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ACCA · Question 49 · Preparing Simple Consolidated Financial Statements
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Following the previous question, what is the impact of the $100,000 goodwill impairment on the carrying value of the NCI at year-end (in $)?
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Following the previous question, what is the impact of the $100,000 goodwill impairment on the carrying value of the NCI at year-end (in $)?
How to approach this question
Calculate the NCI share of the impairment: 20% of $100,000 = $20,000. This amount reduces the NCI carrying value.
Full Answer
Under the fair value method, the NCI bears its share of the goodwill impairment. 20% of $100,000 = $20,000. This $20,000 is deducted from the NCI carrying value at year-end.
Common mistakes
Assuming NCI takes no share of the impairment.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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