1 000 000 cash.The fair value of Slater Ltd's net assets at that date was $4 000 000. -If the full method of measuring goodwill is adopted, what was the total amount of consolidation goodwill recognised in Langer Ltd's consolidated financial statements at control date?

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd. -If the partial method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X0 acquisition?

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd. -If the partial method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X1 acquisition?

On 1 January 20X0 Langer Ltd bought 80% of Slater Ltd by paying $2 000 000 cash and issuing 100 000 ordinary Langer Ltd shares with a fair value of $5.50 per share.The fair value of net assets of Slater Ltd at that date was $2 500 000.The control date fair value of the ownership interests of non-controlling shareholders was $650 000.On 1 January 20X3 Langer Ltd bought the remaining 20% of Slater Ltd on the share market for a total of $1 000 000 cash.The fair value of Slater Ltd's net assets at that date was $4 000 000. -On 31 December 20X4 it was determined that goodwill (measured using the partial method) was impaired by an amount of $400 000.What is the carrying amount of goodwill in the consolidated balance sheet at the 31 December 20X4 reporting date?

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd. -If the full method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X1 acquisition?

On 1 January 20X0 Langer Ltd bought 80% of Slater Ltd by paying $2 000 000 cash and issuing 100 000 ordinary Langer Ltd shares with a fair value of $5.50 per share.The fair value of net assets of Slater Ltd at that date was $2 500 000.The control date fair value of the ownership interests of non-controlling shareholders was $650 000.On 1 January 20X3 Langer Ltd bought the remaining 20% of Slater Ltd on the share market for a total of $1 000 000 cash.The fair value of Slater Ltd's net assets at that date was $4 000 000. -If the partial method of measuring goodwill is adopted, what was the total amount of consolidation goodwill recognised in Langer Ltd's consolidated financial statements at control date?

A change in the number of shares held by the parent entity always affects the total amount eliminated against pre-control equity.

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd. -If the full method of measuring goodwill is adopted, what is the carrying amount of consolidation goodwill at 30 June 20X2 if impairment of $150 000 has been recognised?

Cool Ltd acquired 4.5 million of the issued shares of Cat Ltd on 1 July 20X0 when the equity of Cat Ltd (at fair value) was as follows: \0 00s Paid up capital (5 million shares) 4000 Retained profits 1000 General reserve 1000 Cool Ltd paid $6.5 million for this acquisition. On 1 July 20X1 Cat Ltd issued bonus shares in lieu of paying a dividend. The terms of the issue were 1 bonus share for every 4 shares held. -How many bonus shares did Cool Ltd receive?

The effect on the amount of goodwill recognised when there is a post-control change in the parent's ownership interest is the same under both the full and partial measurement methods.

On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd. -What is the balance of the account 'Investment in Phone Ltd' in Mobile Ltd's individual balance sheet 4 years after acquisition; if Phone Ltd did not pay any dividends?