Reference no: EM132965753
Question - On 1 January 2020, Petre Ltd acquired a 60% interest in the issued share capital of Sanford Ltd, for a cash consideration of $6,000,000. On the acquisition date, the retained profits of Sandford Ltd were $3,000,000. The statement of financial position of the two companies for the year ended 31 December 2020 were as follow:-
Petre Ltd Sanford Ltd
ASSETS
Property, plant and equipment 15,500 8,800
Investment in Sanford Ltd 6,000 -
Inventories 5,000 3,000
Receivable from Sanford Ltd 500 -
Other current assets 4,500 2,000
Total Assets 31,500 13,800
EQUITY AND LIABILITIES
Ordinary share capital of $1 each 16,000 4,000
Retained earnings 7,500 6,000
Payable to Petre Ltd - 500
Liabilities 8,000 3,300
Total Equity and Liabilities 31,500 13,800
Additional information:
a) Included in the property, plant and equipment of Sanford Ltd is a freehold land recorded at cost of $1,000,000. At the acquisition date, this land was assessed to have fair value of $3,000,000. No adjustment has been made in the accounts to reflect the fair value.
b) During the year 2020, Petre Ltd has provided inter-company advances of $500,000 to Sanford Ltd.
c) It is Petre Ltd's policy to measure non-controlling interest equal to its proportionate share of net assets of the subsidiary.
REQUIRED -
(a) Define and compute "Non-Controlling Interest".
(b) Explain why intra-group transactions and balances are eliminated in consolidation.
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