CAINTER FOR 46™SESSION REGULAR BATCHES BOOK NO. 52 ADVANCED ACCOUNTING _GR.2_4GE (PART 7) _1 CHAPTER INDEK CH.NO. CHAPTER NAME PAGE.NO. 9. |CONSOLIDATED FINANCIAL STATEMENTS (AS - 21) 9.49.58 &@ MASTER MINDS" COMMERCE INSTITUTE PVT. LTD. CA + CMA + CS + MEC + CEC e HYDERABAD | VUAYAWADA | TIRUPATHL Cell: 98851 25025 / 26 You tube Channel: MASTERMINDS FOR CA8CMA Visit us @ www.mastermindsindia.com | Mail: mastermindsinfo@ymail.com Facebook Page: MASTERMINDS For CA Android App: Masterminds online classes ISSUE DATE: 01-11-2021 MRP: RS.400a INDS COMMERCE INSTITUTE PVT, LTD. WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 9. CONSOLIDATED FINANCIAL STATEMENTS (AS-21) 4) Understand the concepts of Group, holding company and subsidiary company 2) Apply the consolidation procedures for consolidation of financial statements of subsidiaries with the holding companies, 3) Prepare the consolidated financial statements and solve related problems [one wise mmysis orrnevous camwaTionsorcaumen | 4) [ANALYSIS OF PROFITS AND APPORTINMENT mem =) = 2) [GOODWILLICAPITAL RESERVE (COST OF CONTROL) -[-[- FT - [0 3)_[ MINORITY INTEREST ~[- [omfem [TT [4) [CONSOLIDATED BALANCE SHEET zom|- | - [- [ism] zom | - 5) [UNIFORM ACCOUNTING POLICIES - PREPARATION OF SUBSIDIARY] | |. |agyl . |. |. BALANCE SHEET 6)_[ CONSOLIDATED PROFIT AND LOSS ACCOUNT. = [wom] = [= [= | = | a5 CRD PROBLEMS -8, ASSIGNMENT PROBLEMS (AP) -8 PROBLEM NO. IN ICAI MATERIAL ~OCT | RELEVANT PROBLEM INMM | RTP/MTPIPREVIOUS RELEVANT PROBLEM IN MM 2020 EDITION MATERIAL (MATERIAL ILLUSTRATION 1 AGSP 5 ‘M18-RTP. 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W8-P SHAR TO GROE PRACTIC€QUESTENT ne Wea SHLARTOGROS PRACTICE QUESTONE 7802 Tan [AGS , SARTO ACP PRACTIOEQUESTON 7x57 WRF SARTO ASRS & PRACTICg QUESTION eno 4 {aly --Tat | san TAS 8 PRACTICE QUESTION nos wat-are | COADNEANPLE,SMIAR wa-aTvan | —COVERO W EXANPLE CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 91PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL 20-154 SIMILAR TO GRD & M2tRTP SIMILAR TO CRO 2 21-MTP2-16M SIMILAR TO GRD 5 JAN 24-200 SIMILAR TO GRO 5 STULY 21-1535 (CRD 8, SIMILAR TO ACSP 4 CHAPTER OVERVIEW DIVISION TOPIC 1, __ | THEORY & PROBLEMS FOR CLASSROOM DISCUSSION (CRD) 2.__ | ASSIGNMENT PROBLEMS (AP) 3.___ [ADDITIONAL CONCEPTS FOR SELF-PRACTICE (ACSP) 4.___ [THEORY FOR SELF STUDY 5.___ [MULTIPLE CHOICE QUESTIONS (SELF STUDY) 6.___ [WORKBOOK SOLUTIONS: DIVISION 1: THEORY AND PROBLEMS FOR CLASSROOM DISCUSSION (CRD) INTRODUCTION 4) Inan era of business growth, many organizations are growing into large corporations by the process of acquisition, mergers, gaining control by one cottiparty over the other company, restructuring etc. 2) Acquisitions and mergers ultimately lead to either, $7 a) Cost reduction or ¢) Sharing the material supplies or e) Availing tax benefits or synergy. 3) Whatever the motto behind these ventures is, the ultimate result is the large scale corporation Formation of holding company is the most popular device for achieving these objectives. Controlling the market or <> @) product diversification or GROUP OF COMPANIES: Many a times, a company expands by keeping intact its separate corporate identity. In this situation, a company (ie., holding company) gains control over the other company (subsidiary company). This control is exercised by one company over the other by- 1) Purchasing specified number of shares i.e., ownership through voting power of that company or 2), Exercising control over the board of directors, The companies connected in these ways are collectively called as a Group of Companies 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. NOTE: Legally a holding company and its subsidiaries are distinct and separate entities. However, in substance holding and subsidiary companies work as a group. Accordingly, users of holding company's accounts need financial information of subsidiaries also to understand the performance and financial position of the group (i.e., holding company and subsidiaries on a combined basis). SUBSIDIARY COMPANY: Section 2(87) of the Companies Act, 2013 defines “subsidiary company” as a company in which the holding company - 4) controls the composition of the Board of Directors; or CANTER | ADV ACCOUNTING | 46€ 92DeLee u WWW. MASTERMINDSINDI OM | 98851 25025 / 26 2), 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: Accompany shall be deemed to be a subsidiary company of the holding company even if there is indirect control through the subsidiary company(ies). The control over the composition of a subsidiary company's Board of Directors means exercise of power to appoint or remove all or a majority of the directors of the subsidiary company. NOTE: 1) CONTROL: a) The ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise; or b) Control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities. 2) Here, total share capital includes a) Paid up equity share capital; and b) Convertible preference share capital 3) Itis possible that an enterprise is controlled by two enterprises — one controls by virtue of ownership of majority of the voting power of that enterprise and the other controls, by virtue of an agreement or otherwise, the composition of the board of directors so.as to obtain economic benefits from its activities. In such a rare situation, when an enterprise ig Controlled by two enterprises as per the definition of ‘control’, the first mentioned enterprise will’be considered as subsidiary of both the controlling enterprises within the meaning of AS 2% and(:therefore, both the enterprises need to ise” consolidate the financial statements of that ente MEANING & PURPOSE OF PREPARING. congouibdre. FINANCIAL STATEMENTS: MEANING: Ss 4) Consolidated financial statements (CFS) a re the financial statements of a ‘group’ presented as those of a single enterprise, where a ‘group’ refers to a parent and all its subsidiaries, 2) Parent company needs to inform the users about the financial position and results of operations of not only of their enterprise itself but also of the group as a whole 3). For this purpose, consolidated financial statements are prepared and presented by a parent/holding enterprise to provide financial information about a parent and its subsidiary (ies) as a single economic entity. NOTE: As per Section 129(3) of the Companies Act 2013: 1) Where a company has one or more subsidiaries or associate companies, it shall, in addition to the standalone financial statements, prepare a consolidated financial statement of the company and of all the subsidiaries and associate companies in the same form and manner as that of its own and in accordance with applicable accounting standards, which shall also be laid before the annual general meeting (AGM) of the company along with the laying of its financial statement. 2) The consolidation of financial statements of the company shall be made in accordance with the provisions of Schedule Ill of the Companies Act 2013 and the applicable accounting standards. PURPOSE: CFS are intended to show the financial position of the group as a whole - by showing the. economic resources controlled by them, by presenting the obligations of the group and the results the group achieves with its resources. CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 93PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL SCOPE OF AS 21: 1) This Standard should be applied in the preparation and presentation of consolidated financial statements for a group of enterprises under the control of a parent. 2) In the preparation of consolidated financial statements, other Accounting Standards also apply in the same manner as they apply to the separate statements. a) This Standard does not deal with: Methods of accounting for amalgamations and their effects on consolidation, including goodwill arising on amalgamation (AS 14, Accounting for Amalgamations) b) Accounting for investments in associates (governed by AS 13, Accounting for Investments); and ¢) Accounting for investments in joint ventures (governed by AS 13, Accounting for Investments) NOTE: AS 21 is mandatory if an enterprise presents consolidated financial statements. In other words, the accounting standard does not mandate an enterprise to present consolidated financial statements but, if the enterprise presents consolidated financial statements for complying with the requirements of any statute or otherwise, it should prepare and present consolidated financial statements in accordance with AS 21 EXCLUSION FROM PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS: As per AS 21, a subsidiary should be excluded from consolidation when: 4) 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; or 2) it operates under severe long-term restrictions which significantly impair its abilty to transfer funds to the parent. In consolidated financial statements, investments in. sich subsidiaries should be accounted for in accordance with AS 13 ‘Accounting for Investments’. The’réasons for not consolidating a subsidiary should be disclosed in the consolidated financial statements, ADVANTAGES OF CONSOLIDATED FINANCIAL” STATEMENTS: The main advantages of consolidation are given below: 41) SINGLE SOURCE DOCUMENT: From the consolidated financial statements, the users of accounts can get an overall picture of the Groupy{ie., holding company and its subsidiaries). Consolidated profit and loss account gives the overall profitability of the group. 2) INTRINSIC VALUE OF SHARE: Intrinsic share value of the holding company can be calculated directly from the Consolidated Balance Sheet 3) ACQUISITION OF SUBSIDIARY: The minority interest data of the consolidated financial statement. indicates that the amount payable to the outside shareholders of the subsidiary company at book value which is used as the starting point of bargaining at the time of acquisition of a subsidiary by the holding company. 4) EVALUATION OF HOLDING COMPANY IN THE MARKET: The overall financial health of the holding company can be judged using consolidated financial statements. Those who want to invest, in the shares of the holding company or acquire it, need such consolidated statement for evaluation COMPONENTS OF CONSOLIDATED FINANCIAL STATEMENTS: As per AS 21, consolidated financial statements normally include the following Consolidated Financial Statements} = > IO WH1__MH-_ ‘Consolidated Cash Flow Consolidated Balance | |Consolidated Statement of| | Statement (in case parent| [Notes and Statements and! Sheet Profit & Loss alc presents cash flow Explanatory Schedules statements) CANTER | ADV ACCOUNTING | 46€ 94DeLee u WWW. MASTERMINDSINDI OM | 98851 25025 / 26 The consolidated financial statements are presented to the extent possible in the same format as that adopted by the parent for its separate financial statements. CONSOLIDATION PROCEDURES: Rule 6 of the Companies (Accounts) Rules, 2014 states that the manner of consolidation of financial statements of the company shall be in accordance with the provisions of Schedule Ill of the Act and the applicable accounting standards. AS 21, lays down the procedure for consolidation of financial statements of the companies within the group. When preparing consolidated financial statements, the individual balances of the parent and its subsidiaries are combined or consolidated on a line-by-line basis, and then certain consolidation adjustments are made. 1) CONSOLIDATION PROCEDURES FOR BALANCE SHEET: Steps for preparing consolidated balance sheet STEP- 1: DATE OF ACQUISITION: 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. a) Parent XXX XXX b) Minority Interest See XXX XXX ©) Total (a+b) Qs XXX XxX