Ph.: 98851 25025/26 www.mastermindsindia.com } 15. CONSOLIDATED FINANCIAL STATEMENTS MODEL WISE ANALYSIS OF PAST EXAM. glelze|/z]/el]el/elelelts mope.NO | 2/2/23 /2/2/2/2/2)2/2 Model - 1 5 5 5 - - - - : - - Model - 2 2 p 5 5 5 e 5 : E 2 Model - 3 - | - - | - 5 5 5 5 5 5 Model - 4 : 5 5 : 5 5 5 = E : Model 5 - | - - | - 5 5 5 5 : 5 Model - 6 2 5 5 5 5 5 5 16 2 5 Model - 7 - | - - | - 5 5 5 5 e 5 Model - 8 : : : : : : an pen en Ee Model - 9 2 E 2 e 2 e 5 e E 5 Model - 10 16 | 16 | 16 | t | t | 1 | | - | 6 | 6 Model - 1 : Share of holding and minority incase of Transfer of Profits to Reserves Model - 2 : Treatment of Pre and Post Acquisition Model - 3 : Cost of Control Model - 4 : Minority Interest Model - 5 : Consolidated Balance Sheet - Revaluation of Model - 6 : Consolidated Balance Sheet - Bonus Issue Model - 7 : Uniform Accounting Policies and Preparation Subsidiary Balance sheet Model - 8 : Consolidated Balance Sheet - Investment in Debentures of Subsidiary Model - 9 : Consolidated Profit and Loss Account Model - 10 : Advanced Models 1. INTRODUCTION : a) Consolidated accounts are one form of group accounts which combines the information contained in the separate accounts of a holding company and its subsidiaries as if they were the accounts of a single entity. Group accounts and consolidated accounts are terms often used synonymously. b) In simple terms a set of consolidated accounts is prepared by adding together the assets and liabilities of the holding company and each subsidiary. ¢) Sec.129 (3) of the Companies Act, 2013 mandated the Companies having one or more subsidiaries, to prepare consolidated financial statements, 2. DEFINITIONS : a) Holding Company: As per Section 2(46) of the Companies Act, 2013, "Holding company’, in relation to one or more other companies, means a company of which such companies are subsidiary companies. b) Subsidiary Company: Section 2(87) of the Companies Act, 2013 defines “subsidiary company” as a company in which the holding company — Controls the composition of the Board of Directors; or i) Exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies Note: Total share capital = Paid up equity share capital + Convertible preference share capital. ixed Assets IPCC_38e_Advanced Accounting _Cons\ jated Financial Statement, 15.1No.1 for CAICWA & MECICEC MASTER MINDS 3. IPCC_38e_Advanced Accounting _Cons: CONSOLIDATED FINANCIAL STATEMENTS: a) Meaning: The financial statements of a group presented as those of a single economic entity. b) Need: The consolidated financial statements are needed to serve the following purposes i) To ascertain the financial performance of the group as a whole ii) To ascertain the financial position of the group as a whole i) To ascertain the appropriate value of the share of a holding company iv) To ascertain whether an excessive or otherwise price has been paid for acquiring the shares of a subsidiary company a) Statutory compliance: A company which is required to prepare consolidated financial statements shall follow the requirements of schedule Ill which contains the ‘General instructions for preparation of consolidated financial statements’ and also the accounting principles and procedures laid down in AS 24 for preparation and presentation of consolidated financial statements. b) When Consolidation not required: As per AS 21, a subsidiary should be excluded from consolidation when: i) Control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future ii) It operates under severe long-term restrictions which significantly impair its ability to transfer funds to the parent. CONSOLIDATION PROCEDURES FOR BALANCE SHEET Steps for preparing consolidated balance sheet Step- 4: Date of acquisitio ‘+ Ascertain date of acquisition of parent in a subsidiary company. Note: this date is relevant for the purpose of analysing the subsidiary profits as pre acquisition and post acquisition profits. Step- 2: Shareholding pattern: Determine shareholding pattern of the subsidiary company as on the date on which the Consolidated Balance Sheet (CBS) is to be prepared. Note: This pattern is essential for apportionment of subsidiary profits No. ofshares | _% a) Parent XXX, XXX b) Minority Interest XXX XXX c)_Total (a+b) XXX 2X Step- 3: Analysis of subsidiary reserves & surplus: Analysis of subsidiary reserves & surplus (including losses) as pre-acquisition and post acquisition profits based on the date of acquisition (step 1) a) The reserves to be analysed shall be reserves as appearing in the balance sheet of the subsidiary company as at the date of preparation of consolidated balance sheet subject to adjustments relating to proposed dividend '/bonus‘/Unaccounted items, b) In certain instances where assets are revalued®, the surplus/ deficit should also be considered. ) If the subsidiary has outstanding cumulative preference shares, on which dividend has not been provided for or dividend is in arrears, the same should be provided and residuary reserves analysed. 