B407F Week 6 Tutorial solution

B407F Week 6 Tutorial solution - B407F Week 6 Tutorial...

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B407F Week 6 Tutorial Solution -Consolidated Statement of Income (I) Question 1 (i) Consolidation Journal Entries Debit Credit $000 $000 1. Share capital - Scott Ltd 24,000 Retained earnings - Scott Ltd at acquisition date 13,150 Goodwill 4,880 Investment in Scott Ltd 34,600 Non-controlling interest [20% x (24,000+13,150)] 7,430 (W1-Elimination of investment in subsidiary) 2. Gain on disposal of non-current assets 50 Plant and Equipment 50 5 Depreciation expenses 5 (W2-Elimination of inter-company sale of non-current depreciable assets) 3. Sales 1,800 Cost of sales (purchases) 1,800 Cost of sales (closing inventories)(1800 x 20/120 x 0.4) 120 Inventories (Statement of financial position) 120 (W3 – Elimination of inter-company sale of inventory) 4. Dividend income 2,400 NCI 600 Dividend paid 3,000 (W4 – Elimination of inter-company dividend) 5. Consolidated income statement 952.2 Non-controlling interest 952.2 (W5 NCI's share of post acquisition profits of Scott Ltd ($4,926 - profit on sale of assets 50 + depn overprovided 5 – unrealised profit on stock 120) x 20% 6. Impairment of goodwill 450 Goodwill 450 Being accounting for the impairment loss of goodwill 1
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Workings $000 1. PPE (Net book value) - Hamburg Ltd 45,200 - Scott Ltd 35,500 Less: Adjustment for gain on disposal of equipment (w1a) (50) Add: Adjustment for overstated dep. of equip (w1b) 5 Consolidated amount for PPE 80,655 W1a Original cost of equipment 1,000 Less: acc. depreciation at 1 Jan 2009 ($1m/20 x 10 years) (500) Carrying amount at 1 Jan 2009 500 Selling price 550 Gain on disposal of equipment 50 W1b Depreciation based on selling price (550,000/10yrs) 55 Depreciation based on original cost (500,000/10yrs) 50 Depreciation overprovided 5 2. Inventory $000 - Hamburg Ltd 5,830 - Scott Ltd 6,030 Less: Unrealized profit on stock (1800 x 20/120 x 40%) (120) Consolidated amount for the inventory 11,740 3 Goodwill arising on consolidation: $000 Cost of investment 34,600 NCI at acquisition date 7,430 42,030 Share capital 24,000 Retained earnings 13,150 (37,150) Goodwill 4,880 Impairment (450) 4,430 2
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4 Non-controlling interest in Scott $000 NCI at acquisition date 7,430 Retained earnings (15,076 – 13,150) 1,926 Less: Gain on disposal (50) Add: Excess depreciation 5 Less: Unrealized profit on closing inventories (120) 1,761 (20%)
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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 6 Tutorial solution - B407F Week 6 Tutorial...

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