STEP-3: ANALYSIS OF SUBSIDIARY Ri '& SURPLUS: Analysis of subsidiary reserves & surplus (including losses) as pre-acqy acquisition (step 1) Z a) The reserves to be analysed shal eserves as appearing in the balance sheet of the subsidiary company as at the tate 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. ¢) Ifthe investments are made during the financial year, either, i) Separate financial statements should be drawn up to the date of acquisition to determine the pre-acquisition profits. or )) 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 ii) is recommended for solving problems. STEP- 4: APPORTIONMENT OF PROFITS: Apportionment of profits Analysed as above (Step 3) ‘among the shareholders in the ratio ascertained in the Step 2 a) General reserve xxx 20x : b) Other reserves 200% 2x : isition-and post-acquisition profits based on the date of @ CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 95PIONEER FOR MEC / CEC TO CA/ CMA FINAL ARAMA Ah ¢) Profit and loss 2x : 20x Total XxX, Xxx, XXX, d) Parent 2x 20K 20K e) Minority Interest xx xx XXX STEP - 5: MINORITY INTEREST: Minority interest is that part of the net results of operations and Of net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiaries, by the holding (parent) company. In short, minority interest represents the claims of the outside shareholders of a subsidiary. M.lis the aggregate of minority share of: a) Share capital 2004 b) Capital profits Step-4 200 c) Revenue reserves: Step -4 20x d) Revenue profits 20x e) Less: Stock reserve Minority share (If upstream) (G00) Xxx STEP - 6: COST OF CONTRO! A) |Cost of investment « é i) Amount invested - Carrying amount as:per-Parent's Balance sheet OX ji) Less: Dividend received from pre-aéquisition profits of the subsidiary (000) Adjusted cost of investment [(i) = i) xxx] B) |Value of investment" - aggregate of parent share of: i) Share capital XG XXX ii) Pre-acquisition profit (step 4) rox] xxx] C) [Cost of control - Goodwill Capital reserve (A - B) 20x * Parent's share of net assets (assets - liabilities = capital + reserves) of the subsidiaries as at the date of investment. Cost of Control o—— A>B ASB Goodwitl | [Capital Reserve EXAMPLE 1: H Ltd. acquires 70% of the equity shares of S Ltd. on 1.1.20X1. On that date, paid up capital of S Ltd. was 10,000 equity shares of 210 each; accumulated reserve balance was 1,00,000. H Ltd. paid 21 60,000 to acquire 70% interest in the S Ltd, Assets of S Ltd. were revalued on1.1.20X1 and a revaluation loss of 220,000 was ascertained. The book value of shares of S Ltd. is calculated as shown below: 70% of the Equity Share Capital 1,00,000 70,000 70% of Accumulated Reserve % 1,00,000 70,000 CANTER | ADV ACCOUNTING | 46€ 9.6DeLee u WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 70% of Revaluation Loss % 20,000 (14,000) 1,26,000 So, H Ltd. paid a positive differential of % 34,000 i.e., & (1,60,000 - 1,26,000). This differential is called goodwill and is shown in the balance sheet under the head intangibles. EXAMPLE 2: A Ltd. acquired 70% interest in B Ltd. on 1.1.20X1. On that date, B Ltd. had paid-up capital of Z 1,00,000 consisting of 10,000 equity shares of 2 10 each and accumulated balance in reserve and surplus of 1,00,000. On that date, assets and liabilities of B Ltd. were also revalued and revaluation profit of % 20,000 was calculated. A Ltd. paid 2 1,30,000 to purchase the said interest. In this case, the book value of Shares of B Ltd. is calculated as shown below: 70% of the Equity Share Capital € 1,00,000 70,000 70% of Reserves and Surplus 2 1,00,000 70,000 70% of Revaluation Profit 20,000 14,000 1,54,000 In this case, H Ltd. enjoyed negative differential of 24,000 i.e. (1,54,000- 1,50,000) which is called and presented as capital reserve. STEP -7: INTER-COMPANY TRANSACTIONS: INTER-COMPANY OWING / DEBT: a) Usual items are debtorsicreditors, Loan given/Loan taken, Interest receivable/lnterest payable, fees receivablerfees payable, dividend receivable/dividend payable. b) Adjustment involves a mere reduction of theémouot “involved from the aggregate of both receivable and payable. eA STEP-8: RESERVES FOR CONSOLIDATED CE SHEET: ASCERTAINMENT OF RESERVES FOR ae 2NSOLIDATED BALANCE SHEET a) Reserves as appearing in Parent's (Balance sheet xxx | 00K OK b) Less: Dividend received from subsidiary out of pre-acquisition profits (000%) | (ox) transferred to Investments c) Add: Parents’ share of post-acquisition reserve and profits of| OK Xx subsidiary (Step 4) 4d) Less: Reserve for unrealised profit created (00) e) Add: Capital Reserve 200K f) The net result is the value of reserves to be shown in Consolidated | xxx | xxx XXX Balance Sheet NOTE: Maintain identity of reserves for consolidated balance sheet *CR - Capital Reserve *RR - Revenue Reserve STEP-9: CONSOLIDATED BALANCE SHEET: PREPARATION OF CONSOLIDATED BALANCE SHEET a) LIABILITIE la) Share capital Only parent b) Reserves Step -8 CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 97PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL [e) Minority interest Step -5 'd) Other liabilities, loans, current liabilities | Total of both companies’ individual liabilities and provisions Less: Intercompany transactions b) ASSETS: Total of both companies adjusted —for| revaluation and unrealized profit. In the event of ‘cost of control resulting in Goodwill, the same should form part of Fixed assets. Total of outside investments of parent and subsidiary. ‘Aggregate of both companies’ balances| /c) Current Assets, Loans and Advances _| adjusted for Inter Company owing (Step 7) and in the case of stock for stock reserve. (Only parent balances would appear since the balances relating to subsidiary are netted off in the process of analysis of profits (Step 4) NOTE: The Consolidated Balance Sheet should be presented in the manner required by schedule III to the Companies Act, 2013 and disclosure shall also be made. The provisions of Accounting Standards to the extent relevant are to be*followed. ADJUSTMENTS INVOLVED IN PREPARATION OF CONSOLIDATED BALANCE SHEET: MS 4) DIVIDEND: Ss a) When holding company receives ying, on a subsidiary company, it must distinguish between the part received out of capital profits (ie., pre-acquisition profits) and revenue profits (.¢., post-acquisition profits); g b) Capital profits are credited toJnvestmént account (being capital receipts) and revenue profits are credited to the Profit & Loss Account. fa) Fixed assets b) Investments }d) Miscellaneous expenditure to the extent not written off / unmortised expenses ) If the controlling interest was acquired during the course of a year, profit for that year must be apportioned into the pre-acquisition and post-acquisition portions, on the basis of time in the absence of information on the point. TREATMENT IN CASE OF PRE-ACQUISITION DIVIDEND: Accounted by Holding Company I conecty accounted reduction tothe Cost of H wrongly aceounte by Investment ‘a Pass rectification entry No futher adjustment is required Ge To Investment Alc CANTER | ADV ACCOUNTING | 46€ 98MASTER MINDS COMMERCE INSTITUTE PVT. LTD. WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 EXAMPLE: H Ltd, acquired 3,000 shares in S Ltd., at a cost of Rs.4,80,000 on 31.7.20X1. The capital Of S Ltd. consisted of 5,000 shares of Rs.100 each fully paid. The Profit & Loss Account of this company for 20X1 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 Hd, in respect of the dividend. Assume calendar year as financial year. The profits of S Ltd., have to be divided between capital and revenue profits from the point of view of the holding company: Capital | Revenue Profit (€) | Profit (®) Balance on 1.1.20X1 1,25,000 Profit for 20X1 (3,00,000 x 7/12) 1,75,000) Total (3,00,000 x 5/12) 4,25,000 Proportionate share of H Ltd. (3/5) 3,00,000| _ 1,25,000 1,80,000] 75,000 Total dividend declared = % 5,00,000 X 40 % = & 2,00,000 H Ltd.'s share in the dividend = % 2,00,000 X 3/5 = @ 1,20,000 There can be two situations as regards the treatment of dividend of & 1,20,000 a) THE PROFIT FOR 20X1 HAS BEEN UTILISED TO PAY THE DIVIDEND. The share of H Ltd in profit for the first seven months of S Ltd = %.1,05,000 (ie., 21,75,000 x 3/5) Profit for the remaining five months = ® 75,000,(.e., & 1,25,000 x 3/5) iii) The dividend of & 1,20,000 will be adjusted ip this ratio of 1,05,000 : 75,000 = & 70,000 out of profits up to 31.7.20X1 and ® 50,000 oat of profits after that date. iv) The dividend out of profits subsequerttto 34.7.20X1 will be revenue income and that out of earlier profits will be capital receipt Hence the entry will be: ‘Armount @) [Amount (® Bank Dp Dr. 1,20,000 To Investment A/c 70,000 To Profit & Loss A/c 50,000 b) LATER PROFITS HAVE BEEN UTILISED FIRST AND THEN PRE-ACQUISITION PROFITS: In such a case, the whole of @ 75,000 (share of H Ltd. in profits of S Ltd., after 31.7.20X1) would be received and treated as revenue income; the remaining dividend, 45,000 (& 1,20,000 less % 75,000) would be capital receipt. The entry would be: ‘Amount (®) [Amount (®) Bank Dr. 1,20,000 To Investment Account 45,000 To Profit & Loss Account 75,000 NOTE: Point (2) discussed above can arise only if there is definite information about the profits utilized. In practice, such treatment is rare. 2) TREATMENT OF BONUS SHARES: The profits and reserves out of which bonus shares have been issued must be reduced by the amount utilized for issuing the Bonus shares. 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. CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 99PIONEER FOR MEC /CECTO CA/ CMA FINAL BULA AML 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. Unless the question states ‘No accounting effect has yet been given’, it is presumed that Bonus issue has been duly recorded in books. 3) REVALUATION OF ASSETS OF SUBSIDIARY COMPANY: Profit or loss on revaluation of fixed assets of subsidiary should also be treated as capital profit or loss. But if the fallin the value of the asset ocours after the date of acquisition, the loss should be treated as revenue loss. Adjustment for depreciation would be made in the profit and loss account of the subsidiary. Depreciation on changed value of the assets shall be given effect to. Depreciation on revalued assets will be taken as capital or revenue depending on the period for which the depreciation belongs to. Hence the period for depreciation is important to be considered. EXAMPLE: H Ltd. acquired 16,000 equity shares of % 10 each, in S Ltd. on October 1, 20X1 for = 800. The profit and loss account of S Ltd. showed a balance of @ 10,000 on April 1,20X1. The plant and machinery of S Ltd. which stood in the books at % 1,50,000 on April 1,20X1 was considered worth 21,80,000 on the date of acquisition THE INFORMATION OF THE TWO COMPANIES AS AT 31-3-20X2 WAS AS FOLLOWS: ee ae ‘Shares capital (fully paid equity shares of €10 each) ,00,000| 2,00,000 General reserve 2,40,000| 1,00,000 Profit and loss account 57,200| 82,000 ‘Current Liabilities 1,69,800| 33,000 Land and building 1,80,000| 1,90,000 Plant and machinery 2,40,000 1,35,000 Investments 3,068,800 Current assets 2,40,200| 90,000 In this case, percentage of holding Holding Co. 16,000 (80%) Minority shareholders 4,000 (20%) Total Shares 20,000 Impact of Revaluation of Plant and Machinery will be as. Book value of Plant and Machinery as on 01-04-20X1 1,50,000| Depreciation Rate (2O°—2S5*00) = 16,000 / 1,50,000 X 100 140% Book value of Plant and Machinery as on 01-10-20X1 after six months depreciation @10% (1,50,000 - 7,500) 1,42,500 Revalued at 1,80,000, Revaluation profit (1,80,000 - 1,42,500) 37,500 Share of H Limited in Revaluation Profit (80%) 