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SCENARIO: On 1 January 20X5, Horizon Renewables (a public utility) acquired 80% of the equity share capital of WindTech Innovations (a tech startup) for $5,000,000. Non-controlling interest (NCI) is measured at fair value, which was $1,100,000 at acquisition. WindTech's net assets at acquisition were $4,500,000 (which included a fair value uplift on patents of $500,000). During the year, Horizon sold turbines to WindTech for $800,000 at a 25% mark-up on cost. Half of these remain in inventory at year-end (31 Dec 20X5). Horizon's receivables include $150,000 due from WindTech, but WindTech's payables show $100,000 due to Horizon (the difference is cash in transit). WindTech's profit for the year was $600,000 (assume no extra depreciation on the patent).
Calculate the Goodwill arising on acquisition. (Enter the number only)
ACCA · Question 40 · Group Consolidations
SCENARIO: On 1 January 20X5, Horizon Renewables acquired 80% of WindTech Innovations for $5,000,000. NCI fair value was $1,100,000. WindTech's net assets at acquisition were $4,500,000 (including a fair value uplift on patents of $500,000). During the year, Horizon sold turbines to WindTech for $800,000 at a 25% mark-up on cost. Half remain in inventory at year-end. Horizon's receivables include $150,000 due from WindTech; WindTech's payables show $100,000 due to Horizon. WindTech's profit for the year was $600,000.
Which entity's retained earnings are reduced by the provision for unrealized profit (PUP)?
SCENARIO: On 1 January 20X5, Horizon Renewables acquired 80% of WindTech Innovations for $5,000,000. NCI fair value was $1,100,000. WindTech's net assets at acquisition were $4,500,000 (including a fair value uplift on patents of $500,000). During the year, Horizon sold turbines to WindTech for $800,000 at a 25% mark-up on cost. Half remain in inventory at year-end. Horizon's receivables include $150,000 due from WindTech; WindTech's payables show $100,000 due to Horizon. WindTech's profit for the year was $600,000.
Which entity's retained earnings are reduced by the provision for unrealized profit (PUP)?
Answer options:
WindTech Innovations (the Subsidiary)
Horizon Renewables (the Parent)
Both entities equally
Neither, it is deducted from Goodwill
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