4) Ifthe investments are made during the financial year, either, 1 Statement. 15.2 jated Financ’Ph.: 98851 25025/26 www.mastermind: i) Separate financial statements should be drawn up to the date of acquisition to determine the pre-acquisition profits. Or i) Profits apportioned where practicable on a reasonable basis, for example on the basis of time with assumption that profits have accrued evenly during the year. Or The last balance sheet date status may be considered for determining pre-acquisition profits The alternative (ji) is recommended for solving problems. Notes: 1, Treatment of dividend: Treatment in case of Post-Acquisition Dividend: Accounted bythe Subsidiary ‘Account for by No further Adjusted at he ‘reting PUNE ot et eel ‘the Holding ca Company Treatment in case of Pre-Acquisition ecourtay eng otacountedty corey countess ong acoteoy Aajontbesamastne autem ane ‘weatngirae ‘acon ctimnses Toners Noturnerautmant 2. Treatment of Bonus shares: a) The profits and reserves out of which bonus shares have been issued must be reduced by the amount utilized for issuing the Bonus shares, b) The paid up value of Bonus shares allotted to the holding company after the date of acquisition must be added to the paid up value of shares held by the Holding Company. IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.3No.1 for CAICWA & MECICEC MASTER MINDS c) The paid up value of Bonus shares allotted to the Minority Shareholders after the date of acquisition must be added to the paid up value of shares held by the Minority. d) Unless the question states ‘No accounting effect has yet been given’, it is presumed that Bonus issue has been duly recorded in books. 3. On revaluation of assets, the corresponding depreciation adjustment after date of revaluation should also be considered. Step- 4: Apportionment of profits: Apportionment of profits analysed as above (Step 3) among the shareholders in the ratio ascertained in the Step 2 Pre-acquisition profit Post acquisition profit Capital profit Revenue Revenue (cP) Reserves (RR) |_Profits (RR) a) General reserve 10K Xx 5 b) Other reserves 20K Xxx = ) Profit and loss 20 = oor d) Less: Miscellaneous expenditure to the extent not written off / (00%) : (00) unamortised expenses: e) Total 2XX Xo Xxx f)_Parent 200 Xoo Xoo [g) Minority Interest 0K Xxx Yoo Minot Compute Minority Interest (Ml) Mls the aggregate of minority share of: ‘a)_Share capital Xn b) Capital profits Step =4 Xxx c) Revenue reserves Step=4 Xxx d) Revenue profits Xxx e) Equity dividend (proposed)* Xx f)_Preference share capital Held by outsiders Xxx |g) Preference dividend Step - 3c Xxx hh) Less: Stock reserve Minority share (If upstream) | (cx) Xxx, * Consequent to amendment of AS 4 (30.03.2016) proposed dividend (equity) should not be considered. However if there is a dividend declared before balance sheet date (Commonly referred as interim) pending payment, the same should be accounted. Step ~ 6: cost of control: Determine cost of control Particulars Rs. Rs A | Cost of investment i, Amount invested — Carrying amount as per Parent's, 100K Balance sheet ji. Less: Dividend received from pre-acquisition profits of the | (x) subsidiary ili Adjusted cost of investment { (i) ~ (i ] Xo B | Value of investment” - aggregate of parent share of: i Share capital 200 ji, Pre-acquisition profit (step 4) 300 X00 c Cost of control - Goodwill/Capital reserve (a-b) Xxx IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.498851 25025/26 www.mastermind: om “parent's share of net assets (assets — liabilities = capital + reserves) of the subsidiaries as at the date of investment Cost of control A>B A Parents’ Reserves * 100% + Respective share in > Minority Interest * Nil subsidiary * Step2 Step-8: Reserves for Consolidated Balance Shee! Ascertainment of reserves for Consolidated Balance Sheet Particulars cR | RR | P&LAc a_Reserves as appearing in Parent's Balance sheet sox | 00 20 b. Less: Dividend received from subsidiary out of pre- (ox) | Goo) acquisition profits transferred to Investments (Step 6A\i)) c. Add: Parents’ share of Post acquisition reserve and profits 20x 20x of subsidiary (Step 4) Less: Reserve for unrealised profit created (Step 7B) (0x) ‘Add: Capital Reserve (Step 6C) 20x f The net result is the value of reserves to be shown in| xxx | xxx XXX Consolidated Balance Sheet Note: Maintain identity of reserves for consolidated balance sheet *CR - Capital Reserve "RR — Revenue Reserve IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.5No.1 for CAICWA & MECICEC MASTER MINDS Preparation of Consolidated Balance Sheet a) Liabilities 1. Share capital Only parent 2. Reserves Step-8 3._Minority interest Step -5 4. Other liabilities, loans, current | Total of both companies’ individual liabilities liabilities and provisions Less: Intercompany transactions b) Assets 1. Fixed assets Total of both companies adjusted for revaluation and unrealised profit. In the event of cost of control resulting in Goodwill, the same should form part of Fixed assets. 