30,000, ‘Share of Minority in Revaluation profit (20%) 7,500 Additional Depreciation on appreciated value to be charged from post-acquisition profits CANTER | ADV ACCOUNTING | 46€ 9.10MASTER MINDS COMMERCE INSTITUTE PVT. LTD. WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 4) UNREALIZED PROFIT IN INVENTORIES: were a (10% of ®1,50,000 for 6 months) + (10% of & 1,80,000 for 6 months) less & 15,000 (as already charged) 1500 ‘Share of H Limited in additional depreciation that will reduce its share (80%) in post- acquisition profit by 1,200) ‘Share of Minority Interest in additional depreciation 300 ELIMINATION OF INTRA-GROUP TRANSACTIONS: a) In order to present financial statements for the group in a consolidated format, the effect of transactions between group enterprises should be eliminated. AS 21 states that intra group balances and intra group transactions and resulting unrealized profits should be eliminated in full, Unrealized losses resulting from intra group transactions should also be eliminated unless cost cannot be recovered, b) Liabilities due to one group enterprise by another will be set off against the corresponding asset in the other group enterprise's financial statements; sales made by one group enterprise to another should be excluded both from tumover and from cost of sales or the appropriate expense heading in the consolidated statement of profit and loss. ¢) To the extent that the buying enterprise has further sold the goods in question to a third party, the eliminations to sales and cost of sales are all that is required, and no adjustments to consolidated profit or loss for the period, or to net assets, are needed. However, to the extent that the goods in question are still on hand at year end, they may be carried at an amount that is in excess of cost to the group and the amount of the intra-group profit must be eliminated, and assets are reduced to cost to the group. 2 d) For transactions between group enterprises, unrealized profits resulting from intra-group transactions that are included in the carrying amount of assets uch 8 inventories and tangible fixed assets, are eliminated in full. The requirement to eliminate such profits in full applies to the transactions of all subsidiaries that are consolidated ~ even those in which the group's interest is less than 100%, up enterprise sells goods to another, the selling enterprise, as a separate legal enterprise, récords profits made on those sales. If these goods are still held in inventory by the buying enterprise’ at the year end, the profit recorded by the selling enterprise, when viewed from the standpoint of the group as a whole, has not yet been earned, and will not be earned until the goods are eventually sold outside the group. On consolidation, the unrealized profit on closing inventories will be eliminated from the group's profit, and the closing inventories of the group will be recorded at cost to the group. Here, the point to be noted is that one has to see whether the intragroup transaction is “upstream” or “down-stream”. Upstream transaction is a transaction in which the subsidiary company sells goods to holding company. While in the downstream transaction holding company is the seller and subsidiary company is the buyer. Sells Goods Co. Holding =} _ err >/ Subsidiary \ pownstream Sales Co, to Co. __SellsGoods Co. , monte Upstream Sales CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.11PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL In the case of upstream transaction, since the goods are sold by the subsidiary to holding company: profit is made by the subsidiary company, which is ultimately shared by the holding company and the minority shareholders. In such a transaction, if some goods remain unsold at the balance sheet date, the unrealized profit on such goods should be eliminated from minority interest as well as from consolidated profit on the basis of their share-holding besides deducting the same from unsold inventory. But in the case of downstream transaction, the whole profit is earned by the holding company, therefore, whole unrealized profit should be adjusted from unsold inventory and consolidated profit and loss account only irrespective of the percentage of the shares held by the parent. Intra group transaction Upstream Downstream ‘cimnated ort Coresponding ‘cminated om, Comesponding holding and minority cores holding company's cece a terest inventories PAL in full Inventories UNREALIZED PROFIT ON TRANSFER OF NON-CURRENT ASSET: Similar to the treatment described above for unrealized profits in inventories, untealized inter-company profits arising from intra- group transfers of fixed assets are also eliminated from the consolidated financial statements. UNREALIZED LOSSES: Unrealized loss¢S/resillting from intra-group transactions that are deducted in arriving at the carrying amount of assets are,also eliminated unless cost cannot be recovered. Example: If net realizable value (NRV) expécted from sale of such goods is more than the actual cost, of the goods, then unrealized loss should be reversed during consolidation process. However, if it is expected that NRV would not be sufficient to recover the loss incurred on transfer of goods from one entity to another, the unrealized loss should not be reversed, Example oy) a) ALLtd holds 80% of the equity capital and voting power in B Ltd. A Ltd sells inventories costing Rs.180 lacs to B Ltd at a price of Rs. 200 lacs. The entire inventories remain unsold with B Ltd at the financial year end i.e., 31 March 2019. b) A Ltd holds 75% of the equity capital and voting power in B Ltd. A Ltd purchases inventories costing Rs. 150 lacs from B Lid at a price of Rs. 200 lacs. The entire inventories remain unsold with A Ltd at the financial year end i.e., 31 March 2019. ‘Suggest the accounting treatment for the above-mentioned transactions in the consolidated financial statements of A Ltd giving reference of the relevant guidance/standard SOLUTION: As per AS 21 i) This would be the case of downstream transaction. In the consolidated profit and loss account for the year ended 31* March 2019, entire transaction of sale and purchase of Rs. 130 lacs each, would be eliminated by reducing both sales and purchases (cost of sales) CANTER | ADV ACCOUNTING | 46€ 9.12DeLee u WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 Further, the unrealized profits of Rs. 20 lacs (i.e., Rs. 200 lacs - Rs. 180 lacs), would be eliminated from the consolidated financial statements for financial year ended 31* March 2019, by reducing the consolidated profits/ increasing the consolidated losses, and reducing the value of closing inventories as of 31% March 2019. ii) This would be the case of upstream transaction. In the consolidated profit and loss account for the year ended 31 March 2019, entire transaction of sale and purchase of Rs. 200 lacs each, would be eliminated by reducing both sales and purchases (cost of sales). Further, the unrealized profits of Rs. 50 lacs (i.e., Rs. 200 lacs - Rs. 150 lacs), would be eliminated in the consolidated financial statements for financial year ended 31* March 2019, by reducing the value of closing inventories by Rs. 50 lacs as of 31% March 2019. In the consolidated balance sheet as of 31% March 2019, A Ltd's share of profit from B Ltd will be reduced by Rs. 37.50 lacs (being 75% of Rs. 50 lacs) and the minority's share of the profits of B Ltd would be reduced by Rs. 12.50 lacs (being 25% of Rs. 50 lacs). 2) 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: a) Elimination of intercompany transactions of goods, services and interest on loans. b) Transfer to minority interest and investment alc for determining cost of control The Consolidated profit and loss A/c is prepared with 4 columns (assuming 1 Subsidiary). Each column for: i) Parent Subsidiary company transactions KY } Optional ‘Adjustments-showing intercompany transaction | péINg eliminated iv) Consolidated income or expense after an intercompany transactions. as 3) PREPARATION OF CONSOLIDATED casi FLOW STATEMENT As per AS 21, consolidated cash flow Staterfient is presented in case a parent presents its own cash flow statement oT For the purpose of preparation of consdiidated cash flow statement, al the items of cash flow from operating activities, investing activities and financing activities are to be added on line by line basis, and from the consolidated items, inter-company transactions should be eliminated. Below given is an illustrative consolidated cash flow statement with hypothetical figures: Consolidated Cash Flow Statement lilustrative only) Cash Flows from Operating Activities Change in Reserve 8 2 10 Change in P & L Ac = 1 1 Dividend Paid 22 = 22 Tax Provision 20 1 2a Depreciation 10 5 16 Interest (10) 10 B 50 19 69 Less: Tax payment (20) Ml @1) 30 18 48 CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.13PIONEER FOR MEC / CEC TO CA/ CMA FINAL ARAMA Ah Working capital adjustment (13) 2] (A) 17, 30 AT Cash Flows from Investment Activities Sale of fixed assets 30) - 30 Purchase of fixed assets (30) (20)| (60) (8) - (20)| (20) Cash Flows from Financing Activities (C) © (10)| (15) Net cash flows (A+B + C) 12 [2 MODEL: 1 PROBLEM ON ANALYSIS OF PROFITS AND APPORTIONMENT. GRD 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, 2018 ao a L ee | Hbtd. | SLtd. Equity share capital (Face Value of Rs.10 each) 10,00,000 | _5,00,000 General reserve 3,00,000 | _6,48,000 Profit and Loss A/c > 3,00,000 | 252,000 Investments in S Ltd. ) 5,00,000 - H Ltd Acquired 30,000 Equity Shares in S Ltd. on 01.07,2017..The credit balance of Profit and Loss Account of S Ltd. as on 01.04.2017 was Rs.2,00,000 and that of G fal reserve on that was Rs.6,00,000. Ja) IFHLTD ACQUITED 40,000! es HARES IN S LTD. ON 01.07.2017. b)_IFHLTD ACQUIRED 20,000.EQUITY SHARES IN $ LTD. ON 01.07.2017. |QUESTIONS . ASSIGNMENT PROBLEM TO BE SOLVED AS REWORK _ Particulars Cap. Rev. Rev. Profits | Profits _| Reserve Share of Minority @ | 3,30,000 | 15,600 14,400 40% Share of Holding Co. | 495,000 | 23,400 21,600 @ 60% a MODEL: 2 PROBLEMS ON GOODWILL/CAPITAL WE (COST OF CONTROL) CRD 2: Exe Ltd. acquires 70% of equity shares of Zed Ltd. as on 31st March, 20X1 at a cost of Rs.70 lakhs. The following information is available from the balance sheet of Zed Ltd. as on 31st March, 20X1 Property, Plant & Equipment 120 Investments 55 Current Assets 70 Loans & Advances. 15 15% Debentures 90 Current Liabilities 50 CANTER | ADV ACCOUNTING | 46€ 9.14MASTER MINDS COMMERCE INSTITUTE PVT. LTD. WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 The following revaluations have been agreed upon (not included in the above figures): Property, Plant & Equipment Up by 20% Investments Down by 10% Zed Ltd. declared and paid dividend @ 20% on its equity shares as on 31% March, 20X1(Face value- Rs. 10 per share). 