ExpertACCA · Question 46 · 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.
The fair value of Apex's net assets at acquisition ($2,000,000) included a property with a fair value $200,000 higher than its carrying amount in Apex's own books.
How does this $200,000 fair value adjustment affect the consolidated financial statements at the date of acquisition?
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.
The fair value of Apex's net assets at acquisition ($2,000,000) included a property with a fair value $200,000 higher than its carrying amount in Apex's own books.
How does this $200,000 fair value adjustment affect the consolidated financial statements at the date of acquisition?
Answer options:
It increases the net assets at acquisition, which increases the goodwill figure
It increases the net assets at acquisition, which reduces the goodwill figure
It is added directly to consolidated retained earnings
It has no effect on the consolidated financial statements
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