Question

Balance sheet and income statement data for two affiliated companies for the current year appear below: BALANCE SHEET As at December 31, Year 6 Bach $ Albeniz $ 40,000 92,000 56,000 20,000 200,000 (80,000) 272,000 100,000 $ 700,000 Cash Receivables Inventories Land Plant and equipment Accumulated depreciation Investment in Bach Company (cost) Advances to Bach Company Total assets Accounts payable Advances payable Common shares Retained earnings Total liabilities and shareholders' equity 21,000 84,000 45,000 60,000 700,000 (350,000) $ 130,000 $ 560,000 $ 96,500 100,000 200,000 163,500 $ 560,000 400,000 170,000 $ 700,000 Bach $ 400,000 INCOME STATEMENT For the year ended December 31, Year 6 Albeniz Sales revenues $ 600,000 Interest income 6,700 Dividend income from Bach 6,400 Total revenues $ 613,100 Cost of goods sold 334,000 Distribution expense 20,000 Selling and administrative expense 207,000 Financing expense 1,700 Income taxes expense 20,700 Total expenses $(583,400) Net income $ 29,700 $ 400,000 225,000 70,000 74,000 6,000 7,500 $ (382,500) $ 17,500

Answer 1

Albeinz consolidated Income statement
Particulars	Albeinz	Bach	Eliminations	Consolidated income statement	Remarks
Sales	600000	400000		1,000,000
Interest	6700			6,700
Dividend	6400		-6400	-	Entire dividend income Bach to be eliminated
Total	613100	400000	-6400	1,006,700
Costs of goods sold	334000	225000		559,000
Distribution expense	20000	70000	3,300	93,300	Note 1 below
Selling expense	207000	74000		281,000
Financing expense	1700	6000		7,700
income taxes	20700	7500		28,200
Total expenses	-583400	-382500	(3,300)	(969,200)
Net income	29700	17500	(9,700)	37,500
Non controlling interest share		3500	(660)	2,840	20% of Bachs net income and 20% of depreciation adjustment
Albeinz Share				34,660	(Total net income - Non controlling share)
Note 1 Impact of fair valuation of fixed assets on depreciation
Incremental depreciation on Equipment (78k-60k)/15	1,200
Depreciation on Intangibles on date of acquisition of Bach 42k/20	2,100
	3,300
Albeinz consolidated balance sheet
Particulars	Albeinz	Bach	Eliminations	Consolidated balance sheet	Remarks
Cash	40,000	21,000		61,000
Receivables	92,000	84,000		176,000
Inventory	56,000	45,000	30,000	131,000	Impcat on fairvalue gains (fair value- carrying amount)
Land	20,000	60,000	20,000	100,000	Impcat on fairvalue gains (fair value- carrying amount)
Plant and equipment	200,000	700,000	13,200	913,200	Impcat on fairvalue gains (fair value- carrying amount) *remaining useful life/ total useful life
Accumulated depreciation	(80,000)	(350,000)		(430,000)
Misc intangibles			33,600	33,600	Impact on fairvalue gains (fair value- carrying amount) *remaining useful life/ total useful life
Investment in Bach company	272,000		(272,000)	-
Advances to Bach company	100,000		(100,000)	-	Advances payable and Advances to Bach knocked off as the same represent inter company balances
	700000	560000	-275200	984800
Accounts payable	130,000	96500		226,500
Advances payable		100000	(100,000)	-	Advances payable and Advances to Bach knocked off as the same represent inter company balances
Common shares	400000	200000	-200000	400,000	Entire share capital of Bach eliminated
Retained earnings	170000	163500	(67,260)	266,240	Refer Note 4
Non controlling interest			92,060	92,060	Refer Note 3
Revaluation reserve (impact of fair value gain on date of acquisition)			-	-
	700000	560000	-275200	984800
Note 2
Computation of goodwill on Acquisition
Net asset value on date of Acquisition	Bach
Common shares	200,000
Retained earnings	30,000
Impcat on fairvalue gains (fair value- carrying amount)
Inventory'	30,000
Land	20,000
Equipment	18,000
Intangible	42,000
Net Assets	340,000
Value of 80% share acquired by Albeinz	272,000
Consideration paid	272,000
Goodwill	-
Note 3 Non controlling interest
Minorities Interest (net assets *20%)	68,000
Minorities share in incremetal retained earnings from date of acquisition	26700	(163500-30000)*20%
Impact of depreciation on fair valued assets	(2,640)	Depreciation in Note 1*4*20%
	92,060
Note 4 Retained earnings adjustment
Opening retained earnings	30,000
retained earnings transferred to minorities share	26700
Impact of depreciation on fair valued assets	10,560	Depreciation in Note 1*4 years*80%
	67,260