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. [CONCEPT [a) IF ZED LTD. DECLARED AND PAIO DIVIDEND @ 10 % ON ITS EQUITY SHARES, JQUESTIONS _|b)_IF EXELTD. PURCHASED THE SHARES OF ZED LTD. @ RS.25 PER SHARE, | ASSIGNMENT PROBLEM TO aoe © BE SOLVED AS REWORK 2 FINAL ANSWER. CAPITAL RESERVE: 33.95 LAKHS [ABC CATEGORISATION A [NOTES PRINTED SOLUTION: Revalued net assets of Zed Ltd. as on 31st March, 20X1 Zinlakhs| in lakhs| Property, plant and equipment [120 X 120%] Investments (55 X 90%] Current Assets Loans and Advances Total Assets after revaluation Less: 15% Debentures Current Liabilities Equity / Net Worth Exe Ltd's share of net assets (70% of 138.5) Exe Ltd.'s cost of acquisition of shares of Zed Ltd (270 lakhs - 2 7 lakhs*) Capital reserve * Total Cost of 70 % Equity of Zed Ltd 270 lakhs Purchase Price of each share 220 Number of shares purchased [70 lakhs / 20] 3.5 lakhs Dividend @ 20 % i.e. 22 per share 7 lakhs Since dividend received is for pre-acquisition period, it has been reduced from the cost of investment in the subsidiary company. GRD 3: A Ltd. acquired 70% of equity shares of B Ltd. on 1.4.20X1 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 20X5 - X6, B Ltd. experienced tumaround and registered an annual profit of Rs. 50,000. In the next two years i.e., 20X6-X7 and 20X7-X8, 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. CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.15PIONEER FOR MEC / CEC TO CA/ CMA FINAL ARAMA Ah a) IF ALTD. ACQUIRED 70% OF EQUITY SHARES OF B LTD. ON 1.4.2011 AT COST OF RS.7,56,000. b) IFALTD, ACQUIRED 60% OF EQUITY SHARES OF B LTD, THEN AMOUNT OF MINORITY INTEREST | ON 01.04.2011. © MINORITY INTEREST ON 01.04.11: RS.3,24,000; COST OF| ‘CONTROL-GOOD WILL: RS.2,44,000 MODEL }LEMS ON CONSOLIDATED BALANCE SHEET GRD 4: A Ltd. acquired 1,600 ordinary shares of Rs.100 each of B Ltd. on 1st July, 20X1. On 31st December, 20X1 the summarized balance sheets of the two companies were as given below: Balance Sheet of A Ltd. and its subsidiary, B Ltd. as at 31° December, 20X1 1) Equity and Liabilities 4) Shareholder's Funds a) Share Capital 1 5,00,000| —_2,00,000) b) Reserves and Surplus 2 2,97,200| _ 1,82,000) 2) Current Liabilities a) Trade Payables 47,100} 17,400 b)_ Short term borrowings 3 80,000| Total 9,24,300| _ 3,99,400) I) Assets 4) Non-current assets a) Property, Plant and Equipment 4 3,90,000| — 3,15,000] b) Non-current Investments 5 3,40,000 = 2) Current assets a) Inventories 1,20,000| 36,400 b) Trade receivables 59,800] 40,000 ¢) Cash & Cash equivalents 6 14,500 8,000 Total 9,24,300| — 3,99,400) Notes to Accounts 1) |Share Capital 5,000 shares of 2 100 each, fully paid up 5,00,000 - 2,000 shares of € 100 each, fully paid up 2,00,000| Total 5,00,000| _2,00,000] 2) [Reserves and Surplus General Reserves 2,40,000| _1,00,000 Profit & loss 57,200| 82,000 Total 2,97,200| _1,82,000) CANTER | ADV ACCOUNTING | 46€ 9.16See aud WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 3) [Short term borrowings Bank overdraft 80,000 4) |Property plant and equipment Land and building 1,50,000| _ 1,80,000) Plant & Machinery 2,40,000| _1,35,000) Total 3,90,000| — 3,15,000) 5) |Non-current Investments Investment in B Ltd (at cost) 3,40,000 6) |Cash & Cash equivalents Cash 14,500 8,000 Prepare consolidated Balance Sheet as on 31st December, 20X1 The Profit & Loss Account of B Ltd. showed a credit balance of Rs.30,000 on 1* January, 20X1 out of which a dividend of 10% was paid on 1st August, 20X1; A Ltd. credited the dividend received to its Profit & Loss ‘Account. The Plant & Machinery which stood at Rs. 1,50,000 on 1st January, 20X1 was considered as worth Rs. 1,80,000 on 1st July, 20X1; 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). CONCEPT ')_F COST OF INVESTMENT IN BLD. IS RS. 300,000 THEN CALCULATE COST OF CONTROL? QUESTIONS _| b) IFALTD. CREDITED, THE DIVIDEND RECEIVED TO ITS PROFIT & LOSS ACCOUNT IS NOT GIVEN. "ASSIGNMENT PROBLEM TO Sees © ‘BE SOLVED AS REWORK s MINORITY INTEREST - RS 83,600; GOODWILL - RS.17(200; FINAL ANSWER | CONSOLIDATED RESERVES AND SURPLUS - RS. BS TOTAL-RS.10,36,900 < ABC CATEGORISATION A NOTES ‘on 31* March, 2018: GRD 5: The following summarized Balance sheet orfivia And its subsidiary S Ltd. Were prepared as HLtd(Rs.) |S Ltd.(Rs.) Shareholders’ Funds Equity Share Capital (fully paid up share of Rs.10 each) 12,00,000| _2,00,000 Reserves and Surplus General Reserve 4,35,000| _1,55,000 Profit and Loss Account 2,80,000 65,000] Current Liabilities Trade Payables 3,22,000| _1,23,000 Total 22,37,000| __5,43,000 Assets Non-Current Assets Property, Plant & Equipment Machinery 6,40,000| _1,80,000) Furniture 3,75,000 34,000] Non-Current Investments Shares in $ Ltd. (16,000 shares @ Rs.20 each) 3,20,000 Current Assets CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.17PIONEER FOR MEC /CECTO CA/ CMA FINAL BULA AML Inventories 2,68,000 62,000) Trade Receivables 470,000] _2,35,000| Cash and Bank 1,64,000| 32,000) Total 22,37,000| _5,43,000 H Ltd. acquired the 80% shares of S Ltd. On 1st April, 2017.On the Date of acquisition, General Reserve and Profit Loss Account of $ Ltd. stood at Rs.50,000 and Rs.30,000 respectively. Machinery (book value Rs.2,00,000) and Fumiture(book value Rs.40,000) of S Ltd. were revalued at Rs.3,00,000 and Rs.30,000 respectively on 1st Apri,2017 for the purpose of fixing. the price of its shares (rates of depreciation computed on the basis of useful lives: Machinery 10% and Furniture 15%). Trade payables of H Ltd. include Rs.35,000 due to S Ltd. for goods supplied since the acquisition of the shares. The goods are charged at 10% above cost. The inventories of H Ltd. includes goods costing Rss.55,000 purchased from S Ltd You are required to prepare the consolidated Balance Sheet of as at 31st March, 2018, 2) IFHLTD, ACQUIRED 60% SHARES OF S LTD. THEN WHAT IS COST OF CONTROL? ) IF GOODS ARE SOLD BY S LTD TO H LTD AT 25% ABOVE COST THEN WHAT IS THE EFFECT ON CONSOLIDATED RESERVES AND MINORITY INTEREST? | ASSIGNMENT PROBLEM may-2018 ____| Be SOLVED As REWORK: BS TOTAL-RS.25 25,500, GOODWILL RS.24,000, MINORITY — | gee INTEREST RS. 99,300. 2 OS 2 CRD 6: On 31* March, 20X1, the Balance Stieéts 6fH Ltd. and its subsidiary S Ltd. stood as follows: 1) Equity and Liabilities 1) Shareholder's Funds a) Share Capital 1 12,000 4,800 b) Reserves and Surplus 2 5,499 3,000 2) Current Liabilities a) Trade payables 1,461 854 b) Other current liabilities 3 1,572 160 ¢) Short term provisions 4 855 304 Total 21,387 9,208 Il) Assets 1) Non-current assets ‘a) Property, Plant and Equipment 5 9,468 5,486 b) Non-current Investments 3,000 (Shares in S Ltd.) 2) Current assets a) Inventories 3,949 1,956 CANTER | ADV ACCOUNTING | 46€ 9.18DeLee u WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 b) Trade receivables 2,600 1,363 c) Cash and cash equivalents 1,490 204 ‘d) Short term loans and advances 520 e) Other current assets 360 199) Total 21,387 9,208 Notes to Accounts 4) _| Share Capital Authorized share capital Equity shares of € 10 each 15,000 6,000 Issued and Subscribed: 12,000 4,800 Equity shares of f 10 each, fully paid up Total 412,000 4,800 2)_| Reserves and surplus General Reserve 2,784 1,380 Profit and Loss Account: 2,715 1,620 Total 5,499 3,000 3)_| Other current liabilities Bills Payable 372 160 Dividend payable 1,200 4,572 To) 4) [Short term provisions Provision for Taxation 855 394 5)_| Property, plant and equipment Land and Buildings 2,718 - Plant and Machinery 4,905 4,900 Furniture and Fittings 1,845 586 Total 9,468 5,486 6)_| Short term loans and advances Sundry Advances 520 = 7)_| Other current assets Bills Receivable 360 199) The following information is also provided to you: a) H Ltd. purchased 180 lakh shares in S Ltd. on 31st March, 20X0 when the balances of General Reserve and Profit and Loss Account of S Ltd. stood at @ 3,000 lakh and 21,200 lakh respectively, b) On 1st April, 20X0, S Ltd. declared a dividend @ 20% for the year ended 31st March, 20X0. H Ltd, credited the dividend received by it to its Profit and Loss Account. ¢) On ‘st January, 20X1, 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, 20X0. d) On 31st March, 20X1, all the bills payable in S Ltd.'s balance sheet were acceptances in favour of H Ltd. But on that date, H Ltd. held only @ 45 lakh of these acceptances in hand, the rest having been endorsed in favour of its trade payables. CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.19PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL ) On 31st March, 20X1, S Ltd.'s inventory included goods which it had purchased for 2 100 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, 20X1 a) IF IN POINT E) H LTD’S INVENTORY INCLUDED GOODS WHICH IT HAD PURCHASED FOR & 100 LAKH FROM S LTD. WHICH MADE A PROFIT @ 25% ON COST GIVEN. WHAT IS THE TREATMENT? b)_IFIN POINT E) HLTD SOLD GOODS TO S LTD @25% ON SALE VALUE, THEN WHAT IS THE IMPACT ‘ON CONSOLIDATED RESERVES & SURPLUS OF PARENT COMPANY. © ‘BE SOLVED AS REWORK BALANCE SHEET TOTAL: RS. 27,530 LAKHS: ABC CATEGORISATION _ PRINTED SOLUTION Consolidated Balance Sheet of H Ltd. And its subsidiary S Ltd. as at 31st March, 20X1 1) Equity and Liabilities 4) Shareholder's Funds a) Share Capital 1 b) Reserves and Surplus 2 2) Minority Interest [W.N.6] 3) Current ies a) Trade payables 3 b) Other current liabilities 4 ¢)_ Short term provisions. 5 Total I) Assets 4) Non-current assets Property, Plant and Equipment 6 2) Current assets ‘a) Inventories 7 b) Trade receivables 8 ‘c) Short term loans and advances 9 ‘d) Cash and cash equivalents 10 e) Other current assets 4 Total Notes to Accounts 1) | Share Capital Authorized share capital: Equity shares of 2 10 each CANTER | ADV ACCOUNTING | 46€ 9.20DeLee u WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 Issued and Subscribed: Equity shares of @ 10 each, fully paid up Total 2) Reserves and surplus Capital Reserve (Note 5) General Reserve (2,784 + 108) Profit and Loss Account: H Ltd. Less: Dividend wrongly credited Unrealized Profit ‘Add: Share in S Ltd.'s Revenue profits Total 3) Trade payables H Ltd. S Ltd 4) Short term provisions Provision for Taxation H Ltd. S Ltd Total 5) Other current liabilities Bills Payable H Ltd. S Lid. Less: Mutual owing Dividend payable H Ltd Total 6) Property, plant and equipment Land and Buildings H Ltd. Plant and Machinery H Ltd. S Ltd Furniture and Fittings H Ltd. S Lid. Total i) Inventories Stock H Ltd. S Ltd CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.21PIONEER FOR MEC / CEC TO CA/ CMA FINAL ARAMA Ah Less: Unrealized profit 8) _| Trade receivables H Ltd Std 9)_| Short term loans and advances Sundry Advances Total 10) | Cash and cash equivalents Cash and Bank Balances Total 11) | Other current assets Bills Receivable H Ltd Std Less: Mutual Owing Total 1) Cut Off Data or Basic Data Date of Acquisition 01/04/17 Date of Consolidation 31/03/18 % of Holding Interest & Total No. of shares Subsidary on Consolidation Dtae~ 480Lakhs (After Bonus) x 6° No. of Shares before Bonus = 480 Lakhs x578 = 300 Laks % of Holding Interest = 180LAKhs 469, Gp°180X6/5 99 300lakhs = 60% % of Minority Interest = 40% 2) Classification of Profits: General Resprve = 1,380 Lakhs Opening balance =3,000 Current year transfered from P & L=180 Lakhs Less: Bonus Issue (1,800) u [4800°3/8] 1200 Lakhs Revenue Profit u Capital profit P & Le 1,620 Lakhs 200 Current year Profit = 1,200 Lakhs Opening balance Less: Dividend (600) Less: Transfer to = (180 Lakhs) (3,000 Lkahs x 20%) 600 General Reserve 1,020 Lakhs u u Capital profit Revenue Profit CANTER | ADV ACCOUNTING | 46€ 9.22CTs 3) Pre- Acquisition Dividend Total Dividend Paid by Subsidiary = 3,000 Lakhs x 20% = 600 Lakhs Pre-Acquisition Dividend received = 600 Lkahs x 60% = 360 Lkahs Wronaly Credited to P&L A/c: WWW.MASTERMINDSINDI M | 98851 25025 / 26 Rectification Entry: P&L Alc Dr. 360 Lakhs To Investments A/c 360 Lkahs 4) Elimination of Unrealised Profi Type of Transaction: Down stream Unrealised Profit = 100 Lkahs x 25/125 = 20 Lkahs Reduce Subsidiary Stock Value to the extent of 20 Lkahs and also reduce consolidated P&L to the extent of 20 Lkahs 5) Minority Interest: Holdi _ Minority — : c Share(60%) _Interest(40%) Equity Share Capital 4800 Lakhs | 2880 Lkahs | 1920 Lakhs Capital Profits: General Rreserve 1200 lakhs2,| 720 Lakhs | 480 Lakhs P&L 600 Lakt 360 Lakhs 240 Lakhs 1800.Kakhs)| 1080 Lakhs | 720 Lakhs Revenue Profits: on General Reserve CA80Lakhs 108 Lakhs 72 Lakhs P&L ‘P4920 Lakhs | 