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Consolidation Q8

Hard acquired 60% of Soft for $110 million on 31 December 2011, with Soft having retained earnings of $50 million at that time. As of 31 December 2015, the consolidated statement of financial position shows total non-current assets of $396,500,000 and total current assets of $428,000,000, resulting in total equity of $451,500,000. The calculations include adjustments for goodwill, non-controlling interest, and depreciation on intercompany transactions.

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19 views3 pages

Consolidation Q8

Hard acquired 60% of Soft for $110 million on 31 December 2011, with Soft having retained earnings of $50 million at that time. As of 31 December 2015, the consolidated statement of financial position shows total non-current assets of $396,500,000 and total current assets of $428,000,000, resulting in total equity of $451,500,000. The calculations include adjustments for goodwill, non-controlling interest, and depreciation on intercompany transactions.

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Basic Consolidation Question 8

QUESTION 8: BASIC CONSOLIDATION

On 31 December 2011, Hard acquired 60% of the ordinary share capital of Soft for $110 million. At
that date Soft had a retained earnings balance of $50 million and a share premium account
balance of $10 million.
The following statements of financial position have been prepared as at 31 December 2015.

Hard Soft
$000 $000
Assets
Non-current assets
Property, plant and equipment 225,000 175,000
Investments in Soft 110,000
Current assets 271,000 157,000
606,000 332,000
Equity and liabilities
Capital and reserves
Share capital 100,000 100,000
Share premium 15,000 10,000
Retained earnings 260,000 80,000
375,000 190,000
Current liabilities 231,000 142,000
606,000 332,000

During the year to 31 December 2015 Hard sold a tangible asset to Soft for $50 million. The asset
was originally purchased in the year to 31 December 2012 at a cost of $100 million and had a
useful economic life of five years.

Soft’s depreciation policy is 25% per annum based on cost. Both companies charge a full year’s
depreciation in the year of acquisition and none in the year of disposal.

Required:
Prepare the consolidated statement of financial position of Hard and its subsidiary as at 31
December 2015.

Relevant to Lecture 3 on Consolidation

Page 1 of 3 (kashifadeel.com)
Basic Consolidation Question 8

ANSWER – QUESTION 8: BASIC CONSOLIDATION

Hard Group
Consolidated Statement of Financial Position
As at 31 December 2013
$000
Non-current assets
PPE 225,000 + 175,000 – 10,000 J1 – 7,500 J2 382,500
Goodwill W3 14,000
396,500
Current assets 271,000+ 157,000 428,000
824,500

Equity
Share capital 100,000
Share premium 15,000
Retained earnings W6 263,500
378,500
Non-Controlling interest W5 73,000
451,500

Current liabilities 231,000 + 142,000 373,000

824,500

W1 GROUP STRUCTURE
S Subsidiary Acquisition date:31 Dec 2009 Group 60% NCI 40%
$000

W2 NET ASSETS (of subsidiary) AT ACQUISITION S


Equity share capital 100,000
Share premium 10,000
Retained earnings (pre) 50,000
160,000

W3 GOODWILL S
Investment 110,000
Less: 160,000 W2 x 60%W1 (96,000)
14,000

W4 POST ACQUISITION RESERVES (of subsidiary) RE


80,000 – 50,000 30,000
J2 (7,500)
22,500

W5 NON CONTROLLING INTEREST S


160,000 W2 x 40%W1 64,000
22,500 W4 x 40% W1 9,000
73,000

Page 2 of 3 (kashifadeel.com)
Basic Consolidation Question 8

W6GROUP RESERVES RE
Parent reserves 260,000
J1 (10,000)
250,000
22,500 W4 x 60% W1 13,500
263,500

$ 000
JOURNAL ENTRIES WITH WORKINGS
Dr. Cr.

RE (P) 10,000
(-) 1
PPE 10,000
$ 50,000 – (100,000 – Dep 60,000) = $10,000

RE (S) 7,500
(-) 2
PPE 7,500
Depreciation per year as per parents policy $20,000 per year
Deprecation charged by subsidiary $50,000 x 25% $12,500
Deprecation to be charged $7,500

Page 3 of 3 (kashifadeel.com)

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