Question 1

Section B - Case 1: Group Consolidations

**Scenario: Nebula Aerospace**
On 1 January 20X5, Nebula Aerospace acquired 80% of the equity share capital of Comet Components. The purchase consideration was $500,000 cash. At the date of acquisition, Comet's share capital was $100,000 and its retained earnings were $250,000. The fair value of the non-controlling interest (NCI) at acquisition was $110,000. 
During the year ended 31 December 20X5, Comet made a profit of $80,000. Nebula sold goods to Comet for $50,000 at a 25% mark-up on cost. Half of these goods remain in Comet's inventory at year-end. Comet owes Nebula $20,000 at year-end.

How is the $20,000 intra-group balance treated in the consolidated statement of financial position?

Accepted Answer

Recall the rule for intra-group balances: A group cannot owe money to itself. Therefore, intra-group receivables and payables must be cancelled out entirely.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Eliminating only 80% of the balance based on the parent's ownership percentage.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

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