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ACCA Applied Skills · Financial Reporting · The concepts and principles of groups and consolidated financial statements

On the acquisition date, Sub Co owned land with a carrying amount of $200,000 and a fair value of $260,000. Parent Co acquired 60% of Sub Co. NCI is measured at the proportionate share of net assets. Which statement about the consolidation is correct?

Land is consolidated at fair value, with the full $60,000 uplift added to net assets at acquisition. This reduces goodwill and increases NCI. IFRS 3 requires fair value measurement of identifiable assets, and 100% of the subsidiary's assets are consolidated.

  1. AThe fair value uplift of $60,000 is included in net assets at acquisition, reducing goodwill, and land is consolidated at fair valueCorrect
  2. BThe uplift is ignored because Sub Co's own financial statements carry land at cost
  3. COnly 60% of the uplift, $36,000, is added to land in the consolidated statement
  4. DThe uplift is credited directly to Parent Co's retained earnings

Explanation

IFRS 3 requires identifiable assets to be measured at fair value at acquisition, so the full 60,000 uplift is added to land and to net assets at acquisition. Goodwill is reduced and NCI includes its share. Adding only 60% is wrong because the group consolidates 100% of assets and liabilities.

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