What is a non-controlling interest and how is a

Question

Question1

On 30^thJune 2011 Peach Ltd acquired 100 per cent of the shares in Pear Ltd for $730,000The following shows the financial positions of the companies as at 30 June 2011 (immediately following the acquisition).

 

	Peach Ltd	Pear Ltd
Equity	$	$
Share capital	1,314,000	292,000
Retained earnings	438,000	219,000
	1,752 000	511 000
Liabilities
Accounts payable	160,600	102,200
Long-term loans	292,000	277,400
Total liabilities	$452,600	379,600
Total equity and liabilities	$2,204,600	$890,600
Assets
Cash	146,000	73,000
Accounts receivable	189,800	131,400
Inventory	292,000	160,600
Investment in Pear Ltd	730,000
Land	438,000	146,000
Property, Plant and Equipment (PPE)	584,000	511,000
Accumulated depreciation on PPE	(175,200)	(131,400)
Total assets	$2,204,600	$890,600

Additional Information:·All of the assets and liabilities of Pear Limited were valued at fair value at acquisition with the exception of the land,which had a fair value of $204,500.·The tax rate is 30 per cent.

Required

Prepare the consolidation journal entries and consolidation worksheet for the above entities.Adapted from Leo et al. (2009) Company accounting (8^thed) John Wiley and Sons, Milton,Queensland.

Question2

The following financial statements of William Ltd and its subsidiary Adam Ltd have been extracted from their financial records at 30 June 2012.

	William Ltd		Adam Ltd
	$	$	$	$
Extract from Statements of Comprehensive Income and Changes in Equity
Sales Revenue		1,114,524		896,400
Cost of Sales		(770,240)		(395,080)
Gross Profit		344,284		501,320
Other Revenue
Dividends received from Adam		154,380		-
Management fee revenue		43,990		-
Gain on sale of equipment		66,400		58,100
Expenses
General expenses	(51,128)		(64,242)
Selling expenses	(167,826)		(119,520)
Depreciation	(48,970)		(94,288)
Management fee expense	-		(43,990)
Total expenses		(267,924)		(322,040)
Profit before tax		341,130		237,380
Income tax expense		(102,090)		(70,052)
Profit for the period		239,040		167,328
Retained earnings 30 June 2011		530,204		397,072
		769,244		564,400
Dividends paid		(228,084)		(154,380)
Retained earnings 30 June 2012		541,160		410,020
Statements of Financial Position
Current assets
Cash		20,000		30,000
Accounts receivable		78,604		73,418
Inventory		152,720		48,140
Non-current assets
Investment in Adam Ltd		590,960		-
Land		371,840		541,160
Equipment (cost)	497,751		590,628
Accumulated depreciation	(142,345)	355,406	(230,408)	360,220
Total Assets		1,569,530		1,052,938
Current liabilities
Accounts payable		90,802		76,858
Short-term loan payable		68,558		41,500
Non-current liabilities
Long-term debt		288,010		192,560
Shareholders' equity
Share capital		581,000		332,000
Retained earnings		541,160		410,020
Total Liabilities & Equity		1,569,530		1,052,938

Other information:·William Ltd acquired the 100 per cent interest in Adam Ltd on 1 July 2007, that is five (5) years earlier.At that time the capital and retained earnings of Adam Ltd were: Share capital $332,000 Retained earnings$298,800 $380,800At the date of acquisition all assets were valued at their fair value.·During the year William Ltd made total sales to Adam Ltd of $99,600, and Adam Ltd sold $83,000 of inventory to William Ltd.·The opening inventory in William Ltd as at 1 July 2011 included inventory acquired from Adam Ltd for $66,400 that had cost Adam Ltd $49,800.·The closing inventory of William Ltd includes inventory acquired from Adam Ltd at a cost of $54,780.This inventory had cost Adam $46,480.·The closing inventory of Adam Ltd includes inventory acquired from William Ltd at a cost of $19,920.This inventory had cost William Ltd $16,600.·On 1 July 2011 Adam Ltd sold an item of equipment to William Ltd for $192,560 when its carrying value in Adam Ltd's books was $134,460 (cost $224,100, accumulated depreciation $89,640).This equipment is assessed as having a remaining useful life of six (6) years.·Adam Ltd paid $43,990 in management fees to William Ltd.·The tax rate is 30 per cent.

Required: Prepare the journal entries necessary for the preparation of consolidated financial statements.Prepare a consolidated statement of financial position as at 30 June 2012 and a consolidated statement of comprehensive income and a consolidated statement of changes in equity for the period ended 30 June 2012 for William Ltd and its subsidiaries.You can use a consolidation worksheet if you wish to, however it is NOT required for this assignment, and no marks will be awarded for it.Adapted from Leo et al. (2009) Company accounting (8^thed) John Wiley and Sons, Milton,Queensland.

Question3

In short-answer format(ie.thisdoes not have to be presented in the form of an essayor formal report), and with reference to the relevant accounting standard(s), answerthe following questions:

1. What is a non-controlling interest, and how is a non-controlling interest disclosed in consolidated financial statements?
2. If Nat acquires a 60% interest in West, on consolidation which elimination entries should be done at 60% and which should be eliminated at 100% (if any)?Why? In the consolidated financial statements of the group will the assets and liabilities of West be shown at 60% or 100%? Why?
3. In what circumstances would anentity consolidate the financial statements of an entity in which it owned no shares?
4. Explain in your own words, using a diagram if you wish, the concept of an indirect non-controlling interest.Does the existence of an indirect non-controlling interest have any impact on the adjustments for intra-group transactions?Why or why not?