ExpertACCA · Question 44 · 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.
At the year-end, Zenith's receivables include $50,000 owed by Apex. Apex's payables include $50,000 owed to Zenith.
What is the correct consolidation adjustment for these balances?
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.
At the year-end, Zenith's receivables include $50,000 owed by Apex. Apex's payables include $50,000 owed to Zenith.
What is the correct consolidation adjustment for these balances?
Answer options:
Add $50,000 to consolidated receivables and add $50,000 to consolidated payables
Deduct $50,000 from consolidated receivables and deduct $50,000 from consolidated payables
Deduct $40,000 (80%) from both receivables and payables
No adjustment is needed as they naturally offset each other in the consolidation process
How to approach this question
Full Answer
Common mistakes
Practice the full ACCA FA — Financial Accounting Practice Exam 1
65 questions · hints · full answers · grading