Part A
A Ltd is a Japanese entity that has successfully developed a scarce raw material called 'Aquatan'. It is an essential input for B Ltd and C Ltd's manufacturing processes and both of these companies are customers of A Ltd.
Below are the details of A Ltd's shareholders and directors:
| Name of shareholders |
% of ordinary voting shares owned |
Number of positions held on A Ltd board of directors |
| B Ltd |
30% |
4 |
| C Ltd |
22% |
2 |
| D Ltd |
25% |
2 |
The remaining shares of A Ltd are widely held by several independent unrelated. B Ltd is not related to C Ltd or D Ltd, however C Ltd is a wholly owned subsidiary of D Ltd. The other three (3) of the eleven (11) seats on A Ltd's board of directors are held by independent directors.
Required:
On the basis of the above information and the requirements of relevant accounting standard(s), advise whether A Ltd is a subsidiary of B Ltd.
Part B
Question
On 1 July 2014, White Ltd acquired 75% of the shares in Black Ltd for $190,000. At this date, the equity in Black Ltd comprised:
Share capital $160,000 General reserve 30,000 Retained earnings 50,000
All the assets and liabilities in Black Ltd were recorded at fair value, except for inventory, which had a carrying amount of $15,000 and a fair value of $20,000. The inventory had all been sold by 30 June 2015.
Additional information relevant for the period 1 July 2014 - 30 June 2016 :
(a) White Ltd uses the partial goodwill method.
(b) Profits earned by the subsidiary during the year ended 30 June 2015 was $12,800 and 30 June 2016 was $14,000.
(c) From 1 July 2014 to 30 June 2016, there had been no movements in Share capital, General reserve and no dividends paid or declared in Black Ltd.
(d) During the year ended 30 June 2016, Black Ltd sold inventory to White Ltd for $48,000. At 30 June 2016, White Ltd still had some of this inventory on hand. This inventory had been sold to it by Black Ltd at a before-tax profit of $4,000.
Additional information relevant for the period 1 July 2016 - 30 June 2017:
(a) The inventory sold to White Ltd by Black Ltd for a before-tax profit of $4,000 in the previous period was sold to external entities during the year ended 30 June 2017.
(b) On 1 January 2017, Black Ltd sold plant to White Ltd for a before-tax profit of $1,200. This plant was carried at $3,000 in the records of Black Ltd at time of sale. Depreciation on this type of plant is calculated using a 20% per year straight-line method.
(c) On 1 February 2017, White Ltd sold an item of plant to Black Ltd. While White Ltd classified this as plant, Black Ltd classified it as inventory. The sales price was $10,000 which included a profit to White Ltd of $1,500. Black Ltd sold this to another entity on 31 March 2017 for $12,000.
(d) On 30 June 2017 White Ltd made an interest free loan of $20,000 to Black Ltd which is not repayable until 30 June 2022.
(e) White Ltd recognises dividends receivable from its subsidiary when the dividends are declared.
Required:
Prepare an acquisition analysis at 1 July 2014 using the partial goodwill method.
Prepare consolidation journal entries as at 1 July 2014.
Prepare consolidation journal entries for the year ended 30 June 2015.
Prepare consolidation journal entries for the year ended 30 June 2016.
Prepare consolidation journal entries for the year ended 30 June 2017.
Your consolidaiton journal entries for Required 5. should be provided in the following format: Note: (a) Business combination valuation entries at 30 June 2017 (if applicable) (b) Pre-acquisition entries at 30 June 2017 (c) NCI share of equity at 1 July 2014 (d) NCI share of equity changes from 1 July 2014 to 30 June 2016 (e) NCI share of equity changes from 1 July 2016 to 30 June 2017 (f) Intragroup transaction adjustments required as at 30 June 2017
You will also need to refer to the consolidation worksheet in Required 6 to complete Required 5.
6. Complete the consolidation worksheet for the year ended 30 June 2017:
Note:
- A Word version of this worksheet will also be made available within 'Resources'.
- Reference your worksheet entries back to consolidation journals from Required 5 in the space provided.
Attachment:- Review-Worksheet-Template.rar