612 Lakhs 408 lakhs © {A200 lakhs | 720Lkahs | 480 Lakhs Total Minofity Interest 3120 Lakhs 6) Cost of Control: Cost of Investmnets Investments 3000L, Less: Pre-Acquisition dividend (360L) 2,640L Less: Shares of Net Assets Equity capital 2880 L Capital Profit 1080.L (3,960) Capital Reserve 1,320 L 7) Consolidation of reserves and surplus: Holding co. balance 2,715 2,784 Less: Unrealised profit (201) : CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.23PIONEER FOR MEC / CEC TO CA/ CMA FINAL ARAMA Ah Less: Pre-Acquisition Dividend Wrongly credited to P& L (360L) 2,335L 2,784L Add:shares in Revenue Profits 612L 108L 2,947L 2,892L 8) Elimination of Mutual owings: __ Particulars — : _ Bills Receivable Bills Payable Holding Co. Balance 360L 372. Subsidiary balance 199L 160 559 532. Less: Mutual owing (451) (451) 514L 487L MODEL: 5 UNIFORM ACCOUNTING POLICIES - PREPARATION OF SUBSIDIARY BALANCE SHEET As per AS 21, Consolidated financial statements Consolidated financial statements should be prepared using uniform accounting policies for like transactions and other events in similar circumstances. Ifit is not practicable to use uniform accounting Policies in preparing the consolidated financial statements, that fact should be disclosed together with the proportions of the items in the consolidated tment to which the different accounting Policies have been applied ° fa member of the group uses accounting policies one rihafthose adopted in the consolidated financial statements for like transactions and events in in ar circumstances, appropriate adjustments are made to its financial statements when they are usedié ‘ons the consolidated financial statements. ary B Ltd. provides the follwing| balance sheet 1) Equity and Liabilities 1) Shareholder's Funds a) Share Capital 1 5,00,000| 5,00,000 b) Reserves and Surplus 2 2,86,000| 7,14,000 2) Current Liabilities ‘a)_Short term borrowings 3 --| 1,70,000 b) Trade Payables 4,90,000| _4,94,000 ¢) Short-term provisions 4 3,10,000| —_4,30,000 Total 15,86,000 | 23,08,000 Il) Assets 1) Non-current assets a) Property, Plant and Equipment 5 2,72,000| _2,24,000 b) Non-current Investment =| 4,00,000 2) Current assets a) Inventories 5,97,000| _7,42,000 b) Trade Receivables 5,94,000| 8,91,000 c) Cash & Cash Equivalents 51,000 3,000 d) Other current assets 6 72,000| 48,000 Total 15,86,000| 23,08,000 CANTER | ADV ACCOUNTING | 46€ 9.24OM | 98851 25025 / 26 4) _| Share capital 5,000 equity shares of €10 each, fully paid up 5,00,000| 5,00,000 2) _| Reserves and Surplus General Reserves 2,86,000| 7,14,000 3)_| Short term borrowings Bank overdraft ~[_4,70,000 4) | Short term provisions Provision for taxation 3,10,000| 4,30,000 5)_| Property; plant and equipment Cost 3,20,000| 3,20,000 Less: Depreciation (48,000) | (96,000) Total 2,72,000| 2,24,000 6) | Other current Assets Prepaid expenses 72,000| 48,000 Also consider the following information: a) B Ltd. is a subsidiary of A Ltd, Both the companies follow calendar year as the accounting year. b) A Ltd, values inventory on weighted average basis while f Ltd. used FIFO basis. To bring B Ltd's values in line with those of A Ltd, its value of inventoy as Tequired to be reduced by 212,000 at the end of 20X0 and & 34,000 at the end of 20X1. <> ) BLtd. deducts 1% from Trade Receivables axgenetal provision against doubtful debts. ) Prepaid expenses in B Ltd. include advert isi expec carried forward of 2 60,000 in 20X0 and % 30,000 in 20X1, being part of initial aan ng expenditure of 2 90,000 in 20X0 which is being writen off over three years, Similar amour bot ‘advertising expenditure of A Ltd. has been fully written off in 20X0, Restate the balance sheet of B Ltd. as at 31 December, 20X1 after considering the above information, for the purpose of consolidation. Would restatement be necessary to make the accounting policies adopted by A Ltd. and B Ltd. uniform. a) IF IN POINT C) B LTD DEDUCTS 2% FROM TRADE RECEIVABLES AS A GENERAL PROVISION AGAINST DOUBTFUL DEBTS. b) IFBLTD. ALSO WRITTEN OFF ADVERTISING EXPENDITURE FULLY IN THE YEAR 2010. € ASSIGNMENT PROBLEMTO | , | BESOLVED ASREWORK RESTATED BALANCESHEET TOTAL: RS. 22,53,000 | ABC CATEGORISATION | B PRINTED SOLUTION Adjusted reserves of B Ltd. Reserves as given ‘Add: Provision for doubtful debts CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.25PIONEER FOR MEC / CEC TO CA/ CMA FINAL ARAMA Ah {[8,91,000 / 99 X 100}-8,91,000} Less: Reduction in value of Inventory ‘Advertising expenditure to be written off Adjusted reserves any impact on P&L. Restated Balance Sheet of B Ltd. as at 31% December, 20X1 })_ Equity and Liabilities NOTE: No adjustment would be required in respect of opening inventory of B Ltd as that will not have 1) Shareholder's Funds a) Share Capital b) Reserves and Surplus 2) Current Liabilities a) Short term borrowings b) Trade Payables ¢) Short-term provision I) Assets Total 1) Non-current assets a) Property, Plant and Equipment b)_Non-current Investment 2) Current assets a) Inventories b) Trade Receivables ¢) Cash & Cash Equivalents 4d) Other current assets Total Notes to Accounts 4) _| Share capital 5,000 equity shares of Rs 10 each, fully paid up 2) _| Reserves and Surplus General Reserves (refer to WN) 3)_| Short term borrowings Bank overdraft 4) _| Short term provisions Provision for taxation 5) _| Property, plant and equipment Cost. CANTER | ADV ACCOUNTING | 46€ 9.26DeLee u WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 Less: Depreciation Total 6) _| Inventory Actual inventory Less: Change in method of valuation Total 7)_| Trade receivables Actual trade receivables ‘Add: Adjustment for provision Total 8)_| Other current Assets Prepaid expenses MODEL: 6 CONSOLIDATED PROFIT AND LOSS ACCOUNT CRD 8: The Trial Balances of X Limited and Y Limited as on 31% March 2021 were as under: Equity Share capital (Share of € 100 each) 2,000 400 7% Preference share capital 5 400 Reserves 600 200 6% Debentures 400 400 Trade Payables / Trade Receivables ieo|180[ 100/120 Profit & Loss A/c balance é 40 30 Purchases / Sales ~ 1,000} 1,800] 1,200 1,900, Wages and Salaries 200 300) Debenture Interest 24 24 General Expenses 160 120 Preference share dividend up to 30.09.2020 7 14 Inventory (as on 31.03.2021) 200 100 Cash at Bank 27 12 Investment in Y Limited 7,056 - Fixed Assets 2,200 1,580 Total 5,027| 5,027| 3,450 3,450 Investment in Y Limited was acquired on 1* July, 2020 and consisted of 80% of Equity Share Capital and 50% of Preference Share Capital a) After acquiring control over ¥ Limited, X Limited supplied to Y Limited goods at cost plus 25%, the total invoice value of such goods being % 1,20,000, one fourth of such goods were stil lying-in inventory at the end of the year. b) Depreciation to be charged @ 10% in X Limited and @ 15% in Y Limited on Fixed Assets. You are required to prepare the Consolidated Statement of Profit and Loss for the year ended on 31* March, 2021 CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.27PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL IF X LTD SUPPLIED GOODS TO Y LTD @ COST PLUS 20%? IF INVESTMENT IN PREFERENCE SHARES IS 40%? PRINTED SOLUTION: Consolidated Profit and Loss Account of X Ltd. and Y Ltd. for the year ended 31st March, 2021 LRevenue from operations 1 Il Total revenue Ill. Expenses [Cost of Material purchased/Consumed 2 [Changes of Inventories of finished goods Employee benefit expense Finance cost Depreciation and amortization expense [Other expenses Total expenses IV Profit before Tax (Ill) Profit transferred to Consolidated Balance Sheet, Profit After Tax Preference dividend Preference dividend payable ola) alo [Share in pre-acquisition loss (WN 3) [Share of Minority interest in losses (WN 1) Less: Investment Account- dividend for 3 months (prior to acquis Inventory reserve (WN 2) Profit to be transferred to consolidated balance sheet Notes to Accounts. —— 1) [Revenue from Operations x Ld Y Ud. Total Less: Intra-group sales (X sold to Y) 2) |Cost of Materials Purchased/Consumed Xx Lid. Y Utd Total CANTER | ADV ACCOUNTING | 46€ 9.28DeLee u WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 Less: Intra-group sales (X sold to Y) 3) [Employee benefit and expenses Wages and salaries H Ltd. S Lt. 4) [Finance cost Interest H Ltd. S Ltd 5) [Depreciation H Ltd. S Ltd 6) | Other expenses H Ltd. S Lt. Working Note: 4) Profit of Subsidiary Revenue from Operations Less. Expenses Cost of Material purchased/Consumed Changes of Inventories of finished goods Employee benefit expense Finance cost Depreciation and amortization expense Other expenses Total expenses Profit Before Tax Less: Preference Dividend Less: Preference Dividend Payable Profit available for shareholders Minority Share (20% of loss Rs. 9,000) 2) Inventory reserve = [1,20,000/4x25/125]= Rs. 6,000 3). Pre-acquisition loss = 80% of 3 month's profit up to 30” June,2020 i.e. 80 % of Vi of loss Rs. 9,000. Hence, pre-acquisition loss = Rs. 1,800 4) Investment account includes Preference dividend for 3 months prior to acquisition ie. Rs. 4,00,000 X 50% X 7% X1/4 = Rs. 3,500 CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.29PIONEER FOR MEC / CEC TO CA/ CMA FINAL ARAMA Ah IVISION 2: ASSIGNMENT PROBLEMS (AP) ASSIGN 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 A Ltd. and B Ltd. as at 31** March, 2018 Equity share capital (Face Value Rs.10 each) 30,00,000 15,00,000 General reserve 9,00,000 19,44,000 Profit and Loss Alc 9,00,000 7,568,000 Investments in B Ltd. 15,00,000 - A Ltd Acquired 90,000 Equity Shares in B Ltd. on 01.07.2017. The credit balance of Profit and Loss Account of B Ltd. as on 01.04.2017 was Rs.6,00,000 and that of General reserve on that was Rs.18,00,000. a) IF ALTD ACQUIRED 1,00,000 EQUITY SHARES IN B LTD. ON 01.07.2017. ‘Share of Minority @ 40% ‘Share of Holding Co. @ 00% res of Queen Ltd. as on 31st March, 20X1 at a cost of ASSIGN 2: King Ltd. acquires 70% of equi ae lable from the balance sheet of Queen Ltd. as on 31st Rs.140 lakhs. The folowing iformatiga sa March, 20X1: ina] Property, plant and equipment 240 Investments 110 Current Assets 140 Loans & Advances 30 15% Debentures 180 Current Liabilities 100 The following revaluations have been agreed upon (not included in the above figures): Property, plant, and equipment - Up by 20% Investments - Down by 10% King Ltd. purchased the shares of Queen Ltd. @ 20 per share (Face value ~ 10). Calculate the amount of goodwillicapital reserve on acquisition of shares of Queen Ltd a) IF QUEEN LTD. DECLARED EQUITY DIVIDEND @20% AS ON 31.03.2011 GIVEN. CANTER | ADV ACCOUNTING | 46€ 9.30DeLee u CAPITAL RESERVE: RS.53.9 LAKHS. ASSIGN 3: H Ltd. acquire 70% of equity share of S Ltd. as on 1st January, 2011 at a cost of Rs. 5,00,000 when S Ltd. had an equity share capital of Rs. 5,00,000 and reserves and surplus of Rs. 40,000. Both the companies follow calendar year as the accounting year. In the four consecutive years, S Ltd. performed badly and suffered losses of Rs. 1,25,000, Rs. 2,00,000, Rs, 2,50,000 and Rs. 60,000 respectively Thereafter in 2015, S Ltd. experienced turnaround and registered an annual profit of Rs. 25,000. In the next two years ie. 2016 and 2017, S Ltd. recorded annual profits of Rs. 50,000 and Rs. 75,000 respectively. Show the Minority Interests and Cost of Control at the end of each year for the purpose of consolidation a) IF HLTD. ACQUIRED 60% OF EQUITY SHARES OF S LTD, THEN AMOUNT OF MINORITY INTEREST ON 01.01.2011. [ASSIGNMENT PROBLEM TO 19-10M ‘SOLVI REWORK . MINORITY INTEREST: RS. 1,62,000 | ABC CATEGORISATION wy ASSIGN 4: From the following summarized balance sheets of Hid. and its subsidiary S Ltd. drawn up at 31® March, 20X1, prepare a consolidated