2._ Investments Total of outside investments of parent and subsidian 3. Current Assets, Loans and | Aggregate of both companies balances adjusted for ‘Advances Inter Company owing (Step 7) and in the case of stock for stock reserve. 4. Miscellaneous expenditure | Only parent balances would appear since the balances to the extent not written off | relating to subsidiary are netted off in the process of unamortised expenses analysis of profits (Step 4) Note: The Consolidated Balance Sheet should be presented in the manner required by schedule Ill to the Companies Act, 2013 and disclosure shall also be made. The Provisions of Accounting Standards to the extent relevant are to be followed. 5. CONSOLIDATED PROFIT&LOSS ACCOUNT: It is a profit and loss account showing the total income and total expenses and the resultant total net profit of holding company and subsidiary subject to i) Elimination of inter company transactions of goods, services and interest on loans. ii) Transfer to minority interest and investment a/c for determining cost of control The Consolidated profit and loss A/c is prepared with 4 columns (assuming 1 Subsidiary).Each column for: a. Parent b. Subsidiary company transactions } Optional c. Adjustments-showing inter company transaction being eliminated 4d. Consolidated income or expense after adjusting intercompany transactions, PROBLEMS FOR CLASSROOM DISCUSSION PROBLEM ON TREATMENT OF TRANSFER TO RESERVES PROBLEM 1: From the following information calculate the share of Minority shareholders and Holding Company in the pre and post acquisition profits of Subsidiary Company: Extracts of Balance sheets of H Ltd. and S Ltd. as at 31 March, 2015 HLtd. S Ltd. Equity share capital 10,00,000 5,00,000 General reserve 3,00,000 6,48,000 Profit and Loss Alc 3,00,000 2,52,000 Investments in S Ltd. 5,00,000 - IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.698851 25025/26 www.mastermind: om H Ltd Acquired 30,000 Equity Shares in S Ltd. on 01.07.2014. The credit balance of Profit and Loss Account of S Ltd. as on 01.04.2014 was Rs.2,00,000 and that of General reserve on that was Rs.6,00,000, (Ans: Particulars Cap. Profits | Rev. Profits | Rev. Reserve ‘Share of Minority @ 40% 3,30,000 15,600 14,400 Share of Holding Co. @ 60% 4,95,000 23,400 21,600 Note: PROBLEMS ON TREATMENT OF DIVIDEND PROBLEM 2: H Ltd. acquired 3,000 shares in S Ltd., at a cost of Rs.4,80,000 on 01.8,2016. The capital of S Ltd. consisted of 5,000 shares of Rs. 100 each fully paid. The Profit & Loss Account of this, company for 2016 showed an opening balance of Rs.1,25,000 and profit for the year was Rs.3,00,000. At the end of the year, it declared a dividend of 40%. Record the entry in the books of H Lid. in respect of the dividend in the following situations: (Assume calendar year as financial year) (A) (NEW SM) Note: PROBLEMS ON GOODWILLICAPITAL RESERVE (COST OF CONTROL) PROBLEM 3: Exe Ltd. acquires 70% of equity shares of Zed Ltd. as on 31st March, 2017 at a cost of Rs.70 lakhs. The following information is available from the balance sheet of Zed Ltd. as on 31st March, 2017: Rs. in lakhs Fixed Assets 720 Investments 55 Current Assets 70 Loans & Advances 15 15% Debentures 90 Current Liabilities 50 The following revaluations have been agreed upon (not included in the above figures): Fixed Assets Up by 20% Investments Down by 10% Zed Ltd. decared and paid dividend @ 20% on its equity shares as on 31stMarch, 2017. Exe Ltd. purchased the shares of Zed Ltd. @ Rs.20 per share. Calculate the amount of goodwill / capital reserve on acquisition of shares of Zed Ltd (NEW SM)(Ans.: Capital reserve — 33.95 Lakhs) (Solve Problem No: 1 of Assignment Problems as rework) Note: PROBLEM 4: Variety Ltd. holds 46% of the paid-up share capital of VR Ltd. The shares were ‘acquired at a market price of Rs.17 per share. The balances of shares of VR Ltd. are held by a foreign collaborating company. A memorandum of understanding has been entered into with the foreign company providing for the following a) The shares held by the foreign company will be sold to Variety Ltd. The price per share will be calculated