1) On 1 July 2018 Pumba Ltd acquired 85% of the shares in Timon Ltd by issuing 5
ID: 2341586 • Letter: 1
Question
1) On 1 July 2018 Pumba Ltd acquired 85% of the shares in Timon Ltd by issuing 520,000 shares. At the date of acquisition the share price of Pumba Ltd was $3.20 per share and the share price of Timon Ltd was $2.40 per share. The equity of Timon Ltd at 1 July 2011 consisted of the following:
Share capital $902,000
Retained earnings $550,000
All identifiable net assets of Timon Ltd were recorded at fair value except for the carrying amount of equipment which was $150,000 lower than fair value. The remaining useful life of the equipment is 5 years. The fair value of the NCI is $236,000 at the date of acquisition. The recorded profit before tax of the subsidiary at the date of acquisition is $275,000. The full goodwill method is adopted.
What is the amount of the parent goodwill and the NCI goodwill?
Parent goodwill is $429,800 and NCI goodwill is $18,200
Parent goodwill is $340,550 and NCI goodwill is $2,450
Parent goodwill is $343,000 and NCI goodwill is $0
Parent goodwill is $380,000 and NCI goodwill is $37,800
2)
Black Ltd owns 75% of the shares in Sheep Ltd. The following details are available at 30 June 2018.
During the year Sheep Ltd sold inventory to Black Ltd for $65,000. The inventory originally cost Sheep Ltd $50,000. 40% of the inventory remains unsold at 30 June 2018.
What is the NCI share of profit at 30 June 2018?
$37,700
$37,250
$38,750
$63,750
a.Parent goodwill is $429,800 and NCI goodwill is $18,200
b.Parent goodwill is $340,550 and NCI goodwill is $2,450
c.Parent goodwill is $343,000 and NCI goodwill is $0
d.Parent goodwill is $380,000 and NCI goodwill is $37,800
Explanation / Answer
Elimination of Profit on sale in SHeep Ltd Income
Profit to be eliminated = Total Profit * Inventory remained
Profit to be eliminated = 15000 * 40%
Profit to be eliminated = $6000
Sheep Ltd Profit after unrealized profit elimination = $155000 - $6000
Sheep Ltd Profit after unrealized profit elimination = $149000
NCI share of profit at 30 June 2018 = Sheep Ltd Profit * 25%
NCI share of profit at 30 June 2018 = 149000 * 25%
NCI share of profit at 30 June 2018 = $37250 Option B is the answer
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