Exercise Chapter 2 (3) - NCI Proportionate
Golden Bhd acquired 80% interest of Pearl Bhd for a cash consideration of RM10 million on
31 December 2013. At that date the net assets of Pearl Bhd were represented by share capital
of RM5 million and retained profit of RM5 million. The financial statements of both
companies for the year 2014 are as follows:
Statement of Comprehensive Income
For the year ended 31 December 2014
Golden Bhd
RM’000
Turnover
45,000
Cost of sales
15,000
Gross profit
30,000
Add: Profit on sale of machinery
Dividend income
2,000
Less: Operating expenses
10,000
Profit before tax
22,000
Less: Tax
6,600
Profit after tax
15,400
Machinery
Pearl Bhd
RM’000
15,000
5,000
10,000
250
6,250
4,000
1,250
2,750
Statement of Financial Position
As at 31 December 2014
Golden Bhd Pearl Bhd
RM’000
RM’000
25,000
10,000
Investment in Pearl Bhd
Current assets
Financed by:
Share capital
Retained profit
Current liabilities
10,000
6,400
41,400
2,000
12,000
20,000
16,400
5,000
41,400
5,000
6,000
1,000
12,000
Statements of Changes in Equity (partial)
For the year ending 31 December 2014
Golden Bhd Pearl Bhd
RM’000
RM’000
Beginning retained profit
6,000
5,000
Add: Profit for the year
15,400
2,750
Less: Dividend
5,000
1,750
Ending retained profit
16,400
6,000
1
Additional information:
1. In September 2014, Pearl Bhd paid out a RM1,750,000 cash dividend out of current year
profit.
2. In the year 2014 there was an impairment of goodwill in the amount of RM400,000.
3. In May 2014, Pearl Bhd sold a piece of machinery (which has a net book value of
RM2,500,000) to Golden Bhd for RM2,750,000. The machinery had a remaining useful
life of five years. The group depreciate assets using the straight line method, and to
provide full year’s depreciation if the assets have been used for more than six months
during the year.
4. During 2014, Golden Bhd sold goods to Pearl Bhd at cost plus 20%. The total intragroup
sale for the year was RM5,000,000. The unrealized intragroup profit in the closing
inventories as at 31 December 2014 is RM300,000.
5. The company’s income tax rate for the year was 30%. The tax effects on unrealized profit
for intragroup transactions need to be accounted for.
6. Golden Bhd’s accounting policy is to measure non-controlling interest at its proportionate
share of acquiree’s net assets.
REQUIRED:
a) Prepare consolidation journal entries.
b) Prepare consolidated financial statements for Golden Bhd and its subsidiary Pearl Bhd for
the year ended 31 December 2014.
2
Exercise Chapter 2 (3) - NCI Proportionate
a)
Consolidation journal entries
1)
Dr.
Dr.
Dr.
2)
Share capital
4,000,000
Beginning retained profit
4,000,000
Goodwill
2,000,000*
Cr. Investment in Pearl Bhd
(To eliminate investment account)
FV of NIA = 5 m + 5 m = 10 m
NCI = 20% x 10 m = 2 m
Goodwill = 10 m + 2 m – 10 m = 2m
Dividend Income
2,000,000
Cr. Tax expense
Cr. Dividend
(To eliminate pre-acquisition dividend)
3)
Dr.
4)
Dr.
350,000
350,000
Profit on sale of machinery
250,000
Cr. Machinery
(To eliminate unrealized profit on sale of machinery)
Deferred tax
Cr. Tax expense
250,000
75,000
75,000
Dr.
Accumulated Depreciation
50,000
Cr. Depreciation Expense
(To reduce depreciation expense for the year)
Depreciation adjustment = 250 / 5 = 50
Dr.
7)
NCI
Cr. Dividend
600,000
1,400,000
Impairment loss
400,000
Cr. Goodwill
400,000
(to record impairment loss for goodwill on consolidation)
Dr.
6)
10,000,000
Dr.
Dr.
5)
(80%X RM5m)
[80%X 5m]
Dr.
Tax expense
Cr. Deferred tax
Sales
Cr. Cost of sales
(To eliminate intragroup sales)
50,000
15,000
15,000
5,000,000
5,000,000
Dr.
Cost of sales
300,000
Cr. Current assets
(To eliminate unrealized in closing inventories)
3
300,000
Dr.
8)
9)
b)
Deferred tax
Cr. Tax expense
90,000
90,000
Dr.
Non-controlling interest (SCI)
522,000*
Cr. NCI (SFP)
(To record minority interest in current year profit)
* 20%x [2,750- (250 – 75) + (50 - 15)]
Dr.
Dr.
Share capital
Beginning retained profit
Cr. NCI (SFP)
(To record NCI in the company)
522,000
1,000,000
1,000,000
[20% X 5m ]
2,000,000
Consolidated Financial Statements
Golden Bhd and Subsidiary
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2014
RM’000
Turnover (45 + 15 – 5)
55,000
Cost of sales (15 + 5 – 5 + 0.3)
15,300
Gross profit
39,700
Less: Operating expenses (10 + 6.25 + 0.4 - .05)
16,600
Profit before tax
23,100
Less: Tax (6.6 + 1.25 - 0.6 – 0.75 + 0.015 -0.09 )
7,100
Profit after tax
16,000
Attributable to:
Shareholders of parent
15,478
SCI
522
16,000
Golden Bhd and Subsidiary
Consolidated Statement of Changes in Equity
For the year ended 31 December 2014 (RM’000)
Attributable to equity holder of the
NCI
Total equity
parent
Share
Retained
Total
Capital
profit
Bal 1 Jan 2012
20,000
6,000*
2,000
28,000
Profit for the period
15,478
522
16,000
Dividend
5,000
350
-5,350
Bal 31 Dec 2012
20,000
16,478
2,172
38,650
*6,000 + 5,000 – 4,000 – 1,000 = 6,000
4
Consolidated Statement of Financial Position
As at 31 December 2014
Goodwill (2,000 – 400)
Machinery (25,000 + 10,000 – 250 + 50)
Current assets (6,400 + 2,000 – 300)
Financed by:
Share capital
Retained profit (from above)
Non-controlling interest
Current liabilities (5,000 + 1,000 – 75 + 15 - 90)
5
RM’000
1,600
34,800
8,100
44,500
20,000
16,478
2,172
5,850
44,500