Q1.

On January1,2010, Lifan motors Plc has acquired a 60% ownership interest in Horizon
Company by investing ETB 420,000. The remaining ownership interest(40%) of Horizon belongs
to YaYo Engineering plc. which invested ETB 280,000. The bylaw of Horizon requires at least
75% vote of owners on its major financial and operating decisions .

After operating for one year, Horizon has prepared the following income statement and Balance
sheet on decemeber31,2010

Horizon / Income Statement

For the Year Ended December 31, 2010
Revenue 2,000,000
Less: Costs and expense ( 200,000)
Net Income 800,000

Horizon / Balance sheet

December 31, 2010
Current Assets ETB 1,300,000 Liabilities & Equity
PPE 2,000,000 Current Liabilities 1,000,000
Total Assets 3,300,000 Long-Term Liabilities 800,000
Total Liabilities 1,800,000
Owners Equity
Lifan 900,000
YaYo 600,000
Total Liabilities & Capital 3,300,000

Question 1. What is the level of influence that lifan exerts over major decision of
Horizon company(Investee). (single control, joint control, significant influence or no
significant influence)

Question 2. Assume Horizon is a joint operation for Lifan Motors

a) Record the investment made by lifan on January 1,2010

b) Record the profit reported by Horizon on the book of lifan on decemeber31,2010
c) Complete the missing items in the following Separate income statement and
balance sheet of Lifan
 Lifan /P &L Statement
For the Year Ended December 31, 2010
Revenue 5,000,000
Investment income ________
Less: Costs ( 3,000,000)
Net Income ___________

Lifan /Balance sheet

December 31, 2010
Current Assets ETB 1,00,000
Investment in Horizon _______
PPE 2,000,000
Total Assets _________
Liabilities & Capital
Current Liabilities 200,000
Long-Term Liabilities 800,000
Total Liabilities 1,000,000
Owners Equity 2,900,000
Total Liabilities & Capital 3,900,000
 d) Complete the following work sheet for lifan Motors and prepare proportionally
consolidated Income statement and balance sheet

Items Lifan Motors Share in the Elimination Consolidated

Horizon balance
P & L statement
Sales
Investment income
Costs
Net income
Balance Sheet
Current assets
Investment
PPE
Total assets
Current liability
Long term liablity
Dec31,2010,capital
Total lia & capital

Question 3. Assume Horizon is a joint Venture for Lifan Motors

a) Record the investment made by lifan on January 1,2010

b) Record the profit reported by Horizon on the book of lifan on decemeber31,2010
c) Prepare separate Income statement and balance sheet for lifan
Question4. Assume Eat Fruit Enterprise has been operating for the last 5 years. The authorized capital
of the enterprise is 8,000,000 birr. The balance of legal reserve at the end of 5th year is 1,580,000.
The net income of 6th year and 7th year are birr 100,000 and 300,000 respectively. If other reserve of
50,000 was allowed in 6th year and nil in 7th year:
I. compute state dividend of 6th and 7th year.
II. Record closing profit of 6th and 7th year to appropriate accounts

Question5. Assume Alebejimla Enterprise has been operating for the last 5 years. The authorized capital
of the enterprise is 18,000,000 birr. The following are Income statement and balance sheet prepared on
June30,2013

Alebejimla Enterprise
Balance Sheet
June30, 2013 (Br ‘000)
Assets Book Value Fair Value
Cash 10,000 10,000
Accounts Receivable 2,000 1,800
Inventory 3,000 4,200
Property, Plant and equipment (net) 8,000 10,000
Total assets 23,000 26,000
Liabilities and Capital
Accounts Payable 300 300
Income tax payable 100 100
State Dividend Payable 150 150
Total Liability 550 550
State Capital 18,000
Legal Reserve 3,600
Other Reserves 850
Total Liabilities and Capital 23,000

Assume the enterprise was sold for 30 million birr to Ato Kemal on July 2, 2012.
Required:

i. Compute goodwill of the company , if any

ii. Journalize the Privatization of the enterprise ,assuming :
a. the firm will Continue with the old books .
b. Assume the firm will keep New books