$55,000.

Sixty percent of the inventory remained unsold as at 31

December 20x6. Fair values remained stable after the transfer date.
(d) Tax rate was 20% throughout. Recognize tax effects on fair value
adjustments.

Required:
1. Prepare consolidation entries for the year ended 31 December 20x6,
with narratives (brief headers) and workings in accordance with IFRS 3
and IFRS 10.
2. Perform an analytical check on the balance of non-controlling interests
as at 31 December 20x6, showing the workings clearly.
3. Perform an analytical check on the following consolidated amounts.
Show workings clearly. (Derive the consolidated balance through a
compilation of relevant CJEs and analytically check this number through
an independent and logical process):
a. Consolidated fixed assets as at 31 December 20x6
b. Consolidated inventory as at 31 December 20x6
c. Consolidated retained earnings as at 1 January 20x6
d. Consolidated retained earnings as at 31 December 20x6

P5.9 Capitalization of intragroup interest and consolidation

P Co acquired a controlling interest of 90% in X Co on 1 January 20x3.

The financial statements for the year ended 31 December 20x6 and other
information are provided below.
Partial Income Statement and Statement of Changes in Equity
For Year Ended 31 December 20x6
P Co X Co
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,200,000 $  800,000
Tax . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..  (440,000)   (160,000)
Profit. .after . . .. .........................................................................................
. . . .tax $1,760,000 $  640,000
. . . . . . . . .. .........................................................................................
Dividends . . . .. ....................................................................................................................
. . . . . declared  (100,000)  (90,000)
. . . . . . ... ..................................................................................................................................................
Profit. .retained $1,660,000 $  550,000
. . . . . . . . .. ......................................................................................................
Retained earnings, 1 Jan 20x6  1,200,000  650,000
..........................................
. . . . . . . . earnings,
Retained . . . . . . . .31 . . .Dec . . . 20x6 . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. $2,860,000 $1,200,000
. . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
. . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
. . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. page 314
.......... ................
................
Statement. .of . .Financial. . . . . . . . Position ....
As at 31 December
................ 20x6
. . . . . . . . . . . . . . . . P Co X Co
................
Fixed assets, net book value . .. .. .. .. .. .. .. .. .. .. .. .. .. . . $3,800,000 . $2,800,000
Loan receivable from P Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
. . . . . . . . . . . . . .
Investment in X, at cost . . .............................................. . . . 1,200,000
...............
Other investments . . . . .. .. ............................................................. 820,000
. . . . . . . . .. . . . . . . .. . . . . . . . . . . . . ..
Inventory . . . . . . . .. .. .. .. ... ... ............................................................................. 554,000 320,000
. . . . . . . . . .. .. .. .. .. .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
Accounts receivable . . . .. .. .. .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... 470,000 280,000
. . . . . . . .. ..............................................................................................................
Cash . . . .. .. .. .. .. .. .. ... ... ... ... .........................................................................    90,370    35,000
. .. .. .. . . . . . . . . . .. . .. . .. . .. . .. . .. ... .
. . . .. .. .. .. .. .. .. .. .. .. .. ....................................................... $6,934,370 $4,435,000 .. . .. . .. . .. . .. . .. ...
. . . .. .. .. .. .. .. .. ... .....................................................................................................................
. . . .. .. .. .. .. .. .. ... .....................................................................................................................
. . .. .. .. .. ........................................................................................................................................... $1,574,370 $2,735,000
Other .liabilities
. . . . . . . . .. .. .........................................................................................................................
Loan payable
. . . . . . . to . .. .X. ..Co . .. .. .. .. .. ........................................... 1,000,000
.. ... ............................................................................................
Share capital . .. .. .. .. .. .. .. .. .. ................................ .. .. .. .. .. 1,500,000 500,000
. .. . . . . . . . . . . . . .. .. .. .. .. .
. .. .. .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .... .. .. .. .. .. .. .
Retained earnings  2,860,000  1,200,000
. .. .. .. ... ............................................................................................
. .. .. .. ... ... ............................................................................... $6,934,370 $4,435,000
. . . . . . . . . . . . . . . . . . .
Shareholders’. equity .. .. .. ... ... .at
........date
................of ........acquisition
..............................................
..........................
Share capital .. ... ... ... .... .... ............................................................... ... ... ... ... $  500,000
. . . . . . . . . . . .
.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . . . . . . . . . .
Retained earnings   400,000
.. .. .. .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
. . . . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... $  900,000
. . . . ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
Fair value .of ... ... ... ... ... ... ... ... ... ... ... ... ... ...interest
. . .non-controlling ... ... ... ... ... ... ... as ... at date of acquisition was
$118,000. As at . . .acquisition,
. .. .. .. .. .. .. .. .. .. ..the .. .. ..book .. .. .. .. .. and .. .. .. .. fair value of identifiable net
. . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
assets was as follows: . . . . .. .. .. .. .. .. .. .. . . . . . . . . . . . . . .

