Topic 3: Consolidation: Non-controlling interests

Pepsi Ltd acquired 80% of the shares of Soda Ltd on 1 July 2015 for $115 000. At this date the equity of Soda Ltd consisted of:

	$
Share capital (100,000 shares)	80,000
Retained earnings	29,600
General reserve	2,400

All the identifiable assets and liabilities of Soda Ltd were recorded at amounts equal to their fair values except for:

	Carrying amount	Fair value
	$	$
Inventories	25,000	28,000
Plant (cost $65,000)	52,000	56,000
Land	40,000	45,000

The plant was expected to have a further useful life of 10 years. The land was sold on 1 January 2018. The inventory was all sold by 30 June 2016. Pepsi Ltd uses the full goodwill method. The fair value of the non-controlling interest at 1 July 2015 was $28,000. At 1 July 2015, Soda Ltd had unrecorded (internally generated) customer lists that had a fair value of $18,000. These customer lists had an indefinite life.

Financial information provided by the two companies at 30 June 2018 was:

	Pepsi Ltd	Soda Ltd
	$	$
Sales	252,800	176,000
Debenture interest	4,000	-
Management and consultation fees	4,000	-
Dividends	9,600	-
Total revenue	270,400	176,000
Cost of sales	104,000	68,000
Manufacturing expenses	82,000	53,000
Depreciation on plant	12,000	12,000
Administrative expenses	12,000	6,400
Financial expenses	8,800	4,000
Other expenses	11,200	9,600
Total expenses	230,000	153,000
Profit from trading	40,400	23,000
Gains on sale of non-current assets	10,000	5,000
Profit before income tax	50,400	28,000
Income tax expense	20,000	13,600
Profit for the year	30,400	14,400
Retained earnings 1 July 2017	40,000	36,000
	70,400	50,400
Dividend paid	8,000	8,000
Dividend declared	8,000	4,000
	16,000	12,000
Retained earnings 30 June 2018	54,400	38,400
Share capital	240,000	80,000
General reserve	37,600	8,000
Other components of equity	10,400	8,000
Debentures	160,000	80,000
Current tax liability	20,000	13,600
Dividend payable	8,000	4,000
Deferred tax liabilities	12,000	5,600
Other current liabilities	60,000	9,600
Total equity and liabilities	602,400	247,200
Shares in Soda Ltd	115,000	-
Debentures in Soda Ltd	80,000	-
Plant	96,000	81,600
Accumulated depreciation - plant	(52,000)	(44,000)
Intangibles	60,800	44,000
Accumulated amortisation - intangibles	(32,000)	(20,000)
Deferred tax assets	58,600	24,000
Financial assets	40,000	48,000
Land	120,000	45,600
Inventories	72,000	44,000
Receivables	44,000	24,000
Total assets	602,400	247,200

Additional information

Soda Ltd had inventory on hand at 30 June 2017 that included inventory at cost of $8,000 that had been sold to Soda Ltd by Pepsi Ltd. This inventory had cost Pepsi Ltd $6,000. It was all sold by Soda Ltd by 30 June 2018.

During the 201718 year, Soda Ltd sold inventory to Pepsi Ltd for $48,000. At 30 June 2018, Pepsi Ltd still had some of this inventory on hand. This inventory had been sold to Pepsi Ltd by Soda Ltd at a profit of $4,000.

On 1 January 2017, Soda Ltd sold plant to Pepsi Ltd for $16,000. This had a carrying amount in Soda Ltd at time of sale of $12,000. Plant of this class is depreciated at 20% p.a.

Management and consultation fees derived by Pepsi Ltd are all from Soda Ltd and represent charges for administration of $1,760 and charges for technical services for the manufacturing section of $2,240.

All debentures issued by Soda Ltd are held by Pepsi Ltd and interests are accounted for appropriately by both companies.

Other components of equity relate to movements in the fair values of financial assets held by the entities. Gains and losses on these financial assets are recognised in other comprehensive income. The balance of the other components of equity account at 1 July 2017 was $8,000 (Pepsi Ltd) and $6,400 (Soda Ltd).

Required:

1. Prepare an acquisition analysis.

2. Prepare the consolidation worksheet entries for the year ended 30 June 2018.

Note: you are not required to prepare the consolidation worksheet and the consolidated financial statements.

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