Question 1

**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, an impairment review was conducted, and it was determined that Goodwill had been impaired by $50,000. Because NCI is measured at fair value, how is this impairment allocated?

Accepted Answer

Recall the rule for goodwill impairment: If NCI is at fair value (full goodwill method), share the impairment between Parent and NCI. If NCI is at proportionate share (partial goodwill method), 100% of impairment goes to the Parent.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Allocating 100% of the impairment to the parent, confusing the fair value method with the proportionate share method.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 1

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