balance seta at that date, having regard to the following: i) Reserves and Profit and Loss Account of S| od at Rs 25,000 and Rs. 15,000 respectively on the date of acquisition of its 80% shares | te ‘on Ast April, 20X0. ii) Machinery (Book-value Rs. 1,00,000) and Fine | (Book value Rs.20,000) of $ Ltd. were revalued at Rs.1,50,000 and Rs. 15,000 respectively on, 1st April, 20X0 for the purpose of fixing the price of its shares. [Rates of depreciation computed on the basis of useful lives: Machinery 10%, Furniture 15%.) Balance Sheet of H Ltd. and S Ltd. as on 31st March, 20X1 }) Equity and Liabilities 4) Shareholder’s Funds a) Share Capital 1 6,00,000| _1,00,000! b) Reserves and Surplus 2 3,00,000 _1,00,000' 2) Current Liabilities a) Trade Payables 1,50,000| 57,000 Total 10,50,000| _2,57,000 Il) Assets 1) Non-current assets a) Property, Plant and Equipment 3 4,50,000| _1,07,000' b) Other non-current investments 4 6,00,000| 1,50,000 Total 10,50,000| 2,57,000 CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.31PIONEER FOR MEC / CEC TO CA/ CMA FINAL ARAMA Ah Notes to Accounts 1) |Share capital 6,000 equity shares of & 100 each, fully paid up 6,00,000 : 1,000 equity shares of € 100 each, fully paid up =| 4,00,000 Total 6,00,000| __1,00,000 2) |Reserves and Surplus General reserves 2,00,000 75,000) Profit and loss account 4,00,000 25,000 Total 3,00,000 1,00,000 | 3) |Property, Plant and Equipment Machinery 3,00,000 90,000 Furniture 1,50,000| 17,000} Total 4,50,000| _1,07,000) 4) [Other Non-current investments Non-current Investments 4,40,000| _1,50,000) Shares in S Ltd, (800 shares at 2200 each) 1,60,000| - Total 6,00,000/ _1,50,000 3) LTD, KOQURED Bo SHARES. OFS 19D QRSATO EAGH THEN ANGUNT OF COST OF CONTROL? wy eS oS lumonery wreREST: 48150; GOODWILL: RS.12000; CONSOLIDATED RESERVES @ LIMPLUS FS 44,60, A BS TOTAL-RS.11,99,750. ASSIGN 5: The Summarised Balance Sheet of X Ltd. and its subsidiary Y Ltd. as on 31st March, 2017 are as follows: SHARE CAPITAL & LIABILITIES: Share Capital: [Authorised 20,000 8,000 Issues and subscribed Equity share of Rs. 10 each, fully paid up 15,000 6,000 115% preference shares of Rs. 10 each, fully paid up 4,000 7,000 General Reserves 2,500 1,450 Profit & Loss Account 2,750 1,250 Trade payables 1,646 4,027, 25,896 10,727, CA INTER | ADV ACCOUNTING | 46E 9.32DeLee u WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 ASSETS: Land & Building 3,550| 1,510) Plant & Machinery 5,275| 3,600| Furniture & Fittings: 1,945] 655) Investment in Y Ltd. [450 Lakh Equity share in Y Ltd. purchased on 1* April, 2016 6,800) Inventory 4,142, 2,520 Trade Receivables 3,010 1,882| Cash and Bank Balance 1,174] 560) 25,896) 10,727, ‘The following information is also given to you a) 10% dividend on Equity shares was declared by Y Ltd. on 31st March, 2016 for the year ended 31" March, 2016. X Ltd. credited the dividend received to its Profit & Loss Account b) Credit Balance of Profit & Loss account of Y Ltd. as on 1* April, 2016 was Rs. 650 Lakhs. c) General Reserve of Y Ltd. stood at same Rs. 1,450 Lakhs as on 1* April, 2016. d) Y Ltd's Plant & machinery showed a balance of Rs. 4,000 Lakh on 1* April 2016. At the time of purchase of shares in Y Lid., X Ltd, revalued Y's Ltd. Plant & Machinery upward by Rs. 1,000 Lakh. @) Included in Trade Payables of Y Ltd. are Rs. 50 Lakh for goods supplied by X Ltd. f) On 31* March, 2017, Y's itd. inventory included goods for Rs. 150 lakhs which it had purchased from X Ltd. X Ltd, sold goods to Y Ltd. at cost plus 25%: SG” You are required to prepare a Consolidated Balance Sheet efx Ltd. and its subsidiary Y Ltd. as on 31%" March, 2017 giving working notes. Oy giving 9 Bow Some a) “IF DIVIDEND RECEIVED | By XLTOISPROPERLY ADJUSTED” INSTEAD OF CREDITED TO P&L AIC. RFP NOON ‘BS TOTAL- RS.30,643, COST OF CONTROL-CAPITAL. 'RESERVE- RS. 25, MINORITY INTEREST-RS. 3,400 (RS IN LAKHS) NOTES | ASSIGN 6: On 31* March, 2018 the abridged Balance Sheets of H Ltd. and its subsidiary $ Ltd. stood as follows: Share Capita [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 CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.33PIONEER FOR MEC /CECTO CA/ CMA FINAL BULA AML Other provisions 65, 7 7,129) 4,604 Plant and Machinery 2,541 2,450 Furniture and Fittings 615) 298) Investments in shares in S Ltd. 1,500) 7 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, 2017 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, 2017, S Ltd. declared a dividend @ 20% out of pre-acquisition profits. H Ltd. credited the dividend received by it to its Profit and Loss Account” ¢) On 1 Nov, 2017, S Ltd. issued 3 fully paid-up bongedhare or every 5 shares held out of balances of pre-acquisition general reserve. Ss y d) On 31st March, 2018, the inventory of S Ltdiincluded goods purchased for Rs.50 Thousand from H Ltd, which had made a profit of 25% on‘ sey @) Details of Trade payables and trade receivables: Trade payables Bills payable 124 80) Sundry creditors 487, 427, an 507 Trade receivables Debtors 700 683 Bills receivables 120 95) 820 778 Prepare a Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. as at 31st March, 2018. ‘) IF IN POINT D) H LTD’S INVENTORY INCLUDED GOODS WHICH IT HAD PURCHASED FOR ® 50 THOUSAND FROM $ LTD. WHICH MADE A PROFIT @ 25% ON COST GIVEN. WHAT IS THE ‘TREATMENT? | MINORITY INTEREST (000'S) - RS.1,560 ; CAPITAL RESERVE (00'S) - RS.643.20 ; CONSOLIDATED RESERVES AND A _| SURPLUS (000'S) - RS.3,063, BS TOTAL-RS.10,223. CANTER | ADV ACCOUNTING | 46€ 9.34DeLee u WWW. MASTERMINDSINDI ASSIGN. OM | 98851 25025 / 26 Consider the following summarized balance sheet of subsidiary MNT Ltd. Share capital: Issued and subscribed 7500 equity shares of Rs 100 each 7,50,000| 7,50,000| Reserves and Surplus: Revenue Reserve 2,14,000| 5,05,000| Securities Premium 72,000 2,07,000| Current Liabilities and Provisions: Trade Payables 2,90,000 2,46,000 Bank Overdraft 170,000} Provision for taxation 2.62,000| 4.30000] 15,88,000/ 23,08,000 Assets: Fixed Assets (Cost) 9,20,000| 9,20,000| Less: Accumulated Depreciation 4,70,000 2,82,500) 7,50,000 6,37,500| Investment at Cost: - 5,30,000| Current Assets: Inventory 412,300 6,90,000| Trade Receivables 2,95,000 3,43,000 Prepaid Expenses | 78,000 65,000 Cash at Bank 2 52.700 42.500 15,88,000 23,08,000 Other information: a) MNT Lid is a subsidiary of LTC Lt b) LTC ltd. values inventory on FIFO vasfade MNT Ltd used LIFO basis. To bring MNT Ltd's inventories values in line with those of LTC td its value of inventory is required to be reduced by Rs. 5,000 at the end of 2017-18 ang. increased by Rs.12,000 at the end of 2018-19. (Inventory of 2017-18 has been sold out during the year 2018-19). ©) MNT Lid deducts 2% from trade receivables as a general provision against doubtful debts. d) Prepaid expenses in MNT Itd include sales promotion expenditure carried forward of 25,000 in 2017-18 and 12,500 in 2018-19 being part of initial sales promotion expenditure of 37,500 in 2017- 18, which is being written off over three years. Similar nature of sales promotion expenditure of LTC. Ltd has been fully written off in 2017-18. Restate the balance sheet of MNT Ltd as on 31% March, 2019 after considering the above information for the purpose of consolidation. Such restatement is necessary to make the accounting policies adopted by the LTC Ltd and MNT Ltd uniform a) IFMNTLTD. ALSO WRITTEN OFF ADVERTISING EXPENDITURE FULLY IN THE YEAR 2017-18. Nie-1oM BE SOLVED AS REWORK BALANCE SHEET TOTAL: RS. 23,14,600. | ABC CATEGORISATION CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.35PIONEER FOR MEC / CEC TO CA/ CMA FINAL BARR AA ASSIGN Ltd and its subsidiary S Ltd provide the following information for the year ended 31st March, ‘HLtd. S Ltd. (in lacs) Gin lacs) Sales and other income 5,000 1,000 Increase in Inventory (closing less opening) 1,000 200 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 Other Information: H Ltd. sold goods to S Ltd. of 2 120 lacs at cost plus 20%. Inventory of S Ltd. includes such goods valuing % 24 lacs. Administrative expenses of S Ltd. include 5 lacs paid to H Ltd. as consultancy fees. Selling and distribution expenses of H Ltd. include ® 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 20X1-20X2. H Ltd. took credit to its Profit and Loss Account, the proportionate amount of dividend declared and paid by S Ltd. for the year 20X1-20X2 ¢ Prepare a consolidated statement of profit and loss. ‘CONCEPT a) IF HLTD, SOLD GOODS TO ${7D. OF ® 120 LACS AT COST PLUS 25%. QUESTIONS b) IF CONSULTANCY FEES RECEIVED BY H LTD. FROM S LTD. IS RS. 10LACS oe "ASSIGNMENT PROBLEM TO eeiRNGS ws BE SOLVED AS REWORK | iu FINAL ANSWER | PROFIT BEFORE TAX-24006 LAKHS ‘ABCCATEGORISATION [A ‘NOTES: VISION 3: ADDITIONAL CONCEPTS FOR SELF PRACTICE (ACSP) CATEGORY 1: THESE PROBLEMS BELONG TO ICAI SOURCES BUT VERY BASIC IN NATURE. BASED ON THE KNOWLEDGE OF PROBLEMS TAUGHT BY US, STUDENTS CAN COMFORTABLY SOLVE THESE PROBLEMS ON THEIR OWN. IF STUDENTS HAVE ENOUGH TIME, WE SUGGEST THEM TO SOLVE THESE PROBLEMS ALSO. AGSP 1: Refer ILLUSTRATION 7, Page No. 10.33 in the Study Material ACSP 2: Refer ILLUSTRATION 8, Page No. 10.35 in the Study Material ACSP 3: Refer ILLUSTRATION 9, Page No. 10.37 in the Study Material CATEGORY 2: THESE PROBLEMS BELONG TO ICAI SOURCES. THESE PROBLEMS ARE VERY MUCH SIMILAR TO WHAT WE LEARNT IN CRD & ASSINGMENT PROBLEMS. BASED ON THE KNOWLEDGE OF ‘THOSE PROBLEMS, STUDENTS CAN COMFORTABLY SOLVE THESE PROBLEMS ON THEIR OWN. STUDENTS CAN COMFORTABLY TAKE THESE PROBLEMS AS CHOICE. ACSP 4: Refer ILLUSTRATION 2, Page No. 10.23 in the Study Material CANTER | ADV ACCOUNTING | 46€ 9.36DeLee u WWW. MASTERMINDSINDI ACSP 5: Refer ILLUSTRATION 1, Page No. 10.21 in the Study Material ACSP 6: Refer Practical Question No. 1, Page No. 10.64 in the Study Material ACSP 7: Refer Practical Question No. 3, Page No. 10.65 in the Study Material ACSP 8: Refer N18-MTPI-16M OM | 98851 25025 / 26 CATEGORY 4: ALL THE FOLLOWING PROBLEMS CAN BE SOLVED WITH THE KNOWLEDGE OF PROBLEMS DISCUSSED ABOVE. OUR FACULTY WILL TEACH THESE PROBLEMS ALSO, IF TIME PERMITS (FOR EXAMPLE, IN CASE OF LONG-TERM BATCH). WE MIGHT HAVE TAKEN SOME OF THESE PROBLEMS FROM ICAI SOURCES ALSO. EVEN IF FACULTY DOES NOT TEACH THESE PROBLEMS, DUE TO INSUFFICIENT TIME, STUDENTS CAN COMFORTABLY PREPARE THESE PROBLEMS ON THEIR OWN. FOR THEIR CONVENIENCE WE ARE EVEN PROVIDING SOLUTIONS OF THESE PROBLEMS IN THE MAIN MATERIAL ITSELF. AGSP 9: On 31" March, 20X1, P Ltd. acquired 1,05,000 shares of Q Ltd. for Rs.12,00,000. The Position of Q Ltd. on that date was as under: Property, plant and equipment 10,50,000 Current Assets 6,45,000| 1,50,000 equity shares of €10 each fully paid 15,00,000 Pre-incorporation profits 30,000 Profit and Loss Account 60,000 Trade payables 1,05,000 P Ltd, and Q Ltd. give the following information o Equity shares of 210 each fully paid (before bonus issue) 45,00,000| _15,00,000 Securities Premium 9,00,000| : Pre-incorporation profits 7 30,000] General Reserve 60,00,000) 19,085,000 Profit and Loss Account 15,75,000| _4,20,000) Trade payables 5,55,000| _2,10,000 Property, plant and equipment 79,20,000| _23,10,000 Investment: 1,05,000 Equity shares in Q Ltd. at cost 42,00,000 : Current Assets 44,10,000| _17,55,000 Directors of Q Ltd. made bonus issue on 31.3.20X3 in the ratio of one equity share of €10 each fully paid for every two equity shares held on that date. Bonus shares were issued out of post-acquisition profits by using General Reserve. Calculate as on 31st March, 20X3 (i) Cost of Control/Capital Reserve; (ii) Minority Interest; i) Consolidated Profit and Loss Account in each of the following cases. a) Before issue of bonus