Question 1

Section B - Case 1: Group Consolidations

**Scenario: Nebula Aerospace**
On 1 January 20X5, Nebula Aerospace acquired 80% of the equity share capital of Comet Components. The purchase consideration was $500,000 cash. At the date of acquisition, Comet's share capital was $100,000 and its retained earnings were $250,000. The fair value of the non-controlling interest (NCI) at acquisition was $110,000. 
During the year ended 31 December 20X5, Comet made a profit of $80,000. Nebula sold goods to Comet for $50,000 at a 25% mark-up on cost. Half of these goods remain in Comet's inventory at year-end. Comet owes Nebula $20,000 at year-end.

Because the NCI was valued at fair value at acquisition, how does the $10,000 goodwill impairment affect the NCI at year-end?

Accepted Answer

Recall the rule for goodwill impairment based on the NCI valuation method. Fair value method = full goodwill = impairment shared. Proportionate method = partial goodwill = impairment only to parent.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Assuming goodwill impairment always only affects the parent's retained earnings.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

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