ExpertACCA · Question 43 · Preparing simple consolidated financial statements
Section B - Case 1: Group Consolidations
Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.
If Apex Robotics had sold the goods to Zenith Heavy Industries (an upstream sale) instead of Zenith selling to Apex, how would the NCI calculation at year-end be affected?
Section B - Case 1: Group Consolidations
Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.
If Apex Robotics had sold the goods to Zenith Heavy Industries (an upstream sale) instead of Zenith selling to Apex, how would the NCI calculation at year-end be affected?
Answer options:
The NCI would be higher because they would share in the extra profit
The NCI would be lower because their share of the subsidiary's profit would be reduced by the PUP
The NCI would be unaffected because PUP only affects the parent's retained earnings
The NCI would be unaffected because intra-group trading is eliminated entirely
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