shares; b) Immediately After issue of bonus shares. CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.37PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL ee 4) IF DIRECTORS OF Q.LTD MADE BONUS ISSUE OF 1 SHARE FOR EVERY 5 SHARES. ASSIGNMENT PROBLEM TO. sie © BESOLVEDAS REWORK |” A. BEFORE BONUS ISSUE - J. GOODWILL - RS.87,000 1). MINORITY INTEREST - RS.11,56,500 ll). CONSOLIDATED P&L - FINAL ANSWER | f:s.31,60,500; B. AFTER BONUS ISSUE - 1). CAPITAL RESERVE | ABC CATEGORISATION a = RS.4,38,000 I). MINORITY INTEREST - RS.11,56,500 Il) CONSOLIDATED P&L - RS.26,25,500 NOTES DIVISION 4: THEORY FOR SELF-STUDY Section 19 of the Companies Act, 2013 prohibits a subsidiary company from holding shares in the holding company. According to this section, no company shall, either by itseff or through its nominees, hold any shares in its holding company and no holding company shall allot or transfer its shares to any ofits subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary company shall be void. However, a subsidiary may continue to be a member of its holding company when 4) The subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or an) 2) The subsidiary company holds such shares as.a\trustée: or 3) The subsidiary company is a shareholderévencbefore it became a subsidiary company of the holding company, f The company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of jis subsidiary or subsidiaries in Form AOC-1 as per Rule 5 of the Companies (Accounts) Rules, 2014. For the purpose of section 129, ‘subsidiary’ includes ‘associate company’ and ‘joint venture’ which means that the company would be required to prepare consolidated financial statements including associate! joint venture even if there is no subsidiary of a company. A company covered under sub-section (3) of section 129 which is not required to prepare consolidated financial statements under the Accounting Standards, it shall be sufficient if the company complies with provisions of consolidated financial statements provided in Schedule III of the Act. EXEMPTIONS FROM PREPARATION OF CFS: ‘As per Companies (Accounts) Amendment Rules, 2016, preparation of consolidated financial statements by a company is not required if it meets the following conditions: 4) It is @ wholly-owned subsidiary, or is a partially-owned subsidiary of another company and all its other members, including those not otherwise entitled to vote, having been intimated in writing and for which the proof of delivery of such intimation is available with the company, do not object to the company not presenting consolidated financial statements; 2) Itis a company whose securities are not listed or are not in the process of listing on any stock exchange, whether in or outside India; and 3) Its ultimate or any intermediate holding company files consolidated financial statements with the Registrar which are in compliance with the applicable Accounting Standards. CANTER | ADV ACCOUNTING | 46€ 9.38a CONTROL: The consolidated financial statements are prepared on the basis of financial statements of parent and all enterprises that are controlled by the parent, other than those subsidiaries excluded for the reasons set out in paragraph 11 of AS 21 1S COMMERCE INSTITUTE PUT, LTD, WWW. MASTERMINDSINDI OM | 98851 25025 / 26 Control exists when the parent owns, directly or indirectly through subsidiary(ies), more than one-half of the voting power of an enterprise. Control also exists when an enterprise controls the composition of the board of directors (in the case of a company) or of the corresponding governing body (in case of an enterprise not being a company) so as to obtain economic benefits from its activities. An enterprise may control the composition of the governing bodies of entities such as gratuity trust, provident fund trust etc. Since the objective of control over such entities is not to obtain economic benefits from their activities, these are not considered for the purpose of preparation of consolidated financial statements. For the purpose of this Standard, an enterprise is considered to control the composition of 1) The board of directors of a company, if it has the power, without the consent or concurrence of any other person, to appoint or remove all or a majority of directors of that company. An enterprise is deemed to have the power to appoint a director, if any of the following conditions is satisfied: a. a person cannot be appointed as director without the exercise in his favour by that enterprise of such @ power as aforesaid; or b. a person's appointment as director follows necessarily from his appointment to a position held by him in that enterprise; or c. the director is nominated by that enterprise or a subsidiary thereof. 2) The governing body of an enterprise that is not a company, f it has the power, without the consent or the concurrence of any other person, to appoint of remove all or a majority of members of the governing body of that other enterprise. An enterprise is deemed to have the power to appoint a member, if any of the following conditions is satisfied: a) a person cannot be appointed as membef ‘of ths ‘governing body without the exercise in his favour by that other enterprise of such a power-as aforesaid; or b) a person's appointment as membér ofthe governing body follows necessarily from his appointment to a position held by. fim ifsthat other enterprise; or c) the member of the governing body is hominated by that other enterprise. EXCLUSION FROM PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS: Where an enterprise owns majority of voting power by virtue of ownership of the shares of another enterprise and all the shares are held as ‘stock-in-trade’ and are acquired and held exclusively with a view to their subsequent disposal in the near future, the control by the first mentioned enterprise is considered to be temporary. The period of time, which is considered as “near future” as mentioned above, primarily depends on the facts and circumstances of each case. However, ordinarily, the meaning of the words ‘near future’ is considered as not more than twelve months from acquisition of relevant investments unless a longer period can be justified on the basis of facts and circumstances of the case. The intention with regard to disposal of the relevant investment is considered at the time of acquisition of the investment. Accordingly if the relevant investment is acquired without an intention to its subsequent disposal in near future, and subsequently, it is decided to dispose off the investments, such an investment is not excluded from consolidation, until the investment is actually disposed off. Conversely, if the relevant investment is acquired with an intention to its subsequent disposal in near future, but, due to some valid reasons, it could not be disposed off within that period, the same will continue to be excluded from consolidation, provided there is no change in the intention. CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.39PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Exclusion of a subsidiary from consolidation on the ground that its business activities are dissimilar from those of the other enterprises within the group is not justified because better information is provided by consolidating such subsidiaries and disclosing additional information in the consolidated financial statements about the different business activities of subsidiaries. For example, the disclosures required by AS 17 ‘Segment reporting’, help to explain the significance of different business activities within the group. COMPONENTS OF CONSOLIDATED FINANCIAL STATEMENTS All the notes appearing in the separate financial statements of the parent enterprise and its subsidiaries need not be included in the notes to the consolidated financial statement. For preparing consolidated financial statements, the following principles may be observed in respect of notes and other explanatory material that form an integral part thereof: 4) Notes which are necessary for presenting a true and fair view of the consolidated financial ‘statements are included in the consolidated financial statements as an integral part thereof. 2) Only the notes involving items which are material need to be disclosed. Materiality for this purpose is assessed in relation to the information contained in consolidated financial statements. In view of this, itis possible that certain notes which are disclosed in separate financial statements of a parent or a subsidiary would not be required to be disclosed in the consolidated financial statements when the test of materiality is applied in the context of consolidated financial statements. 3) Additional statutory information disclosed in separate financial statements of the subsidiary and/or a parent having no bearing on the true and fair view of-thé consolidated financial statements need not be disclosed in the consolidated financial statements. In addition, the consolidated financial statements shall disciose the information as per the requirements specified in the applicable Accounting Standards.including the following as per the requirements of Schedule Ill to the Companies Act, 2013 which contains the ‘General Instructions for Preparation of Consolidated Financial Statements’ A 4) Profit or loss attributable to “minority interest” and to owners of the parent in the statement of profit and loss shall be presented as allocation for the period. 2) “Minority interests” in the balance sheet within equity shall be presented separately from the equity of the owners of the parent. Students are also advised to refer the Schedule III to the Companies Act, 2013. Treatment in case of Post-Acq n Dividend: Post-Acquisition Dividend ‘Accounted by the subsidiary No further Adjustment Required Not accounted by the subsidiary ‘Adjusted at the time of Consolidation Inthe Books of Holding Company ‘Account for by Crediting P&L AIC of the holding ‘company Copyrights Reserved To MASTER (MINDS COMMERCE INSTITUTE PYT.TD. CANTER | ADV ACCOUNTING | 46€ 9.40OM | 98851 25025 / 26 Not accounted by Not accounted by ‘ecounted by Holding ; Comper alee Holding Company Subsidiary Company I ‘Adjust the same atthe time | Adjust the same at the time Teorrecly accounted as | [wrongly accounted by of Consolidation of Consolidation reductionto the Cost of | | crediting to P&L AIC investment ‘Account for as reduction | [Reduce the Pre-acquisiion tocostof investment | | profit of Subsidiary and No further adjustment is | | Reverse the Entry Passed then distribute it into required holding and minority interest Also reduce the cost investment WHOLLY OWNED AND PARTLY OWNED SUBSIDIARIES 1) |Awholly owned subsidiary company is one|In a partly owned subsidiary, all the shares of in which all the shares are owned by the|subsidiary company are not acquired by the| holding company. holding company i.e. only the majority of shares (ie., more than 50%) are owned by the holding company. 2) |100% voting rights are vested by the|Voting rights of more than 50% but less than holding company. 100% are vested by the holding company. 