Question

A acquired 80% of B for cash of £2,200. At the time of acquisition net assets in of B had fair value of £2,000 but book value of £1,200 Current balance sheets are as follows: £2,200 Investment in B Other net assets 2.800 1500 5,000 1500 Share capital £1 shares Retained earnings £4.0001000 1000 5,000 1500 Required a) Prepare a consolidated balance sheet for the A group (8 marks) b) Explain the following terms i) Subsidiary company i) Associate company ii) Non-controlling (minority) interests. (2 marks) (2 marks) (2 marks) [Total 14 marks]

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Answer 1

(a)		Consolidated Balance Sheet for A & B
		Pariculars	Notes	Amount	Amount
		Liabilities
		Shareholders Fund
		Share Capital
		Company A		£4,000	£4,000
		Retained Earnings
		Company A		£1,000
		Company B		£240	£1,240
		Non-Controlling (Minority) Interest	Note 3		£610
		Total			£5,850
		Assets
		Tangible Assets
		Other Net Assets
		Company A		£2,800
		Company B (2000+300)		£2,300	£5,100
		Intangible Assets
		Goodwill	Note 1		£750
		Total			£5,850
	Note 1	Calculation of Goodwill.
		Total Value of Company B	2,750	2200/80*100
	Less-	Net Asset value (other than Goodwill)	2,000
		Goodwill of Company B	750
	Note 2	Increase in Book value of Net Assets of B
		Net Assets (Book Value) as on Date	1,500
		Net Assets (Book Value) at the time of acquisition	1,200
		Profit for the period	300
	Note 2	Calculation of Non-Controlling (Minority) Interest
		20% of Total Value of Company B	550
		20% of Profit for the period of Company B	60
		Non-Controlling (Minority) Interest	610
(b)	(i)	Subsidiary Company
		When a company is owned by another Company the former becomes Subsidiary and later its Parent company. This relationship is generally established when Parent company holds 50% or more of subsidiary Company's Stocks.
	(ii)	Associate Company
		A Company generally becomes an Associate company of any other Company when its Significant Stocks with Voting Rights (20%-50%) are held by that Parent Company . Further this investment being significant enables Parent company to influence the decision making of the Associate company.
	(iii)	Non-Controlling (Minority) Interest
		The residual Portion of a subsidiary company which is not owned or Controlled by the Parent Company is known as Non-Controlling (Minority) Interest