On 01/04/2020 a Parent company purchased 90% of the share capital of its Subsidiary for £500,000. On the same date, the Subsidiary had share capital of £200,000 and retained earnings of £50,000 but it was calculated that the fair value of its identifiable net assets was £400,000. The difference between fair and carrying values can be attributed to property.
At the year-end of 30/11/2020 the Parent owned £150,000 of debentures in the Subsidiary. On the same date the directors of the Parent determined that goodwill in the Subsidiary was impaired by £40,000.
The companies’ statements of financial position as at 30/11/2020 are shown below.
Prepare the consolidated statement of financial position as at 30/11/2020.
Property, plant & equipment. When calculating the total we must make an adjustment in respect of the property whose fair value exceeds the carrying value by £150,000 (i.e. £400,000 less the carrying value of the net assets, or total equity of £250,000 at the acquisition date).
Goodwill. When calculating goodwill at acquisition, the fair value adjustment regarding the property must be included in the calculations. In addition, we must remember to deduct the £40,000 impairment when calculating the goodwill at the year-end.
Retained earnings: The retained earnings will be calculated as usual but must include a reduction for the goodwill impairment.
Non-controlling interests. Non-controlling interests will include an adjustment for the fair value adjustment regarding the subsidiary’s property.
Debentures. The debentures (both the asset and liability) must be reduced by the £150,000 held by the parent in the subsidiary
The consolidated statement of financial position for the parent is shown below.