by capitalising the yield at 15%. Yield, for this purpose, would mean 40% of the average of pre-tax profits for the last 3 years, which were Rs.30 lakhs, Rs.40 lakhs and Rs.65 lakhs. IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.7for CAICWA & MECICEC MASTER MINDS b) The actual cost of the shares to the foreign company was Rs.5,40,000 only. The profit that would accrue to them would be taxable at an average rate of 30%. The tax payable will be deducted from the proceeds and Variety Ltd. will pay it to the Government. ¢) Out of the net consideration, 50% would be remitted to the foreign company immediately and the balance will be an unsecured loan repayable after two years. The above agreement was approved by all concerned for being given effect to on 1.4.2017, The total assets of VR Ltd. as on 31.3.2017 was Rs.1,00,00,000. It was decided to write down fixed assets by Rs.1,75,000. Current liabilities of VR Ltd. as on the same date were Rs.20,00,000. The paid-up share capital of VR Ltd. Was Rs.20,00,000 divided into 2,00,000 equity shares of Rs.10 each. Find out goodwillicapital reserve to Variety Ltd. on acquiring wholly the shares of VR Ltd. (NEW SM) (Ans.: Goodwill - 2.19 Lakhs) Note: PROBLEMS ON MINORITY INTEREST PROBLEM 5: A Ltd. acquired 70% of equity shares of B Ltd. on 1.4.2010 at cost of Rs.10,00,000 when B Ltd. had an equity share capital of Rs.10,00,000 and reserves and surplus of Rs.80,000. In the four consecutive years, B Ltd. fared badly and suffered losses of Rs.2,50,000, Rs.4,00,000, Rs.5,00,000 and Rs.1,20,000 respectively. Thereafter in 2014 - 15, B Ltd. experienced turnaround and registered an annual profit of Rs.50,000. In the next two years i.e. 2015-16 and 2016-17, B Ltd. recorded annual profits of Rs.1,00,000 and Rs.1,50,000 respectively. Show the minority interests and cost of control at the end of each year for the purpose of consolidation. (B) (NEW SM) (Ans.: Minority interest on 01.04.10 - Rs.3,24,000; Cost of control- Rs.2,44,000) (Solve Problem No: 2 of Assignment Problems as rework) Note: PROBLEM 6: From the following data, determine in each case: 1. Minority interest at the date of acquisition and at the date of consolidation. 2. Goodwill or Capital Reserve. 3. Amount of holding company’s profit in the consolidated Balance Sheet assuming holding company's own Profit & Loss Account to be Rs.2,00,000 in each case: Date of acquisition | Consolidation Date di % 11.2016 31.12.2016 Subsid Company | Shares | Cost |~Share | P&L Alc | Share | P&L Alc Owned Capital (Rs.) Capital (Rs.) (Rs.) (Rs.) Case t [A 90% | 140,000 | 7,00,000 [60,000 | 7,00,000 | 70,000 Case2 |B ‘85% | 1.04000 | 1,00,000 | 30,000 | 1.00,000 | 20,000 Case.3 [C ‘80% [56,000 [56,000 | 20,000 | $0,000 | 20,000 Case.4_[D 100% | 1,00,000 [$0,000 [40,000 [60,000 | 65.000 (A) (NEW SM) Note: IPCC_38e_Advanced Accounting _Consolidated Financial Statement 15.8Ph.: 98851 25025/26 www.mastermindsindi PROBLEMS ON CONSOLIDATED BALANCE SHEET ~ REVALUATION OF ASSETS PROBLEM 7: A Ltd. acquired 1,600 ordinary shares of Rs.100 each of B Ltd. on 1st July, 2016. On 31st December, 2016 the summarized balance sheets of the two companies were as given below: Liabilities ALtd(Rs.) [B Ltd. | Assets A Ltd[B Ltd. (Rs.) (Rs.) (Rs.) Capital (Shares of Rs. | 5,00,000 | 2,00,000 | Land& Buildings | 1,50,000 | 1,80,000 100 each fully paid) Reserves 2,40,000 | 1,00,000 | Plant &Machinery | 2,40,000__| 1,35,000 Profit & Loss A/c 57,200 82,000 _| Investment in 3,40,000 B Ltd. at cost Bank Overdraft 80,000 = Inventory 1,20,000 | 36,400 Trade Payable 47,100 17400 | Trade 59,800 40,000 Receivable Cash 14,500 8,000 9,24,300 | 3,99,400 9,24,300 | 3,99,400 The Profit & Loss Account of B Ltd. showed a credit balance of Rs.30,000 on 1* January, 2016 out of which a dividend of 10% was paid on ist August, 2016; A Ltd. credited the dividend received to its Profit & Loss Account. The Plant & Machinery which stood at Rs. 1,50,000 on 1st January, 2016 was considered as worth Rs. 1,80,000 on ‘1st July, 2016; this figure is to be considered while consolidating the Balance Sheets. The rate of depreciation on plant & machinery is 10% (computed ‘on the basis of useful lives). Prepare consolidated Balance Sheet as on 31st December, 2016. (A) (NEW SM) (Ans.: Minority interest - Rs.83,600; Goodwill - Rs.17,200 ; Consolidated Reserves and surplus — Rs.3,08,800) (Solve Problem No: 3 & 4 of Assignment Problems as rework) Note: CONSOLIDATED BALANCE SHEET ~ BONUS ISSUE PROBLEM 8: On 31st March, 2017 the summarized Balance Sheets of H Ltd. and its subsidiary S Lid. stood as follows: Lia HLtd. S Ltd. Rs. ikhs- Rs. in lakhs Share Capital: Authorized 75,000 6,000 Issued and Subscribed: Equity Shares of Rs. 10 each, fully paid up 72,000 4,800 General Reserve 2.784 7,380 Profit and Loss Account 2716 7,620 Bills Payable 372 160 Trade Payable 7.461 354 Provision for Taxation 855 394 Dividend payable 7,200 : 21,387 9,208 HLtd. SLtd. be Rs.in lakhs |_Rs. in lakhs Land and Buildings 2718 _ Plant and Machinery 4,905 4,900 Furniture and Fittings 1,845 586 IPCC_38e_Advanced Accounting _Consolidated Financial Statement. 