3) |There is no minority interest because all|There is a minority interest because less than the shares with voting rights are held by|50% shares with voting rights are held by the holding company. outsiders other than the holding company. MINORITY INTERESTS: Minority interést is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiaries, by the holding (parent) company. In short, minority interest represents the claims of the outside shareholders of a subsidiary. Minority interests in the net income of consolidated subsidiaries for the reporting period are identified and adjusted against the income of the group in order to arrive at the net income attributable to the shareholders of the holding company. Minority interests should be presented in the consolidated balance sheet separately from liabilities and the equity of the parent's shareholders, Minority interest in the income of the group should be separately presented. The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to and is able to make good the losses. If the subsidiary subsequently reports profit, all such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority has been recovered. PROFIT OR LOSS OF SUBSIDIARY COMPANY: For the purpose of consolidated balance sheet preparation, all reserves and profits (or losses) of subsidiary company should be classified into pre and post-acquisition reserves and profits (or losses). Profits (or losses) earned (or incurred) by subsidiary company up to the date of acquisition of the shares by the holding company are pre-acquisition or capital profits (or loss). CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.41PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Similarly, all reserves of subsidiary company up to the date of acquisition are capital reserves from the view point of holding company. If the holding interest in subsidiary is acquired during the middle or some other period of the current year, pre-acquisition profit should be calculated accordingly. The minority interest in the reserves and profits (or losses) of subsidiary company should be transferred to minority interest account which will also include share capital of subsidiary company held by outsiders / minority shareholders. Minority Interest = Share Capital of subsidiary belonging to outsiders + Minority interest in reserves and profits of subsidiary company The holding company’s interest in the pre-acquisition reserves and profits (or losses) should be adjusted against cost of control to find out goodwill or capital reserve on consolidation. The reserves and profits (or loss) of subsidiary company, representing holding company's interest in post-acquisition or revenue reserves and profits (or losses), should be added to the reserves and profits (or losses) of holding company. 1) Minority interest should be presented in the consolidated-balance sheet a) As a part of liabilities, b) As a part of equity of the parent's shareholders. ©) Separately rom liabiltes and the equity of the parent’ shareholders. 2) Minority of the subsidiary is entitled to a) Capital profits of the subsidiary company b) Revenue profits of the subsidiary company) 6) Both capital and revenue profs of the subsidiary company. 3) In consolidation of accounts of holding and subsidiary company is eliminated in full. a) Current liabilities of subsidiary company. b) Reserves and surplus of both holding and subsidiary company. ) Mutual indebtedness. 4) In consolidated balance sheet, the share of the outsiders in the net assets of the subsidiary must be shown as a) Minority interest, b) Capital reserve. ¢) Current liability 5) Taxation provision made by the subsidiary company will appear in the consolidated balance sheet as an item of a) Current liability. b) Revenue profit. c) Capital profit 6) Issue of bonus shares by the subsidiary company out of capital profits will a) Decrease cost of control. b) Increase cost of control. c) Have no effect on cost of control 7) Dividend paid by subsidiary to its parent, out of capital profits, should be credited by the parent company in its a) Profit and loss account. »b) Dividend account. ) Shares invested in subsidiary account. 8) Goodwill is equal to a) Cost of Investment less Parent's share in the equity of the subsidiary on date of investment. b) Cost of investment less Parent's share in the debentures of subsidiary on date of investment. c) Parent's share in the equity of subsidiary on date of investment less Cost of investment. CANTER | ADV ACCOUNTING | 46€ 9.421S COMMERCE INSTITUTE PUT, LTD, WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 9) If the subsidiary company follows weighted average method for valuation of inventories and the holding company follows FIFO method, then while consolidating, a) Financial statements of subsidiary company should be restated by adjusting the value of inventories to bring the same in line with the valuation procedure adopted by the holding company, b) Financial statements of holding company should be restated by adjusting the value of inventories to bring the same in line with the valuation procedure adopted by the subsidiary company. ©) Financial statements of both companies may continue as per the basis followed by them, 10) If there remains any unrealized profit in the inventory, of any of the Group Company, a) Unrealized profit is added to value of inventory to compute consolidated profit b) Unrealized profit is reduced from value of inventory to compute consolidated profit. c) No adjustment needs to be done. PART 1: ANSWERS FOR CONCEPT QUESTIONS TO CI }OBLEMS a) Then, apportionment of profits was as follows: Share of Minority @ 20% 1,65,000 7,800 28,800 Share of Holding Co. @ 80% 6,60,000 31,200 7,200 b) Then, holding & subsidiary relation does not arise, and question of analyzing reserves and surplus of subsidiary company does not arise a a) Then, capital reserve is Rs.30.45 lakhs. b) Then, Capital reserve is Rs.32.55 lakhs. a) Then, Cost of control is Capital Reserve of Rs.22,800 and accordingly consolidated reserves will also change. b) Then, consolidated reserves will become Rs. 84,800. RDS a) Then cost of control is Good will Rs.98,000 b) The consolidated Reserves & surplus will become Rs. 8,07,400 and minority interest is Rs. 98,100. RDG a) Then, unrealized profit should be eliminated from parent co & minority interest on the basis of their shareholding besides deducting same from unsold inventory. Accordingly, out of total unrealized profit Rs.12 lakhs and Rs.8 lakhs is deducted from consolidated profits of Parent company and minority interest. b) Then, consolidated Reserves & surplus of parent company will become Rs.7154. CRDZ a) Then, adjusted reserves will become Rs.6,68,187.(apprx) CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.43,PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL b) Then, there is no difference in accounting policies between parent and subsidiary company in respect of prepaid expenses and accordingly no need to adjust any amount to reserves in this aspect. Hence, adjusted reserves will become Rs.6,89,000 CRD 8 a) Then inventory reserve will be Rs.5000. profit to be transferred to consolidated B/S Rs.1,96,100 b) Then investment account includes preference dividend for 3 months prior to acquisition will be i.e. Rs, 4,00,000 x 40% x 7% x1/4 = Rs. 2800 and accordingly other items will be effected PART 2- SOLUTIONS TO ASSIGNMENT PROBLEMS (AP) ASSIGN 1: 01.07.2017 31.03.2018 01.04.2017 General Reserve = 18,00,000 31.03.2018 General Reserve = 19,44,000 01.04.2017 Profit and loss a/c = 6,00,000 31.03.2018 Profit and loss a/e = 7,56,000 General Reserve = 19,44,000 ZA,44,000 2 Months 9 Months 18,00,000 > 36,000 41,08,000 Capital prof” = 18,36,000 Revenue profit Profit & Loss alc = 7,56,000 6,00,000 Current year profit = 3,00,000 Less: Transfer to Reserve = (1,44,000) 1,56,000 ‘3 Months: 9 Moayhs 39,000 1,17,000 Capital profit 39,000 Revenue Profit Then, apportionment of profits was as follows: General Reserve 18,36,000 - 1,08,000 P&L Account 6,39,000 4,17,000 - 24,75,000 1,17,000 1,08,000 CANTER | ADV ACCOUNTING | 46€ 9.44DeLee u WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 ‘Share of Minority @ 40% 9,90,000 46,800 43,200 ‘Share of Holding Co. @ 60% 14,85,000 70,200 64,800 ANSWERS TO CONCEPT QUESTIONS: 4) Then, apportionment of profits was as follows: ‘Share of Minority @ (1/3) 8,25,000 39,000 36,000 ‘Share of Holding Co. @ (2/3) 46,50,000 78,000 72,000 ASSIGN 2: Revalued net assets of Queen Ltd. as on 31st March, 20X1 PPE [240 X 120%] 288 Investments [110 X 90%] 99) Current Assets 140) Loans and Advances 30 Total Assets after revaluation 587, Less: 15% Debentures 180.0 Current Liabilities 100.0| (280) Equity / Net Worth 277, King Ltd.'s share of net assets (70% of 277) 193.9 King Ltd.'s cost of acquisition of shares of Queen Ltd. (€140lakhs) (140)| Capital reserve 53.9) ANSWERS TO CONCEPT QUESTIONS: AIG a) Then, equity dividend of Rs.14 lakhs is adjusted to Edst of investment and accordingly adjusted cost of investment is Rs.126 Lakns and capital reserveis RS.67.9 lakhs. 07 ASSIGN 3: TAL the time of acquston 162.000 : en wn) size 2011 (25.000) 7.500) (e700) "172,000 (wn Balance 124500 201 (200.000) | —(@0,000)] (4.40000) 122000 Balance 64.500 2013 (2,50,000) | (75,000) | (1,758,000) 122 000, (10.500) Loss of 10,500) (10,500) 10,500) 10,500 osty Some by Hating Co Balance nil (4.85600) 2014 (@.000)| (18000) (42,000) 12000 CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.45,PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Loss of 18,000) (18,000)[ 18,000[ 28,500 ‘minority ‘borne by Holding Co. Balance Ni (60,000) [2015 25,000 7,500 47,500 4,22,000) Profitshare of| (7,500) 7,600] (7,600)| 21,000 Minority adjusted against losses of ‘minority absorbed by Holding Co. Balance Ni 25,000 2016 50,000| 45,000 '35,000| (15,000) 6,000 4,22,000 (15,000) 15,000] Balance Nil 50,000] 2017, 75,000 22,500] '52,600| (6,000) Nil|_1,22,000 (6,000) 6,000 Balance 16,500 58,500| Working Note: Calculation of Minority interest and Cost of cofifrol on 1.1.2011 1) Equity and Liabilities Share Capital 5,00;000) 3,50,000 1,50,000 Reserve A000 28,000 12,000 ye S 3,78,000 1,62,000| Less: Cost of investment Yo (5,00,000) Goodwill 1,22,000 ANSWERS TO CONCEPT QUESTIONS: a) Then, Ml is Rs.2,16,000, ASSIGN 4: Consolidated Balance Sheet of H Ltd. and its Subsidiary S Ltd. as at 31st March, 20X1 4) Shareholder's Funds CANTER | ADV ACCOUNTING | 46€ a) Share Capital 6,00,000 b) Reserves and Surplus 1 3,44,600 2) Minority Interest (VW.N.5) 48,150 3) Current Liabilities a) Trade Payables 2 2,07,000] Total 11,99,750! Il) Assets 4) Non-current assets a) i) Property, plant & equipment 3 5,97,750 9.46DeLee u WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 Intangible assets 4 12,000 b) Other Non- current investments 5 5,90,000 Total 14,99,750 Notes to Accounts: 4) [Reserves and Surplus Reserves 2,00,000 (Add: 4/5th share of S Ltd.'s post-acquisition reserves (W.N.3) 40,000| 2,40,000) Profit and Loss Account 7,00,000 Add: 4/5th share of S Ltd.'s post-acquisition profits (W.N.4) 4,600] 7,04,600 3.44,600 2) | Trade Payables H Ltd 750,000) Std 57,000] 2,07,000) 3)_[Property, plant & equipment Machinery H Ltd 3,00,000] SLtd 700,000 (Add: Appreciation 50,000 7,50,000) Less: Depreciation (45,000) 7,356,000 Furniture. H Ltd. KZ 1,50,000 Std LY 20,000 Less: Decrease in value OD 5,000 y 45,000 Less: Depreciation (2,250)| —42,750| 5.97,750 4) [Intangible assets Goodwill [WN 6] 72,000 3) [Other non-current assets eS HiLtd, z 40,000 Std 450,000] 5,90,000 Working Note 1)_Pre-acquisition profits and reserves of S Ltd.: [Rs] Reserves 25,000) Profit and Loss Account 15,000 40,000 H Ltd.'s = 4/5 x 40,000 32,000 Minority Interest= 1/5 x 40,000 8,000) 2) Profit on revaluation of assets of $ Ltd.: Profit on Machinery Rs. (1,50,000 - 1,00,000) 50,000 Less: Loss on Furniture Rs.(20,000 - 15,000) 5,000 Net Profit on revaluation 45,000 H Ltd.'s share 4/5 x 45,000 36,000 Minority Interest 1/5 » 45,000 9,000] 3)_Post-acquisition reserves of S Ltd.: Rerermuatin reserves (Total reserves less pre-acquisition reserves = Rs. 75,000 -| 55 999 CH.9 | CONSOLIDATED FINANCIAL STATEMENTS | 46E 9.47