B407F Week 5 (student)

B407F Week 5 (student) - B407F Week 5-Consolidated...

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B407F Week 5 -Consolidated Statement of Income (II) Illustration 8 Inter-company purchase and sales Same facts as in illustration 7, during the year, Company A sold $270m goods to Company B for cash. Company A had marked up these goods by 50% on cost. Company B had 1/3 of these goods in its inventory at year end. Unrealized profit: In Company B’s book: Debit ($m) Credit ($m) Purchase/Inventory Cash In Company A’s book Debit ($m) Credit ($m) Cash Sales Cost of sales (270x100/150) Inventory Consolidation Elimination entries: Debit ($m) Credit ($m) Sale Purchases (cost of sales) Cost of sales – unrealized profit Inventory (W7 – Elimination of inter-company sale of inventory) Consolidation worksheet: Co. A Co. B Debit working Credit Consolidation $m $m $m $m Goodwill arising on consolidation 550 W1 550 Tangible non-current assets 600 180 200 W1 920 W3 20 W4 50 10 W4 Investment in subsidiary 1,200 W1 1,200 - Current assets Cash 870 440 100 W6 1,410
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Accounts Receivable 1,150 420 1,570 Due from Company B 250 W6 100 W6 150 Inventories 200 100 W7 30 270 Total assets 4,270 1,140 4,720 Share Capital 1,300 400 400 W1 1,300 Share Premium 450 - 450 Retained earnings 520 440 200 W1 615 45 W2 60 20 W3 50 W4 10 70 W5 30 W7 2,270 840 NCI W1 150 W5 70 15 W2 205 Total equity 2,510 Current liabilities Accounts payable 1,700 150 1,850 Due to Company A 150 150 W6 Accruals 300 - 300 Total equity and liabilities 4,270 1,140 1,900 1,900 4,720 Co. A Co. B Debit working Credit Consolidation $m $m $m $m Revenue 5,855 8,100 270 W7 13,685 Cost of sales (3,050) (6,400) 20 W3 (9,220) W4 10 30 W7 270 Gross profits 2,805 1,700 4,465 Other income (dividends) 45 45 W2 Gain on disposal of plant 50 50 W4 Distribution costs (500) (400) (900) Administration expenses (1,200) (640) (1,840) Finance costs (60) (80) (140) Profit before tax 1,140 580 1,585 Income tax expenses (940) (280) (1,220) Profit for the year 200 300 365 NCI 70 Group profits (200 – 45 – 50 + 10-30) + 280 x 75% 295
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Illustration 9 Consolidation with deferred tax effect (tax rate 20%) Goodwill at acquisition: $m Shares issue 300 x $2.5 750 Cash 300 x $1.5 450 1,200 Net asset acquired: Share capital 400 Pre-acq. Profits 200 F.V adj. 200 Deferred tax liab (40 ) 760x 75% 570 Goodwill 630 NCI Fair value of NCI at date of acquisition: 100 shares @ $1.5 150 Net asset acquired: 760 x 25% 190 NCI gain on bargain purchase 40 Consolidation Elimination entries: Debit ($m) Credit ($m) Company B – Share Capital 400 Retained profits 200 Tangible non-current assets
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This note was uploaded on 02/24/2012 for the course ACT 407 taught by Professor Mshui during the Fall '11 term at The Open University.

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B407F Week 5 (student) - B407F Week 5-Consolidated...

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