15.9No.1 for CAICWA & MECICEC MASTER MINDS Investments in shares in S Ltd 3,000 = Stock 3,949 1,956 Trade Receivables 2,600 1,363 Cash and Bank Balances 7,490 204 Bills Receivable 360 199) ‘Sundry Advances 520 _ 24,387 9,208 The following information is also provided to you: a) H Ltd. purchased 180 lakh shares in $ Ltd. on 1st April, 2016 when the balances of General Reserve and Profit and Loss Account of $ Ltd. stood at Rs. 3,000 lakh and Rs. 1,200 lakh respectively b) On 31" March, 2016, S Ltd. declared a dividend @ 20% for the year ended 31st March, 2016. H Ltd. credited the dividend received by it to its Profit and Loss Account. ¢) On 4st January, 2017, S Ltd. issued 3 fully paid-up bonus shares for every 5 shares held out of balances of its general reserve as on 31st March, 2016. d) On 31st March, 2017, all the bills payable in S Ltd.'s balance sheet were acceptances in favour of H Lid. But on that date, H Ltd. held only Rs. 45 lakh of these acceptances in hand, the rest having been endorsed in favour of its trade payables. e) On 31st March, 2017, S Ltd.'s inventory included goods which it had purchased for Rs. 100 lakh from H Ltd. which made a profit @ 25% on cost. Prepare a Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 31st March, 2017. (A) (NEW SM) (Ans.: Minority interest — Rs.3,120 lakhs; Capital reserve - Rs.1,320 lakhs ; Consolidated Reserves and surplus — Rs.7,159 lakhs) (Solve Problem No: 5 and 6 of Assignment Problems as rework) Note: UNIFORM ACCOUNTING POLICIES ~ PREPARATION OF SUBSIDIARY BALANCE SHEET PROBLEM 9: Consider the following summarized balance sheets of subsidiary B Ltd. 2015 2016 2015 2016 (Rs.) (Rs.) (Rs.) (Rs.) ‘Share-Capital: Fixed Assets: Issued & subscribed: Cost 3,20,000 | 3,20,000 5,000 equity shares of | 5,00,000| 5,00,000| Less: Accumulated Rs.100 each depreciation (48,000) | _ (96,000) Reserves & Surplus: 2,72,000 | 2,24,000 Revenue reserves 2,86,000 | _7,14,000 Current Liabilities Investments at cost =| 4,00,000 &Provisions: Trade Payables 4,90,000 | 4,94,000 | Current Assets: Bank overdraft —|_1.70,000 | Inventory 5,97,000 | 7,42,000 Provision for taxation 3,10,000 | 4,30,000 | Trade Receivables 5,94,000 | 6,91,000 Prepaid Expenses 72,000 | 48,000 Cash at Bank 51,000 3,000 15,86,000 | 23,08,000 15,86,000 | 23,08,000 Also consider the following information: a) B Ltd. is a subsidiary of A Ltd. Both the companies follow calendar year as the accounting year. IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.10Ph.: 98851 25025/26 www.mastermindsindi om b) A Ltd. values inventory on LIFO basis while B Ltd. used FIFO basis. To bring B Ltd.’s values in line with those of A Ltd. its value of inventory is required to be reduced by Rs.12,000 at the end of 2015 and Rs. 34,000 at the end of 2016. ¢) Both the companies use straight-line method of depreciation. However, A Ltd. charges depreciation @ 10%. 4d) B Ltd. deducts 1% from Trade Receivables as a general provision against doubtful debts. ) Prepaid expenses in B Ltd. include advertising expenditure carried forward of Rs. 60,000 in 2015, and Rs.30,000 in 2016, being part of initial advertising expenditure of Rs. 90,000 in 2015 which is being written off over three years. Similar amount of advertising expenditure of A Ltd. has been fully written off in 2015. Restate the balance sheet of B Ltd. as on 31stDecember, 2016 after considering the above information, for the purpose of consolidation. Such restatement is necessary to make the accounting policies adopted by A Ltd. and B Ltd. uniform. (NEW SM) (Ans.: Adjusted revenue reserve - Rs.6,91,000; Balance sheet Total - Rs.22,85,000) Note: CONSOLIDATED BALANCE SHEET ~ INVESTMENT IN DEBENTURES PROBLEM 10: Consider the following summarized balance sheets: Rs. ALtd. BLtd. ALid BLtd. (Ason | (As on (Ason | (As on 31-03-17) | 31-12-2016) 31-03-17) | 31-12-2016) Share Capital (Shares| 10,00,000 5,00,000| Fixed Assets 6,50,000 4,05,000 of Rs. 10 each) Reserves and 450,000 _2,05,000]Investment: ‘Surplus ‘Secured Loan [40,000 Shares 13% Debentures | in B Ltd. 8,00,000 = (Rs.100 each) =| 3,00,000 Current Liabilities: 1,000 Debentures in B Ld 4,50,000 =| Trade payables 3,80,000 80,000| Current Assets: Other liabilities 2,00,000 40,000|inventory 2,00,000| _3,50,000 Trade Receivables| _7,50,000| __2,65,000 Cash and Bank 80,000} _1,05,000) 20,30,000| __11,25,000 20,30,000| __11,25,000 On Sth January 2017, certain inventory of B Ltd. costing Rs. 20,000 were completely destroyed by fire. The insurance company paid 75% of the claim. On 20th January, 2017, A Ltd. sold goods to B Lid. costing Rs. 1,50,000 at an invoice price of cost plus 20%. 