ExpertACCA · Question 49 · Preparing Simple Consolidated Financial Statements
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.
Because the NCI was valued at fair value at acquisition, how does the $10,000 goodwill impairment affect the NCI at year-end?
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.
Because the NCI was valued at fair value at acquisition, how does the $10,000 goodwill impairment affect the NCI at year-end?
Answer options:
The NCI is not affected; the full impairment is charged to the parent's retained earnings.
The NCI is reduced by its share (20%) of the impairment.
The NCI is reduced by the full $10,000.
The impairment is added to the NCI.
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