(a) Prepare the consolidated financial statements for the year ended December 31, Year 6 — July Aaron purchased voting shares Bondi Ltd 543 840 statement position that

On July 1, Year 4, Aaron Co. purchased 80% of the voting shares of Bondi Ltd. For $543,840. The statement of financial position of Bondi on that date follows. The accounts receivable of Bondi were collected in October Year 4, and the inventory was completely sold by May Year 5. Bondi's fixed assets had a remaining life of 15 years on July 1, Year 4, and the bonds payable mature on June 30, Year 8. The bonds were issued on July 1, Year 1. The stated rate of interest on the bonds is 6% payable semi-annually. The market rate of interest was 8% on July 1, Year 4. Tests for impairment of goodwill indicated a loss of $8,329 in Year 5 and $5,553 in Year 6.

The financial statements for Aaron and Bondi at December 31, Year 6, are presented below. Aaron has used the equity method to account for its investment in Bondi.

Required:

(a) Prepare the consolidated financial statements for the year ended December 31, Year 6.

(b) Calculate goodwill impairment loss and non-controlling interest on the consolidated income statement for the year ended December 31, Year 6, under parent company extension theory.

(c) Calculate goodwill and non-controlling interest on the consolidated statement of financial position at December 31, Year 6, under the parent company extension theory.

SOLUTION

Cost of 80% investment – July 1, Year 4 543,840

Implied value of 100% investment 679,800

Carrying amount of Bondi’s net assets

Assets 936,000

Liabilities 307,200

628,800

Acquisition differential 51,000

Allocated: FV – CA

Accounts receivable 24,004

Inventory 48,000

Plant assets - 90,000

Bonds payable 13,466 - 4,530

Balance – goodwill 55,530

Bond Carrying

Cash Interest Premium Amount

Date Paid Expense Amortization of Bonds

July 1/ Year 4 $186,534

Dec 31/ Year 4 $6,0001 $7,4612 $1,4613 187,9954

June 30, Year 5 6,000 7,520 1,520 189,515

Dec 31/ Year 5 6,000 7,580 1,580 191,095

June 30, Year 6 6,000 7,644 1,644 192,739

Dec 31/ Year 6 6,000 7,710 1,710 194,449

1 $200,000 x 6% x 6/12 = $6,000 2 $186,534 x 4% = $7,461

3 $7,461 – $6,000 = $1,461 4 $186,534 + $1,461 = $187,995

Balance Amortization Balance

July 1 Dec. 31 Dec. 31 Dec. 31 Dec. 31

YR 4 YR 4 YR 5 YR 6 YR 6

Accounts receivable 24,004 24,004

Inventory 48,000 48,000

Plant assets – 90,000 – 3,000 – 6,000 – 6,000 – 75,000

Bonds payable 13,466 1,461 3,100 3,354 5,551

Goodwill 55,530 – 8,329 5,553 41,648

51,000 22,465 53,429 2,907 –27,801

Calculation of consolidated profit attributable to NCI – Year 6

Profit Bondi 8,400

Less: Acquisition differential amortization 2,907

5,493

20%

1,099

Calculation of non-controlling interest – Dec. 31, Year 6 (Method 1)

Ordinary shares Bondi 120,000

Retained earnings 558,200

Unamortized acquisition differential - 27,801

650,399

20%

130,080