50% of those goods were resold by B Ltd. to A Ltd. within 31st March, 2017 (these were then sold by A.Ltd. to a third party before 31st March, 2017). As on 31% March, 2017, B Ltd. owes Rs. 60,000 to A Ltd. In respect of those goods. Pre-acquisition profits of B Ltd. were Rs. 75,000. Prepare consolidated balance sheet as on 31st March, 2017 after making necessary adjustments in the balance sheet of B Ltd. (NEW SM) (Ans.; Minority interest — Rs.1,46,000; Goodwill - Rs.3,40,000 ; Consolidated Reserves and surplus ~ Rs.5,09,000) (Solve Problem No: 6 of Assignment Problems as rework) Note: IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.11(wortorcacwmamecicec MASTER MINDS J CONSOLIDATED PROFIT AND LOSS ACCOUNT PROBLEM 1 jiven below are the Profit & Loss Accounts of H Ltd. and its subsidiary Ltd. for the year ended 31st March, 2017: H Ltd. SLtd (Rs.in lacs) (Rs.in lacs) Incomes: Sales and other income 5,000 1,000 Increase in Inventory 1,000 200 6,000 1,200, Expenses: Raw material consumed 800 200 Wages and Salaries 800 150 Production expenses 200 100 Administrative Expenses 200 100 Selling and Distribution Expenses 200 50 Interest 100 50 Depreciation 100 50 2,400 700 Profit before tax 3,600 500 Provision for tax (1,200) (200) Profit after tax 2,400 300 Dividend paid (1,200) (150) Balance of Profit 1,200 150 Other Informatio H Ltd. sold goods to S Ltd. of Rs.120 lacs at cost plus 20%. Inventory of S Ltd. includes such goods valuing Rs.24 lacs. Administrative expenses of S Ltd. include Rs.5 lacs paid to H Ltd. as consultancy fees. Selling and distribution expenses of H Ltd. include Rs.10 lacs paid to S Ltd. as commission. H Ltd. holds 80% of equity share capital of Rs.1,000 lacs in S Ltd. prior to 2015-2016. H Ltd. took credit to its Profit and Loss Account, the proportionate amount of dividend declared and paid by S Ltd. for the year 2015-2016. Prepare a consolidated profit and loss account (NEW SM)(Ans.: Profit to be transferred to Consolidated Balance sheet - Rs. 1,466 lakhs) (Solve Problem No: 7 of Assignment Problems as rework) Note: PST ata ty PROBLEM 4: XYZ Ltd. purchased 80% shares of ABC Ltd. on 1st January, 2016 for Rs. 1,40,000. The issued capital of ABC Ltd., on 1st January, 2016 was Rs. 1,00,000 and the balance in the Profit & Loss Account was Rs. 60,000. During the year ended 31st December, 2016, ABC Lid. earned a profit of Rs. 20,000 and at year end, declared and paid a dividend of Rs. 30,000.Show by an entry how the dividend should be recorded in the books of XYZ Ltd. What is the amount of minority interest as on 1st January, 2016 and 31st December, 2016? (NEW SM) (Ans.: Minority interest on 01.01.16 — Rs.32,000; Minority interest on 31.12.16 — Rs.30,000 Goodwill - Rs.12,000) IPCC_38e_Advanced Accounting _Cons: jated Financial Statement, 15.12Ph.: 98851 25025/26 www.mastermindsindi om PROBLEM 2: A Ltd. acquired 70% of equity shares of B Ltd. as on 1st January, 2010 at a cost of Rs.10,00,000 when B Ltd. had an equity share capital of Rs. 10,00,000 and reserves and surplus of Rss.80,000. Both the companies follow calendar year as the accounting year. In the four consecutive years, B Ltd. fared badly and suffered losses of Rs. 2,50,000, 4,00,000, Rs. 5,00,000 and Rs. 1,20,000 respectively. Thereafter in 2014, B Ltd. experienced turnaround and registered an annual profit of Rs. 50,000. In the next two years ie. 2015 and 2016, B Ltd. recorded annual profits of Rs. 1,00,000 and Rs. 1,50,000 respectively. Show the minority interests and cost of control at the end of each year for the purpose of consolidation (NEW SM) (Ans.: Minority interest on - 31.12.10 — Rs.2,49,000; 31-12-11 — Rs.1,29,000; 31-12-12 - Nil; 31- 12-16 - Rs.33,000) PROBLEM 3: From the following summarized balance sheets of H Ltd. and its subsidiary S Ltd. drawn up at 31st March, 2017, prepare a consolidated balance sheet as at that date, having regard to the following i) Reserves and Profit and Loss Account of S Ltd. stood at Rs.25,000 and Rs.15,000 respectively on the date of acquisition of its 80% shares by H Ltd. on 1st April, 2016 ii) Machinery (Book-value Rs.1,00,000) and Furniture (Book value Rs.20,000) of S Ltd. were revalued at Rs.1,50,000 and Rs.15,000 respectively on 1st April, 2016 for the purpose of fixing the price of its shares. [Rates of depreciation computed on the basis of useful lives: Machinery 10%, Furniture 