5. at the date of acquisition, retained earnings of Encore was $2,000,000.

All its assets fair value were same

as their carrying value except for the following

Motor vehicle ======= its fair value is $500,000 higher than its carrying value. Its useful life is 10 years.
Depreciation expense charged in operating expenses

Inventory ======== its fair value is $50,000 less than its carrying value

6. FOUR months before year end, Encore sold one of its machine to Reprise. Carrying value of that machine at
date of disposal was $100,000 and its remaining useful life was 5 years. It was transferred to Reprise for
$125,000. Depreciation expenses will be charged to cost of sales.

7. Reprise charged interest of $12,000 to Encore on loan give to Encore. That loan is settled before year end.
But interest payment is yet to be made by Encore. Both parties have accounted interest in their respective
payable and receivables.

Required

Prepare consolidated statement of financial position

STATEMENT OF FINANCIAL POSITION

REPRISE Co.

As on

Land and building ($5,350 ) $5350

Plant and equipment (1010+2210-25+5) 3200

Motor vehicle ($510 + $345 + $ 500 - $50 ) $1305

Goodwill (W1) $120

CURRENT ASSETS

Inventory ( $890 + 352 – 50-7.2) 1134.8

Receivables ( 1372+ 514 -12-39-36) 1799

TOTAL ASSETS 12958.8

EQUITY AND LIABILITIES

EQUITY

Share capital ( $1000 + 900) $1900

Consolidated retained earnings (W2) 4470.01

Non controlling interest (W3) 638.75

Revaluation reserve ( $2500) 2500

10% debentures (500) 500

Deferred liability ($238+19.04) 257.04

Current liabilities ( $996+362-12-36) 1310

Overdraft ( 89+51+39-1562) 1383

TOTAL EQUITY AND LIABILITIES 12958.8

ENTRIES AND WORKINGS

#1 TO RECORD INVESTMENT MADE IN SUBSIDIARY

CASH $1562
DR INVESTMENT $2700
SHARES $900
(500 X 2/5 X 75% X $6) CR CASH $1562
CR SHARE CAPITAL 150
DEFFERED LIABILITY $238 CR SHARE PREMIUM 750
($300 / (1.08)^3 CR DEFERRED LIABILITY 238

COST OF INVESTMENT $2700 NOTE: if parent has already recorded investment

made in subsidiary then you are not required to
again record it. But you have to calculate cost of
investment for goodwill ( if not mentioned in
question)

WE WILL INCREASE FINANCE COST IN INCOME #2 TO RECORD UNWINDING OF DISCOUNT AT YEAR

STATEMENT END AS ONE YEAR HAD BEEN EXPIRED

DR CONSOLIDATED RE (FINANCE COST) $19.04

CR DEFERRED LIABILITY 19.04

$238 X 0.08 = 19.04

#3 TO RECORD CASH IN TRANSIT

DR CASH 39
CR RECEVIABLES 39

#4 TO REMOVE INTRA GROUP BALANCE

DR PAYABLES 36
CR DEBTORS 36

CALCULATE UNREALISED PROFIT #5 TO REMOVE UNREALISED PROFIT CHARGED BY

PARENT FROM SUBSIDIARY ON INVENTORY
UNSOLD GOODS $31,200
MARKUP 30% DR CONSOLIDATED RE 7.2
CR INVENTROY (cogs) 7.2
SP = COST + PROFIT
130% = 100% + 30% NOTE: if unrealized profit would have been earned
31,200 ?? by subsidiary then NCI would also be debited with
25% share
31200 X 30/130 = $7.2
 If unrealized profit would have been earned on any
depreciable non current asset either sold by P—S or
S---P,,,, reversal entry of excess depreciation also
need to be recorded

