What is the purpose of the fair value reserve

Reference no: EM133064728

Question 1:

What is the purpose of the Fair Value Reserve (FV Reserve) in the consolidation process? What determines whether data adjustments at control date are taken to either Retained Earnings or the Fair Value Reserve, support your answer with examples. The Fair Value Reserve account balance does NOT exist in the consolidated financial statements - why?

Question 2:

On 1 January 2016 Walker Ltd gained control of Jones Ltd by acquiring all of its shares for an amount of $50,000. At this date the equity of Jones Ltd was as follows
$
Share Capital 10,000
Retained Profits 17,000
27,000

The purchase was based on the following fair value for Jones Ltd assets, which differ from their carrying amount at control date

Additional information - Control date (fair value adjustments)
(i) The contingent liability has not been recorded in the books of Jones Ltd in accordance with AASB 137 ‘Contingent Liabilities and Contingent Assets'
(ii) Jones Ltd uses the cost model in its books for plant & equipment. The original cost of this item was $75,000.The asset is required to be depreciated an additional $1,500 each year on the consolidation worksheet from control date as a result of the fair value adjustment
(iii) The brandname represents an intangible assets not recorded by Jones Ltd in accordance with AASB 138 'Intangible Assets'

Additional information - Intragroup transactions
(i) All dividends paid by the group are from post-control profits
(ii) Walker Ltd advanced Jones Ltd $25,000 in the form of a loan on 1 January 2017. They charged interest at 10% p.a. This amount was settled prior to 31 December 2017.
(iii) On 31 December 2017 Walker Ltd sold Jones Ltd a parcel of land for
$18,000. This asset had a carrying amount of $20,000 at the time of the sale and resulted in a loss on sale to Walker Ltd of $2,000.
(iv) The following information relates to intra-group sales of inventory

REQUIRED
Complete the consolidation worksheet on the following page for the 31 December 2017 (including the substitution elimination journal). No narrations required. Marks will only be allocated for the worksheet entries.

Reference no: EM133064728

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