15%.] ‘Summarised Balance Sheet of H Ltd. as on 31st March, 2017 Li S Ltd. |S. Ltd. ‘Assets HLtd. S.Ltd, (Rs.) (Rs) (Rs.) (Rs) Equity and Li Non-current assets: ‘Shareholders’ funds Fixed assets Share Capital Machinery 3,00,000 | 90,000 ‘Shares of Rs.100 each 6,00,000 | 1,00,000 | Furniture 1,50,000 | 17,000 Reserves 2,00,000| 75,000 | Other non-current | 4,40,000 | 7,50,000 assets Profit and Loss Account 7,00,000 | 25,000 | Non-current Investments Trade Payables 7,50,000 | 57,000 | Shares in S Ltd: | 1,60,000 800. shares at Rs.200 each 10,50,000 | 2,57,000 10,50,000 | 2,57,000 (NEW SM) (Ans.: Minority interest - Rs.48,150; Goodwill - Rs.12,000 ; Consolidated Reserves and surplus — Rs.3,44,600) PROBLEM 4: Evil Ltd. purchased control of Devil Ltd. on 01.10.2012. Following are the summarized Balance Sheets of Evil Ltd. and Devil Ltd. as at 31st March, 2013: Liabilities Evil Ltd | Devil Ltd. Assets Evil Ltd | Devil itd. Equity capital (Rs.10) | 6,00,000 | 3,00,000 | Goodwill 40,000 | 40,000 General reserves [60,000 | 50,000 | Land & Buildings 1,00,000 | 1,00,000 Profit & Loss Account | 1,00,000 | 1,00,000 _| Plant & Machinery 2,00,000 | 4,80,000 Trade payables 7,00,000 [80,000 | Investment: in 22,500 shares of Devil Ltd 3,37,500 - Inventory 4,17,500 | 7,00,000 Trade receivables 50,000 | 90,000 Cash at bank 45,000 | 20,000 $60,000 | 5,30,000 8,60,000 | ,30,000 IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.13No.1 for CAICWA & MECICEC MASTER MINDS On 01.04.2012, Devil Ltd. had Rs. 50,000 in General Reserve and Rs.60,000 in Profit and Loss Alc. On 30th September 2012, 10% dividend was declared by Devil Ltd. in respect of financial year 2011- 12 from its profit and loss account. Evil Ltd. credited its share of dividend, on receipt, to the Profit and Loss Account. Trade receivables of Devil Ltd. include Rs.10,000 due from Evil Ltd. Machinery of Devil Ltd. standing in books at Rs.2,00,000 as on 1.4.2012, was revalued at Rs.2,40,000. Inventory of Evil Ltd. includes goods valued at Rs.16,000 purchased from Devil Ltd., on which the latter made a profit of 1/3rd on cost price. Prepare the Consolidated Balance Sheet of Evil Ltd. and its subsidiary Devil Ltd. as on 31.03.2013. (CA FINAL RTP - M14) (Ans.: Minority interest — Rs.1,23,500; Capital reserve - Rs.33,750 ; Consolidated Reserves and surplus — Rs.1,93,000) PROBLEM 5: On 31st March, 2017 the abridged Balance Sheets of H Ltd. and its subsidiary S Ltd. stood as follows’ Li SLtd. Rs. 00's ‘Share Capital: Authorized 5,000 3,000 Issued and Subscribed: Equity Shares of Rs. 10 each, fully paid up 4,000 2,400 General Reserve 928 690 Profit and Loss Account 1,305 810 Trade Payable 611 507 Provision for Taxation 220 180 Other provisions 65 17 7,129 4,604 HLtd. S Ltd. Assets Rs.in 000’s | _Rs. in 00's Plant and Machinery 2,541 2,450 Furniture and Fittings 615 298, Investments in shares in S Ltd. 1,500 _ ‘Stock 983 786 Trade Receivables 820 778 Cash and Bank Balances 410 102 ‘Sundry Advances 260 190 7,129 4.604 The following information is also provided to you: a) H Ltd. purchased 90 Thousand Equity shares in S Ltd. on ‘st April, 2016 when the balances of General Reserve and Profit and Loss Account of S Ltd. stood at Rs. 1,500 thousand and Rs. 633 Thousand respectively. b) On 14" July, 2016, S Ltd. declared a dividend @ 20% out of pre-acquisition profits and paid corporate dividend tax @15% which becomes 17.304% after including surcharge. H Ltd. credited the dividend received by it to its Profit and Loss Account. ¢) On 1* Nov, 2016, S Ltd. issued 3 fully paid-up bonus shares for every 5 shares held out of balances of pre-acquisition general reserve d) On 31st March, 2017, the inventory of S Ltd. included goods purchased for Rs.50 Thousand from H Ltd., which had made a profit of 25% on cost. €) Details of Trade payables and trade receivables. IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.14Ph.: 98851 25025/26 www.mastermindsindia.com Ltd. S Ltd. (Rs. in 000’s) | (Rs. in 00's) Trade payables Bills payable 724 80, ‘Sundry creditors 487, 427, 611 507 Trade receivables Debtors 700 83 Bills receivables 120 95 820 778 Prepare a Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 31st March, 2017. (CA FINAL PM) (Ans.: Minority interest (00's) - Rs.1,560 ; Capital reserve (000’s) - Rs.643.20 ; Consolidated Reserves and surplus (000’s) — Rs.3,063) PROBLEM 6: On 31% March, 2011, P Ltd. acquired 1,05,000 shares of Q Ltd. for Rs.12,00,000. The Balance Sheet of Q Ltd. on that date was as under: Liabilities Rs. Assets Rs. 7,50,000 equity shares of Rs Fixed Assets 10,50,000 10 each fully paid 15,00,000 Pre-incorporation profits 30,000 | Current Assets 645,000 Profit and Loss Account 60,000 Trade payables 7,05,000, 16,95,000 16,95,000 On 31st March, 2017 the summarized Balance Sheets of two companies were as follows: Liabilities PLtd.