INTRA GROUP SALES WILL BE ELIMINATED FROM

SALES AND COGS AND UNREALISED PROFIT WILL BE
ADDED TO COGS

FAIR VALUE OF NCI

500 X 25% X $4.4 $550

#6 FAIR VALUE ADJUSTMENT OF MOTOR VEHICLE

AT TIME OF ACQUISITION---- INCREASE

DR MOTOR VEHICLE $500

CR GOODWILL $500

BECAUSE MOTOR VEHICLE BELONGED TO

SUBSIDIARY SO ANY CHANGE IN SUBSIDIARY’S #7 INCREASE IN DEPRECIATION OF MOTOR VEHICLE
BOOKS WILL AFFECT PARENT AND NCI BOTH AT YEAR END BECAUSE OF FAIR VALUE
ADJUSTMENT
DEPRECIATION IS INCLUDED IN INCOME
STATEMENT ALSO EITHER IN COGS OR OPERATING DR CONSOLIDATED RE 37.5
EXPENSES,,,,, WE WILL RECORD INCREASE IN DR NCI 12.5
DEPRECIATION IN COME STATEMENT TOO CR MOTOR VEHICLE 50

#8 FAIR VALUE ADJUSTMENT OF INVENTORY A

TIME OF ACQUISITION---- DECREASE

DR GOODWILL 50
CR INVENTROY 50

NON CURRENT ASSET SOLD BY SUBSIDIARY, MEANS #9 TO REMOVE UNREALISED PROFIT CHARGED BY
IT HAS EARNED $25,000 UNREALISED PROFIT ON SUBSIDIARY ON MOTOR VEHICLE
THAT ASSET THAT STILL EXISTS WITH PARENT EVEN
AFTER YEAR END. DR CONSOLIDATED RE $18.75
DR NCI $6.25
SUBSIDIARY MUST HAVE RECORDED GAIN ON CR MACHINE $25
DISPOSAL IN ITS INCOME STATEMENT TOO. WE
NEED TO REVERSE THAT GAIN WHILE DRAFTING
INCOME STATEMENT
WE NEED TO REVERSE EXCESS DEPRECIATION
RECORDED BY PARENT AT YEAR END #10 EXCESS DEPRECIATION CHARGED BY PARENT

DR MACHINE $5
CR CONSOLIDATED re 5

INTRA GROUP BALANCE NEED TO BE ELIMINATED #11 INTRA GROUP BALANCE – FINANCE COST

12000 MUST BE INCLUDED IN PARENT RECEIVABLES DR PAYABLE 12

AND SUBSUDIARY PAYABLES CR RECEIVABLES 12

ALSO THEY BOTH HAVE INCLUDED THESE AMOUNT

IN THEIR INCOME STATEMENT AS FINANCE INCOME
AND FINANCE COST RESPECTIVELY

WE WILL ALSO ELIMINATE INTRA GROUP BALANCE

WHILE PREPARING THEIR INCOME STATEMENT

IMPAIRMENT EXPENSES ALSO AFFECT INCOME #12 IMPAIRMENT EXPENSE

STATEMENT OPERATING EXPENSES
DR CONSOLIDATED RE $135
DR NCI 45
CR GOODWILL 180

CONSOLIDATED RETAINED
GOODWILL EARNINGS

COST OF INVESTMENT $2700 PARENT $4225

FV OF NCI 550 FV OF NCI 550
SHARE IN SUB POST ACQUISITION SHARE IN SUB POST ACQUISTION
FV OF SUBSIDIARY’S NET ASSETS PROFITS 457.5 PROFITS 152.5
AT DATE OF ACQUISITION (610 X 75%) (610 X 25%)

SHARE CAPITAL 500 MOTOR VEHICLE DEP (37.5) MOTOR VEHICLE DEP (12.5)
SHARE PREMIUM 0 MACHINE DEPRECIATION 5
RE 2000 UNWINDING OF DIS (19.04)
MOTOR VEHICLE 500 IMPAIRMENT OF GW (135) IMPAIRMENT (45)
INVENTORY (50) UN- PROFIT INVENTORY (7.2)
(2950) UN-PROFIT MACHINE (18.75) UN-PROFIT MACHINE (6.25)
GOODWILL 300
IMPAIRMENT (180)

CARRYING VALUE 120 CONSOLIDATED RE 4470.01 NCI 638.75

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED

$000 $000

SALES $16,500 $8,500

COST OF GOODS SOLD ($11,000) (4500)

GROSS PROFIT 5500 4,000

INVESTMENT INCOME 15,000 -

FINANCE COST (2800) (200)

OPERATING EXPENSES (16000) (3215)

GAIN ON DISPOSAL 25

PROFIT BEFORE TAX 1700 610

PREPARE CONSOLDIATED STATEMENT OF COMPREHENSIVE INCOME