Juan Ltd acquired 80 percent share capital of Beach Ltd. On 1 July 2018 for a co
ID: 2413846 • Letter: J
Question
Juan Ltd acquired 80 percent share capital of Beach Ltd. On 1 July 2018 for a cost of $500,000. As at the date of acquisition, all assets and liabilities of Beach Ltd fairly valued except a land that has a carrying value $50,000 less than the fair value. The recorded balance of equity of Beach Ltd as at 1 July 2018 were as: Share capital $350,000 Retained earnings $100,000 Total $450,000 Additional information: ? The management of Juan Ltd values non-controlling interest at the proportionate share of Beach Ltd identifiable net assets ? Beach Ltd has a profit after tax of $70000 for the year ended 30 June 2019 ? During the financial year to 30 June 2019, Beach Ltd sold inventory to Juan Ltd for a price of $60000. The inventory costs Beach Ltd $30000 to produce. 25 percent of the inventory are still on the hand of Juan Ltd as at 30 June 2019. ? During the year Beach Ltd paid $10000 in management fees to Juan Ltd. ? On 1 July 2018, Beach Ltd sold an item of plant to Juan Ltd $40000. The equipment had a carrying value of $30000 (Cost $50000, accumulated depreciation $20000). At the date of sale it was expected that the equipment had a remaining life of 4 years and no residual value. ? The tax rate is 30 percent. Required: (a) Based on the above information, calculate the non-controlling interest as at 30 June 2019. (7 marks) (b) Pass necessary journal entry to recognise the non-controlling interest as at 30 June 2019. (5 marks)
Explanation / Answer
Part (a):
Equity of Beach Ltd as on the date of acquisition
Particulars
Amount ($)
Amount ($)
Share capital
350000
Add:
Retained earnings
100000
Undervaluation of land
50000
150000
Equity of Beach Ltd as on 01 July, 2018
500000
Controlling interest owns by Juan Ltd.
80%
Non-controlling interest
20%
Thus, non-controlling interests as on July 01, 2018 (500000 x 20%)
100000
Add: Share of non-controlling interest in adjusted profit (55000 x 20%)
11000
Non-controlling interest as at 30th June, 2019
111000
Workings:
Adjusted current year profit of Beach Ltd.
Profit after tax for the year ended on June 30, 2019
70000
Less: Unrealized profit on closing stock of Juan Ltd purchased from Beach Ltd.
{(60000 x 25%) x 50%}
7500
Unrealized profit on sale of equipment (40000 - 30000)
10000
17500
52500
Add:
Excess depreciation charged on Equipment (10000-7500)
2500
Adjusted profit for the year of Beach Ltd
55000
Depreciation charged (40000/4)
10000
Actual depreciation that should have been charged (30000/4)
7500
Part (b):
Journal entries
Date
Account titles
Debit ($)
Credit ($)
Profit and loss account (7500 + 10000)
17500
Closing stock
7500
Equipment
10000
(Being the value of stock and equipment adjusted )
Equipment
2500
Depreciation
2500
(Being the excess depreciation adjusted)
Depreciation
2500
Profit and loss account
2500
(Being the excess depreciation adjusted)
Equity of Beach Ltd as on the date of acquisition
Particulars
Amount ($)
Amount ($)
Share capital
350000
Add:
Retained earnings
100000
Undervaluation of land
50000
150000
Equity of Beach Ltd as on 01 July, 2018
500000
Controlling interest owns by Juan Ltd.
80%
Non-controlling interest
20%
Thus, non-controlling interests as on July 01, 2018 (500000 x 20%)
100000
Add: Share of non-controlling interest in adjusted profit (55000 x 20%)
11000
Non-controlling interest as at 30th June, 2019
111000
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