(Rs.)[Q Ltd. Assets PLtd.(Rs}jQ_ Ltd. (Rs.) (Rs.) Equity shares of Rs.10 each Fixed Assets 79,20,000 | 23,10,000 fully paid(before bonus issue) | 45,00,000 | 15,00,000 ‘Securities Premium 9,00,000 — |1,05,000 equity shares in Q Ltd. at| 12,00,000 | _ cost Pre-incorporation profits ~ 30,000 [Current Assets 44,10,000 | 17,55,000 General Reserve 60,00,000 | 79,05,000 Profit and Loss Account 15,75,000 | 4,20,000 Trade payables 555,000 | 2,10,000 7,35,30,000| 40,65,000 7,35,30,000| 40,65,000 Directors of Q Ltd. made bonus issue on 31st March, 2017 in the ratio of one equity share of Rs. 10 each fully paid for every two equity shares held on that date. Calculate as on 31st March, 2017 (i) Cost of Control/Capital Reserve; (ii) Minority Interest; (ii) Consolidated Profit and Loss Account in each of the following cases: a) Before issue of bonus shares. b) Immediately after issue of bonus shares. It may be assumed that bonus shares were issued out of post-acquisition profits by using General Reserve. Prepare a Consolidated Balance Sheet after the bonus issue. (A) (NEW SM) (Ans.: a. Before bonus issue — i). Goodwill - Rs.87,000 ii). Minority interest - Rs.11,56,500 iil). Consolidate P&L - Rs.31,60,500; b. After bonus issue — i). Capital reserve - Rs.4,38,000 ii). Minority interest — Rs.11,56,500 iii). Consolidated P&L — Rs.26,35,500) IPCC_38e_Advanced Accounting _Cons: jated Financial Statement, 15.15for CAICWA & MECICEC MASTER MINDS PROBLEM 7: On 01* April, 2003 Alpha Ltd. paid Rs. 1,10,000 for 90% of the issued capital to Beta Limited. The assets and liabilities of the two companies as on 31" March, 2004 were as follows: Assets Alpha Ltd (Rs.) | Beta Ltd (Rs.) Goodwill 20,000 6,000 Fixed assets 94,000 96,000 Current assets 30,000 18,000 Investment — at cost 1,56,000 - Total | 3,00,000 4,20,000 Liabilities Alpha Ltd (Rs.) | Beta Ltd (Rs.) Issued share capital (Rs.1 each fully paid) 1,80,000 60,000 General reserve ‘45,000 20,000 Profit and Loss account 36,000 20,500 Current Liabilities 39,000 9,500 (6% debentures held by Alpha Ltd - 10,000 Total | 3,00,000 4,20,000 a) On 1" April, 2003 the opening credit balance of Alpha Ltd.'s Profit and Loss account was Rs. 26,000. Out of this balance, a 10% dividend was paid subsequently. b) The profit and Loss Account of Beta Ltd showed the following Particulars Rs Rs Balance B/f on 1% April, 2003 22,000 Net profit for the year ended 31% March, 2004 12,000 | 34,000 Less: Dividend paid Final for the year ended 31° March, 2003 9,000 Interim for the half-year ended September 4,500 (13,500) Balance cif on 31% March, 2004 20,500 ¢) Included in stock in trade of Beta Ltd at Balance sheet date were goods purchased from Alpha Ltd. for Rs.6,000 on which there was a profit of 50% on cost of Alpha Ltd ) All dividends received by Alpha Ltd. have been correctly recorded in the books of account Prepare Consolidated balance sheet as on 31% March, 2004 and show your workings. (Ans.: Minority interest - Rs.10,050 ; Goodwill - Rs.18,200 ; Consolidated Reserves and surplus — Rs.85,750) PROBLEM 8: The Trial Balances of H Ltd. and S Ltd. as on 31.12.2016 were as under: HLtd. S Ltd. Dr Cr Dr Cr Equity Share Capital (Share of Rs.100 each) 10,00,000 2,00,000 7% Preference Share Capital (Share of Rs.100 each) : 2,00,000 Reserves 3,00,000 1,00,000 6% Debentures 2,00,000 2,00,000 Trade Payables / Trade Receivables 80,000 | 90,000 | 50,000 | 60,000 P&L Alc balance 20,000 15,000 Purchases/Sales 5,00,000 | 9,00,000 | 6,00,000 | 9,50,000 Wages & Salaries 1,00,000 - 150,000 Debenture Interest 12,000 12,000 IPCC_38e_Advanced Accounting _Consolidated Financial Statement, 15.16Ph.: 98851 25025/26 www.mastermindsindi General Expenses 80,000 60,000 Preference-Dividend up to 30.6.2016 3,500 7,000 Inventory (31.12.2016) 1,00,000 50,000 Cash at Bank 13,500 6,000 Investment in S Ltd 5,28,000 - Fixed Assets 11,00,000 7,90,000 25,13,500 | 25,13,500 | 17,25,000 | 17,25,000 Investment in $ Ltd. were acquired on 1.4.2016 and consisted of 80% of Equity Capital and 50% of Preference Capital. Depreciation on fixed assets is written off @ 10% p.a (computed on the basis of useful life. After acquiring control over S Ltd., H Ltd. supplied to it goods at cost plus 20%, the total invoice value of such goods being Rs.60,000; 1/4 of such goods were still in Inventory at the end of the year. Prepare the Consolidated Profit and Loss Account for the year ended on 31.12.2016. (NEW SM) (Ans.: Profit to be transferred to Consolidated Balance sheet - Rs.1,21,750) IPCC_38e_Advanced Accounting _Cons: jated Financial Statement, 15.17