Calculation, allocation, and amortization of acquisition differential

Cost of 80% investment, Jan. 1, Year 3 1, 600, 000

Implied value of 100% investment 2, 000, 000

Carrying amounts of Least's net assets:

Assets 3, 000, 000

Liabilities 1, 500, 000

Total shareholders' equity 1, 500, 000

Acquisition differential 500, 000

Allocation: FV - CA

Accounts receivable - 20, 000

Inventories - 50, 000

Plant and equipment (net) 35, 000

Long-term liabilities 100, 000 65, 000

Balance – goodwill 435, 000

Balance Amortization Balance

Jan. 1 Dec. 31

Year 3 Years 3 to 8 Year 9 Year 9

Accounts receivable - 20, 000 - 20, 000

Inventories - 50, 000 - 50, 000

Plant and equipment (net) 35, 000 26, 250 4, 375 4, 375 (a)

Long-term liabilities 100, 000 100, 000

Goodwill 435, 00052, 200 8, 700374, 100 (b)

500, 000108, 450 (c) 13, 075 (d) 378, 475

Intercompany revenues and expenses

Sales and purchases (2, 000, 000 + 1, 500, 000) 3, 500, 000 (e)

Intercompany profits

Before tax 40% tax After tax

Loss on land, July 1, Year 7

realized in Year 9 – Most selling 50, 000 20, 000 30, 000 (f)

Opening inventory – Most selling

(312, 500 x 0.20) 62, 500 25, 000 37, 500 (g)

– Least selling

(857, 140 x 0.30) 257, 142102, 857154, 285 (h)

319, 642127, 857191, 785 (i)

Ending inventory – Most selling

(500, 000 x 0.20) 100, 000 40, 000 60, 000 (j)

– Least selling

(714, 280 x 0.30) 214, 284 85, 714128, 570 (k)

314, 284 (l) 125, 714188, 570

Intercompany dividends declared but not paid (80% x 100, 000) 80, 000 (m)

Deferred income taxes – ending inventory (40, 000 + 85, 714) 125, 714 (n)

Calculation of consolidated retained earnings – Jan. 1 Year 9

Retained earnings of Most, Jan. 1, Year 9

(10, 400, 000 – 1, 000, 000 + 350, 000) 9, 750, 000

Less: Profit in opening inventory (g) 37, 500

9, 712, 500

Add: land loss (f) 30, 000

Adjusted retained earnings 9, 742, 500

Retained earnings of Least, Jan. 1, Year 9

(2, 300, 000 – 400, 000 + 100, 000) 2, 000, 000

Retained earnings of Least at acquisition 1, 000, 000

Increase 1, 000, 000

Less: profit in opening inventory (h) 154, 285

amortization of acquisition differential (c) 108, 450

Adjusted increase 737, 265 (o)

Most's ownership % 80% 589, 812

Consolidated retained earnings, Jan. 1, Year 9 10, 332, 312

Calculation of consolidated net income – Year 9

Net income of Most 1, 000, 000

Less: Dividends from Least (100, 000 x 80%) 80, 000

Profit in closing inventory (j) 60, 000

Land loss (f) 30, 000 170, 000

830, 000

Add: profit in opening inventory (g) 37, 500

Adjusted net income 867, 500

Net income of Least 400, 000

Add: profit in opening inventory (h) 154, 285

554, 285

Less: profit in closing inventory (k) 128, 570

amortization of acquisition differential (d) 13, 075

Adjusted net income 412, 640

Consolidated net income 1, 280, 140

Attributable to:

Shareholders of Most 1, 197, 612

Non-controlling interests (20% x 412, 640) 82, 528

1, 280, 140

Calculation of consolidated non-controlling interests – Jan. 1 Year 9 (Method 1)

Least’s common shares, Jan. 1, Year 9 500, 000

Retained earnings of Least, Jan. 1, Year 9 2, 000, 000

Less: profit in opening inventory (h) 154, 285

Adjusted retained earnings 1, 845, 715

Unamortized acquisition differential (500, 000 – 108, 450) 391, 550

2, 737, 265

NCI’s ownership % 20%

NCI, Jan. 1, Year 9 547, 453

Calculation of consolidated non-controlling interests – Jan. 1 Year 9 (Method 2)

Non-controlling interests at date of acquisition (20% x [1, 600, 000 /.8) 400, 000

Least’s adjusted increase in retained earnings (n) 737, 265

NCI’s share @ 20% 147, 453

NCI, Jan. 1, Year 9 547, 453

(a) Most Company

Consolidated Statement of Changes in Equity

For Year Ended December 31, Year 9

Common Retained

Stock Earnings Total NCI Total

Balance, beginning of year 1, 000, 000 10, 332, 312 11, 332, 312 547, 453 11, 879, 765

Add: net income 1, 197, 612 1, 197, 612 82, 528 1, 280, 140

Less: dividends (350, 000)(350, 000)(20, 000)(370, 000)

Balance, end of year 1, 000, 00011, 179, 92412, 179, 924609, 98112, 789, 905