On December 31, 20X6, the Statements of Financial Position of Power

question 32

Essay

On December 31, 20X6, the statements of financial position of Power Company and Pro Company are as follows (amounts in thousands):
$$\begin{array} { l l l l } & \text { Power } & \text { Pra } & \text { Pro (FV) } \\\text { Cash } & \$ 500 & \$ 800 & \\\text { Accounts receivable } & 1,500 & 1,700 & \\\text { Inventories } & 2,000 & 1,500 & \\\text { Plant and equipment (net) } & \underline { 2,500 } & \underline { 4,000 } & \$ 4,300 \\\text { Total Assets } & \$6, 500 & \$8, 000 &\end{array}$$ $$\begin{array} { l l l l } \text { Current liabilities } & \$ 700 & \$ 400 \\\text { Long-term liabilities } & 8 0 0 & 500 & \$ 400 \\\text { Common shares } & 2,500 & 1,000 & \\\text { Contributed suplus } & 8 0 0 & 1,500 \\\text { Retained earnings } & \underline { 1,700 } & \underline { 4,600 } \\\text { Total Equities } & \$ \$ \$ , 500 & \$ \$ , 000\end{array}$$ Power Company has 100,000 shares of common stock outstanding. Pro Company has 45,000 shares outstanding. All assets and liabilities have book values equal to fair values, except as noted above.
The plant and equipment has an estimated remaining useful life of nine years from the date of acquisition. The long-term liabilities mature on December 31, 2020. Market value of the new shares issued was $90 per share at issuance.
Required:
Assume that 90% of the outstanding shares of Pro were acquired for cash of $8.1 million. Calculate goodwill and the non-controlling interest on the consolidated balance sheet at December 31, 20X6, under the entity method and the parent-company extension method. Explain the differences between the two balances for goodwill.
Which method is preferred under IFRS? Why are the two methods allowed? Which methods are allowed under ASPE?

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Definitions:

MPC

A measure of the rate at which consumers are likely to spend additional income, rather than save it.

APS

Average Propensity to Save; the proportion of income that an individual or population saves rather than spending on consumption.

Consumption Function

As income rises, consumption rises, but not as quickly.

John Maynard Keynes

A British economist whose theories on government intervention in economies (Keynesian economics) have greatly influenced modern macroeconomic policies, particularly regarding the use of fiscal and monetary measures.