Question

Sandy plc acquired 100 per cent of the issued capital of Beach plc on 30 June 2014 for $900,000, when the statement of financial position of Beach plc was as follows:

plc acquired 100 per cent of the issued capital of Beach plc on 30 June 2014 ment of financial position of Beach plc was as follows: LO 20.4 for £900,000, when the state Statement of financial position of Beach plc as at 30 June 2014 (working sheet) £000 £000 Assets Accounts receivable Inventory Land Property, plant and equipment Accumulated depreciation Liabilities 300 70 Loan 100 400 Shareholders' equity 700 Share capital 500 270 Retained earnings 200 1,000 Additional information . The tax rate is 30 per cent. . As at the date of acquisition, all assets of Beach pic were at fair value, other than the property, plant and equip- ment, which had a fair value of 8530,000. Beach plc adopts the cost model for measuring its property, plant and equipment. The property, plant and equipment is expected to have a remaining useful life of ten years, and no residual value. . One year following acquisition, it was considered that Beach plc's goodwill had a recoverable amount o . Beach plc declared a dividend of £40,000 on 10 July 2014, with the dividlends being paid from pre-acquisiton . The statements of financial position and statements of comprehensive income of Sandy plc and Beach pic 260,000. retained earnings. year after acquisition are as follows:

Answer 1

Answer

Consolidation statements of a 100% subsidiary can be prepared as a line by line addition. But, investment in subsidiary company has to be cancelled by calculating the cost of control. Also, profits for the purpose of consolidation need to be calculated.

Consolidated statement of financial position of M/s Sandy Plc and its subsidiary as at 30 June 2015
Assets	Consolidated (000)
Non - Current Assets
Land	1000
Property, Plant and Equipment	1600
Accumulated Depreciation	-613
Goodwill	60
	2047
Current Assets
Inventory	263
Accounts receivable	100
Cash	120
	483
Total assets	2530
Equity shares and reserves
Share capital	1000
Retained earnings	460
	1460
Non-current liabilities
Loan	810
Current liabilities
Accounts payable	110
Dividends payable	150
	260
Total liabilities and equity	2530

Workings

A	Cost of control calculation or Goodwill calculation
	(a) Cost of investment
	Amount invested			900
	Less: Pre-acquisition dividends			40
				860
	(b) Share of net assets
	Paid up capital			500
	Pre-acquisition reserves			200
				700
	Goodwill(*)			160
	* Before amortization
B	Determination of revenue profits of Sandy plc
		Retained earnings		300
		PAT		400
		Less: Interim dividend		90
		Less: Final dividend		110
		Add: Share of post acquisition profits of subsidiary		100
		Less: Amortization of goodwill		100
		Less: Pre-acquisition dividend		40
		Reserves for the purpose of consolidation		460

Note: Dividends received out of pre-aquisition profits shall be adjusted in arriving the cost of control/goodwill calculation.

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