Hot NU .
 00
Book value Fair value
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $480,000 $ 600,000
. . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..  420,000  420,000
Other net assets
. . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Total net assets
. . . . ........................................................................................ $900,000 $1,020,000
. . . . ........................................................................................
. . . ........................................................................................
Additional .information:
. . . . ......................................................................
(a) The undervalued . . . . .equipment
. . . . . . . . . had . . . .an . . estimated
. . . . . . . . . useful life of six years as
. . . . . . . . . . . . . . . . . . . . ..................
. . . . . . . . . . . . . . . . . . . .
at acquisition..date. ................................. . . . . . . . . . . .
(b) During 20x5,. . X . . .Co . . . sold
. . . . .raw . . . .materials to P Co at transfer price of
$150,000 when the carrying amount was $135,000. Subsequently:
Percentage unsold as at 31 December 20x5 . . . . . . . . . . . . . . . . . . . . . . 60%
Percentage unsold as at 31 December 20x6 .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. 10%
.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
(c) P Co constructed a warehouse during 20x5. .. .. .. .. As .. .. .. X .. .. Co.. .. .. could
.. .. .. .. .. ..borrow
.. .. .. .. from
banks at more competitive rates, X Co.. borrowed.. .. .. .. .. .. .. .. ..$1 .. .. ..million
.. .. .. .. .. .. ..from.. .. third
.
party banks and extended a loan of $1 . million . . . . .
. . . . . . .to . . .
. .P . . .
. . Co . . .
. . . in . . .
. . .July .
. . .. ..20x5 to
.
fund P’s construction of the warehouse. .. .. ..X.. .. Co .. .. .. charged
.. .. .. .. .. .. .. ..interest
.. .. .. .. .. .. on the
loan to P Co at P Co’s cost of debt, ..and .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
recognized interest income
.. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
during the period of the loan. P Co capitalized the interest charged by X
. . . . . . . . with
Co into the cost of the warehouse in accordance . . . . .IAS
. . . .23
. . Borrowing
...
Costs. The warehouse was completed on 1 October 20x6, and page 315
had an economic useful life of 20 years. Details of the interest
charges were as follows:

Interest capitalized into the cost of the warehouse by P Co.:

Interest charged by X Co during 20x5 . . . . . . . . . . . . . . . . . . . . . . . . $200,000
Interest charged by X Co from January. .to. .September
. . . . . . . . .20x6
. . . . .. .. .. .. .. .. .. . $150,000
. . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .
. . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .
Interest expense of P Co.: . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .
Interest charged by X Co from October. .to. .December
. . . . . . . . 20x6
. . . . ........................ . $30,000
. . . . . . . . . . . . . . . . ........................ .
. . . . . . . . . . . . . . . . ........................ .
The interest expense on external . . . .borrowings
. . . . . . . . . . .incurred
. ...................by X Co to
..... .
finance the construction of the warehouse
. . . . is as follows:.. .. .. .. .. .. .. .. .
 Interest expense for 20x5 $120,000
.......................................................
. . . . . . .expense
Interest . . . . . . . for
. . .January
. . . . . . .to. .September
. . . . . . . . .20x6
. . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. $ 80,000
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. ..
4. Tax rate was 20% throughout. Recognize. . .tax effects on fair value
................
adjustments. ................
................
Required: ................
................
1. If the cost of the warehouse (including the capitalized . . . . . . . . . .interest) . . . . . . in P Co’s
books as at 1 October 20x6 was $3,500,000,. determine . . . . . . . . . the: ......
a. Cost of the warehouse for the economic entity as at .1. .October . . . . . . . . . . ... 20x6;
and . . . . . . . . . . . . . . . .
................
b. Net book value of the warehouse for the. .legal . . . . .entity. . . . . (P Co) and the
economic entity as at 31 December 20x6.
2. Prepare consolidation entries for the year ended 31 December 20x6,
with narratives (brief headers) and workings in accordance with IFRS 3
and IFRS 10.
3. Perform an analytical check on the balance of non-controlling interests
as at 31 December 20x6, showing the workings clearly.
4. Perform an analytical check on the following balances:
a. Consolidated retained earnings as at 31 December 20x6
b. Consolidated fixed assets as at 31 December 20x6
c. Consolidated inventory as at 31 December 20x6

P5.10 Troubled receivables at acquisition, transfer of assets and

consolidation

P Co acquired a controlling interest in Y Co on 1 January 20x4 as follows:

Percentage acquired by P Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90%

Shareholders’ equity at date of. acquisition: ............................
.............................
Share capital . . . . . . . . . . . . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. $1,000,000
. . . . .. .. .. .. .. .. .. .. .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
Retained earnings 550,000
. . . . .. .. .. .. .. .. .. .. .. ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
Revaluation reserves
. . . . .. .. .........................................................................................................................................   120,000
. . . . . . .........................................................................................