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Part 4 Basic Consolidation

The consolidated statement of financial position combines the financial statements of Karl and Susan as of November 30, 20X7. It shows: - Karl owns 60% of Susan and acquired it on May 1, 20X7 for $76,000 cash. - Additional relevant transactions and balances between Karl and Susan are provided. - An impairment loss of $1,000 will be charged against goodwill at year-end. - The required task is to prepare the consolidated statement of financial position combining Karl and Susan as of November 30, 20X7.

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428 views

Part 4 Basic Consolidation

The consolidated statement of financial position combines the financial statements of Karl and Susan as of November 30, 20X7. It shows: - Karl owns 60% of Susan and acquired it on May 1, 20X7 for $76,000 cash. - Additional relevant transactions and balances between Karl and Susan are provided. - An impairment loss of $1,000 will be charged against goodwill at year-end. - The required task is to prepare the consolidated statement of financial position combining Karl and Susan as of November 30, 20X7.

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tαtmαn dє grєαt
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© © All Rights Reserved
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QUESTION 1

Consolidated statement of financial position


On 1 May 20X7 Karl bought 60% of Susan paying $76,000 cash. The summarised statements of
financial position for the two entities as at 30 November 20X7 are:
Karl Susan
$ $
Non-current assets
Property, plant & equipment 138,000 115,000
Investments 98,000 –

Current assets
Inventory 15,000 17,000
Receivables 19,000 20,000
Cash 2,000 –
––––––– –––––––
272,000 152,000
––––––– –––––––
Share capital 50,000 40,000
Retained earnings 189,000 69,000
––––––– –––––––
239,000 109,000

Non-current liabilities: 8% Loan notes – 20,000

Current liabilities 33,000 23,000


––––––– –––––––
272,000 152,000
––––––– –––––––
The following information is relevant:
The inventory of Karl includes $8,000 of goods purchased for cash from Susan at cost plus 25%.
On 1 June 20X7 Karl transferred an item of plant to Susan for $15,000. Its carrying amount at that
date was $10,000, and its remaining useful life was 5 years.
Karl values the non-controlling interest using the fair value method. At the date of acquisition the
fair value of the 40% non-controlling interest was $50,000.
An impairment loss of $1,000 is to be charged against goodwill at the year-end.
Susan earned a profit of $9,000 in the year ended 30 November 20X7.
The loan note in Susan’s books represents monies borrowed from Karl on 30 November 20X7.
Included in Karl’s receivables is $4,000 relating to inventory sold to Susan during the year. Susan
raised a cheque for $2,500 and sent it to Karl on 29 November 20X7. Karl did not receive this
cheque until 4 December 20X7.
Assume a tax rate of 25%
Required:
Prepare the consolidated statement of financial position as at 30 November 20X7.

QUESTION 2
Aston Plc acquired 80% of the share capital of Martin Ltd for $40,000 on 1 January 2014 when
the balance on the retained earnings of Martin Ltd stood at $9,000. The balance sheets of the 2
companies are as follows at the 31 December 2017:

At the date of acquisition, the fair value of Martin’s tangible non-current assets were $5,000 higher
than their carrying value. They were estimated to have a remaining useful economic life of ten
years at this date. A full year’s depreciation charge is made in the year of acquisition. The fair
value of all other net assets were equal to their carrying values.

Aston’s payables balance includes $6,000 payable to Martin, and Martin’s receivables balance
includes $20,000 owing from Aston. At the year end, it was established that Martin had despatched
goods to Aston with a selling price of $9,000 and that Aston did not receive delivery of these items
until after the year end. At the same time, Aston had put a cheque in the post to Martin for $5,000
which also did not arrive until after the year end.
In addition to the goods in transit of $9,000, there were also some items included in Aston’s
inventory which had been purchased by Aston at the price of $21,000 from Martin. Martin had
priced these goods at a mark-up of 20%.

The group policy toward goodwill arising on consolidation is to subject it to an annual impairment
review. It was felt that the goodwill should be carried at 60% of its original value.

Assume a tax rate of 25%.

Required: A consolidated statement of financial position as at 31 December 2017 for the Aston
Group.

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