The plant and equipment had an estimated life of 20 years on this date — Pure Company purchased ordinary shares Gold January Year for 483 000 when

Pure Company purchased 70% of the ordinary shares of Gold Company on January 1, Year 6, for $483,000 when the latter company’s accumulated depreciation, ordinary shares and retained earnings were $75,000, $500,000 and $40,000, respectively. Non-controlling interest was valued at $195,000 by an independent business valuator at the date of acquisition. On this date, an appraisal of the assets of

Gold disclosed the following differences:

The plant and equipment had an estimated life of 20 years on this date.

The statements of financial position of Pure and Gold, prepared on

December 31, Year 11, follow:

Additional Information

• Goodwill impairment tests have resulted in impairment losses totalling $18,000.

• On January 1, Year 1, Gold issued $500,000 of 8½% bonds at 90, maturing in 20 years (on December 31, Year 20).

• On January 1, Year 11, Pure acquired $200,000 of Gold’s bonds on the open market at a cost of $230,000.

• On July 1, Year 8, Gold sold a patent to Pure for $63,000. The patent had a carrying amount on Gold’s books of $42,000 on this date and an estimated remaining life of seven years.

• Pure uses tax allocation (40% rate) and allocates bond gains between affiliates when it consolidates Gold.

• Pure uses the equity method to account for its investment.

Required:

Prepare a consolidated statement of financial position as at December 31, Year 11.

SOLUTION

Calculation, allocation, and amortization of acquisition differential

Total 70% 30%

Cost of investment, Jan. 1, Year 6 483,000 483,000

Fair value of NCI 195,000 195,000

678,000

Carrying amounts of Gold's net assets:

Ordinary shares 500,000

Retained earnings 40,000

Total shareholders' equity 540,000 378,000 162,000

Acquisition differential 138,000 105,000 33,000

Allocation: FV - CA

Inventory -12,000

Land 50,000

Plant and equipment 70,000 108,000 75,600 32,400

Balance – goodwill 30,000 29,400 600

Balance Amortization Balance

Jan. 1/6 Years 6 to 11 Dec. 31/11

Inventory -12,000 -12,000 –

Land 50,000 – 50,000 (a)

Plant and equipment 70,000 21,000 49,000 (b)

108,000 9,000 99,000

Goodwill – parent’s portion 29,400 17,640 11,760

- NCI’s portion 600 360 240

30,000 18,000 12,000 (c)

Total 138,000 27,000 111,000

Intercompany profits and losses

Before tax 40% tax After tax

Intercompany bonds – Dec. 31, Year 11

Investment in Gold Co. bonds

(230,000 – [30,000/10]) 227,000

Bonds payable

(477,500 [200,000 / 500,000]) 191,000

Loss – entity 36,000 14,400 21,600 (d)

Investment 227,000