ACCA · Question 44 · Preparing simple consolidated financial statements
Section B - Case 1: Group Consolidations
Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.
At the year-end, Zenith's receivables include $50,000 owed by Apex. Apex's payables include $50,000 owed to Zenith.
What is the correct consolidation adjustment for these balances?
Answer options:
Add $50,000 to consolidated receivables and add $50,000 to consolidated payables
Deduct $50,000 from consolidated receivables and deduct $50,000 from consolidated payables
Deduct $40,000 (80%) from both receivables and payables
No adjustment is needed as they naturally offset each other in the consolidation process
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