Consolidated Accounts
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Transcript of Consolidated Accounts
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Investment holdings > 50% = Large holdings The holding company > The subsidiary
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To give shareholders
An overview of their investments
An overall financial position and performance of the group
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To prepare a group financial statement
As a Single Economic Entity
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Transactions between the group companies do not reflect transactions between the external partiesand therefore should be eliminated
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Inter company indebtedness e.g. inter company loan debentures proposed dividends
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Long term investment of H
Share capital + reserves of S
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1. Unrealized Profits from intra-group transactions- on unsold inventories- on fixed assets
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Pre-acquisition Reserves- Cost of control- Minority interests
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Pre-acquisition Reserves
- Share Premium
- General Reserve
- Revaluation Reserve of subsidiary
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Minority interests - Profit and loss account - Balance sheet
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Proposed dividend
pay out from Pre-acquisition Profit
- should not be treated as investment income
- It is a reduction in the cost of investment
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Proposed dividendPay out from Post-acquisition Profit - investment income
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% of holdings: 4000/5000 = 80%
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2. At the acquisition date, 1 January 2003the shareholders’ equity of Jackson Ltd: ref (i)
$000
Ordinary share Capital 5,000
Share premium 500
General reserve 1,000
Profit and loss account 1,500
Revaluation reserve 9,800-9,000 800
8,800
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3.
Calculation of Goodwill Answer (a)
$000 $000
Investment in Jackson Ltd 7,500
Ordinary share Capital 5,000 x 80% 4,000
Share premium 500 x 80% 400
General reserve 1,000 x 80% 800
Profit and loss account 1,500 x 80% 1,200
Revaluation reserve 800 x 80% 640 7,040
460
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4. Goodwill amortization
460 / 5 = 92 ------- Consolidated profit and loss account
460 – 92 = 368 ----- Consolidated Balance Sheet
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5. At 31 March 2003, the shareholders’ equity of Jackson Ltd:
$000
Ordinary shares of $1.00 each 5,000
Share premium 500
General reserve 1,750
Profit and loss account 1,750
Revaluation reserve 800
9,800
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6. Minority interests
Ref: (ii) (3) Depreciation adjustment
(iv) Unrealized profit on inventories
$000 $000
Ordinary shares of $1.00 each 5,000 x 20% 1,000
Share premium 500 x 20% 100
General reserve 1,750 x 20% 350
Profit and loss account 1,750 x 20% 350
Revaluation reserve 800 x 20% 160 1,960
To share unrealized profit on inventories 160
Transfer to consolidated balance sheet 1,800
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Workings of the Consolidated Balance Sheet:
7.
Freehold land : 10,000,000 + 9,800,000 ( revised value) = $19,800,000
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7. Plant and machinery:
Unrealized profit on sale of fixed asset to Jackson: ref (iii)
= 1,000,000 – 600,000
= 400,000 consolidated profit and loss
Depreciation to be reduced = 40,000 Consolidated profit and loss
Cost = 7,900,000 +4,150,000 - 400,000 = 11,650,000
Provision for depreciation = 4,980,000 + 3,150,000 - 40,000 = 8,090,000
Net book value = 3,560,000
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8. Shareholders’ Fund: $000
Ordinary shares of $1.00 each 15,000
Share premium 3,000
General reserve 1,400 + (1750-1000) x 80% 2,000
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9. Unrealized profit on inventories: ref (ii)(3), (iv)
Mark up = 25% = 1/4
Margin = 20% = 1/5
Unrealized profit on inventories = 4,000,000 / 5 = 800,000
Inventories = 5,550,000 + 1,250,000 – 800,000 = 6,000,000
800,000 x 20 % = 160,000 ------ share by Minority interests
800,000 x 80% = 640,000 ------- consolidated profit and loss
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10.
Intra-group indebtedness: ref: (v), (ii) (4),
Accounts receivable: 1,500,000 +750,000 -500,000 = 1,750,000
Accounts payable: 3,050 – 500 + 1,600 = 4,150
Dividend payable: 750
Dividend payable to Minority interests = 500 x 20% = 100,000
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11.
Bank: 1,450,000 + 100,000 = 1,550,000
Tax payable: 1,200,000 + 1,000,000 = 2,200,000
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12. Consolidated profit and loss account $000
Profit and loss account :
M. Ltd 4,520
S. Ltd (1,750,000 – 1,500,000) 200
Unrealized profit on Sale of fixed asset (400)
Depreciation adjustment 40
Goodwill amortization (92)
Unrealized profit on inventories (640)
Intra-group dividends 400
4,028
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To sum up:Fixed assets = H + S – ICurrent assets = H + S – ICurrent liabilities = H + S – ILong term liabilities = H + S – IShare Capital = HReserves = H + Post-acquisition Reserves of Subsidiary
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