Question

Question 1 de following are the financial statements of Tom Ltd and Harry Ltd for the year ended 31 July 2018: Statement of Profit or Loss for the Year Ended 31 July 2018 Tom Ltd Harry Ltd €'000 € 000 67,140 50,355 49,800 37,350 12,450 3,780 16,785 4,650 7,755 6,270 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Finance cost Profit Loss before taxation Income tax expenses Profit Loss after taxation 570 705 3,675 1,830 360 735 2.940 1.470 The following information is relevant: (a) Tom Ltd purchased 90% of the ordinary shares of Harry Ltd on 1 August 2015 when Harry Ltd had the following reserves: €'000 Revaluation reserve 1,000 Retained earnings 3,800 (b) The fair value of the non-controlling interests in Harry Ltd at the date of acquisition was €1,730,000 and the full-goodwill method is used to measure its non-controlling interest. (c) Total retained earning on the statement of financial position of Tom Ltd and Harry Ltd at 31 July 2018 were €23,170,000 and €6,180,000 respectively. (d) During the year ended 31 July 2018, Harry Ltd sold goods to Tom Ltd to the value of €600,000 on which Harry Ltd made a gross profit of 25%. At the reporting date, Tom Ltd had €200,000 of these goods in its inventory (e) On 1 August 2016, Tom Ltd sold an item of plant to Harry Ltd for €360,000. The asset has cost €400,000 two years earlier. It is group policy to depreciate plant over 10 years on a straight-line basis. Harry Ltd depreciated the plant purchased from Tom Ltd over its remaining life of eight years. (1) Goodwill on acquisition of Harry Ltd was impaired as follows: - Year ended 31 July 2017 €40,000 - Year ended 31 July 2018 €20,000 Requirement: Prepare the Consolidated Statement of Profit or Loss for the year ended 31 July 2018. Total (40 Marks

Answer 1

TOM LIMITED
Consolidated Statement of Profit and Loss
for the year ended 31 July 2018
Description	Amount	Amount
	('000)	('000)
Sales
Tom Ltd.	67,140
Harry Ltd.	49,800
Intercompany Eliminations
Profit on inter company sales	(120)	116,820
Cost of Sales
Tom Ltd.	50,355
Harry Ltd.	37,350
Intercompany Eliminations
Profit included in Inventory	40	87,745
Gross Profit		29,075
Distribution Costs
Tom Ltd.	4,650
Harry Ltd.	3,780	8,430
Administrative Expenses
Tom Ltd.	7,755
Harry Ltd.	6,270
Intercompany Eliminations
Depreciation on Equipment	(5)	14,020
Finance Costs
Tom Ltd.	705
Harry Ltd.	570	1,275
Profit before taxation		5,350
Income Tax Expenses
Tom Ltd.	735
Harry Ltd.	360	1,095
Profit after tax		4,255
Impairment Loss on Goodwill	20
Profit attriburable to Non-controlling interest
Harry Ltd.	147	167
Consolidated Profit		4,088
Working Notes
Computation of Profit on Sale of Goods to Harry Ltd.
Sales Value		600,000
Gross Profit %		25%
Gross Profit = Sales * 25/125		120,000
Computation of profit eliminated from Closing Inventory
Value of goods purchased from Tom Ltd. Included in inventory		200,000
Gross Profit %		25%
Gross Profit = Sales * 25/125		40,000
Since, the value of closing inventory is reduced by 40,000 to records it at
cost,the value of Cost of Goods Sold would increase by 40,000
Computation of Depreciation
Original Cost of equipment		400,000
Useful life in years		10
Annual Depreciation		40,000
Original Cost of equipment		400,000
Less: Depreciation for 2 years		80,000
Book Value of equipment at the time of sale		320,000
Cost of equipment for Harry Ltd		360,000
Useful life in years		8
Annual Depreciation		45,000
Annual Depreciation by Harry Ltd		45,000
Annual Depreciation on Original assumption		40,000
Excess Depreciation Charged		5,000
Share of Profit of Non-controlling interest
Profit after Tax for Harry Ltd.		1,470
Share of Non-controlling interest		10%
Share of Profit of Non-controlling interest		147