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Consolidation Qs
Consolidation Qs
Background
Lucize and Mirog are limited liability companies. On 1 June 20X8 Luczie purchased 60% of the equity
shares in Mirog for $20m. On 1 June 20X8 the retained earnings of Mirog were $7m and the fair value of
the non- controlling interests in Mirog was $11m. The goodwill arising on the acquisition was $9m.
The following are the summarized statements of financial position of the two companies at 31 March
20X9.
Current assets:
Inventories 25 11
Trade receivables 33 15
Other current assets 12 4
70 30
During the year ended 31 March 20X9, Luczie sold inventory costing $20m to Mirog for $24m. Mirog had
resold all these items by 31 March 20X9 but still owes $9m to Luczie in respect of these purchases.
-Task 1 (11 marks)
Luczie
Consolidated statements of financial position as at 31 March 20X9
Assets
Non- current assets $m
Intangible assets
Tangible assets
Current assets
Inventories
Trade receivables
Other current assets
Total assets
NCI
Total equity
Current Liabilities:
Trade Payables
Task – 2
On 30 April 20x9 Luczie purchased 25% of the voting shares in Gremble. One of Lucize's directors will sit
on the board of Gremble.
The basic principle of equity accounting is that the investment in an associate is initially recognized at
…………………… and afterwards the carrying amount is increased is include …………………….
Q2
Prite Co acquired 90% of Sero Co on 1 October 20X3 when Setro Co had retained earnings of $395,000.
Consideration paid by Prite Co was mixture of cash and share as follows:
*$200,000 cash
* 100,000 ordinary 50c shares with a fair value of $3.50 per share
The fair value of the non- controlling interest at the date was $50,000
The draft statements of financial position for Prite Co and Sero Co as at 30 September 20X4 are:
Prite Co Sero Co
$'000 $'000
Non- current assets
Property , Plant and Equipment (PPE) 1,400 400
Investment in Sero Co 200
Equity
Equity shares of 50 c each 500 120
Other components of equity (share premium) 760
Retained earnings 950 465
2,210 585
Non – current liabilities 300
Current liabilities 340 85
Total equity and liabilities 2,850 670
There has been no impairment to goodwill. During the year ended 30 September 20X4, Prite Co Sold to
Sero Co at a value of $120,000. Prite Co makes a margin of 30 % on all goods sold. At 30 September
20X4, one-fourth of the goods sold were still in inventory and 50% of the goods had not yet been paid
for by Sero Co.
Prite Co intends to purchase 40% of the shares of Pixie Co during the next financial year ending 30
September 20X5.
Task 1
Complete the following to determine the goodwill arising on the acquisition of Sero Co.
$'000
Value of investment at acquisition:
Cash paid by Prite Co 200
Shares issued by Prite Co
Fair value of consideration paid
Task 2
Prepare the Prite group consolidated statements of financial position 30 September 20X4.
Prite group
$'000
Non-current assets
Goodwill
Current assets
Total assets
Equity
Share capital
Other components of equity (Share premium)
Group retained earnings
Which of the following statements about the proposed acquisition of Pixie Co are TRUE or FALSE?
Background
On January 20x2 Glaza acquired 75% of the share capital of Vestan for $1,370,000. Pre-
acquisition retained earnings were $500,000 and the fair value of the non-controlling interest
was $$400,000. Capital has remained unchanged since acquisition.
The following financial statements have been prepared for the two companies for the year
ended 31 December 20X9.
During the year Glaza sold goods costing $100,000 to Vestan for $120,000. None of these Vestan's
inventory, but $20,000 is still an outstanding inter-company balance at the year end.
Task 1
Complete the consolidated statements of the financial position and the consolidated statements loss
for the year ended 31 December 20X8.
$'000
Assets
Goodwill
Current assets
Current liabilities
Revenue
Less: cost of sales
Gross Profit
Less: Distribution costs
Administrative expenses
Profit before tax
Taxation
Profit for the year
Attributable to:
Non-controlling interest
Equity holders of the parent
Task 2
What is the principal concept behind the presentation of consolidated financial statements?