Donna Co acquired 80% of the equity share capital of Blitsen Co on 1 January 20X4 when the retained earnings of Blitsen Co were $40,000. The fair value of the non-controlling interest at this date was $25,000. At 31 December 20X4, the equity capital of Blitsen Co was as follows:
During the year Blitsen Co sold goods to Donna Co for $20,000. This price included a
mark-up of $12,000 for profit. At 31 December 20X4, 50% of these goods remained unsold in the inventory of Donna Co. What is the value of the non-controlling interest in the Donna Group at 31 December 20X4, for the purpose of preparing the consolidated statement of financial position?
18.4 AssociatesAn associate is an entity over which another entity exertssignificant influence.Associates are accounted for in the consolidated statements of a group using the equity method.
●Associates–An entity,including an unincorporated entity such as a partnership,in which an investor has significant influence and which is neither a subsidiary nor a joint venture of the investor.
●Significant influence–IAS 28 states that if an investor holds 20%or more of the voting power of the entity or
(a)representation on the board of directors of the investee
(b)participate in the policy making process
(c)material transactions between investor and investee
(d)interchange of management personnel.
(e)provision ofessential technical information
●Equity method:(IAS 28)An investment in an associate is accounted for using the equity method.Under the equity method,the investment in an associate is initially recorded at cost and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition.
Initial investment cost X
Share of profit X
Investment in associate X
●Statement of financial position show the investment in associated undertakings as a non-current asset investment,stated at cost.The individual company’s income statement shows dividend income received from associates under the heading“investment income”.
Swing purchased 80%of Cat’s equity on 1 January 20x8 for$120,000 when Cat’s retained earnings were$50,000.The fair value of the non-controlling interest on that date was$40,000.During the year,Swing sold goods which cost$80,000 to Cat,at an invoiced cost of$100,000.Cat had 50%of the goods still in inventories at the year end.The two companies’draft financial statements as at 31 December 20x8 are shown below.
Income Statement for the year ended 31 December 20x8
Prepare the draft consolidated income statement and draft consolidated statement of financial position for the Swing group at 31 December 20x8.
Consolidated income statement for the year ended 31 December 20x8