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Advanced Financial Accounting

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Advance Financial Accounting (FIN-611)
VU
LESSON # 44
GROUP ACCOUNTS
Example - [ Case vii ] Inter Co. Trading (when there is unrealized profit)
Income Statement for the year ended 31st December 2008
P
S
Rs.
Rs.
Sales
7,500
4,000
Cost of Goods
Sold
(4,500)
(2,900)
Gross Profit
3,000
1,100
Operating
Expenses
(1,800)
(600)
Operating Profit
1,200
500
Dividend Income
100
1,300
500
Income Tax
(520)
(200)
Net Profit after
Tax
780
300
Ordinary Dividend paid
(250)
(125)
530
175
Retained Profits
b/f
1,000
450
Retained Profits
c/f
1,530
625
The Parent Co. (P) acquired 80% equity of the Subsidary Co. (S) on 1st January 2003
for Rs.1,700 when S's paid up share capital was Rs.1,250 & it's reserves were worth
Rs.50. During the year S sold to P goods costing Rs.1,000 & selling price of Rs.1,250
of which inventory of Rs. 200 cost to P Co. remained unsold. (Assume all reserves
comprise only of Retained Profits). Goodwill has been impaired sofar.
Prepare the Consolidated Income Statement for the year ended
Required: 31/12/2008.
Solution - [ Case vii
]
Inventory of P Co represents purchases made from S Co worth Rs. 200, which from the
standpoint of the group is above cost and hence reflects unrealized profit.
Profit made by the S Co in the intera group
transactio
Selling price
1,250
100%
233
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Advance Financial Accounting (FIN-611)
VU
Cost to the S Co
(1,000)
profit made by S
Co
250
20%
Unrealized profit is the profit made by the S Co on the stock remained unsold
by P Co
stock at cost to the group is infact selling price of the S Co. therefore
the %age of the profit is 20%. Applying this %age on the selling
price of the unslod stock we get (200 x 20%) Rs. 40 of the URP
Computation of Goodwill
Rs.
Rs.
Cost of Acquisition
1,700
Ordinary Share Capital of S
80% of Rs.1,250
1,000
Pre-acquisition Retained Profits of S
80% of Rs.50
40
(1,040)
660
Goodwill totally impaired
(660)
0
Computation of opening balance of Group's Retained Profits
Rs.
Rs.
Total amount of opening balance of retained profits of P Co
1,000
Post acquisition part in opening balance of retained profits of S Co
opening balance of retained profits of S
Co
450
pre-acquisition retained
profits
-50
to the extent of H% i.e.80%
400
320
Opening balance of Group's Retained Profits b/f
1,320
Goodwill impairment loss
(660)
660
Computation of Minority Interest
Rs.
Rs.
Profits after tax of S Co.
300
Unrealized profit
-40
to the extent of
MI%
260
52
Consolidated Income Statement
For the year ended 31st December 2008
234
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Advance Financial Accounting (FIN-611)
VU
Rs.
(7,500+4,000-
Sales
1,250)
10,250
Cost of Goods Sold
(4,500+2,900-1250+40)
(6,190)
Gross Profit
4,060
Operating Expenses
(2,400)
Profit before tax
1,660
Income Tax
(720)
Net Profit after Tax
940
Minority Interest
(52)
888
Dividend Paid
(250)
638
Retained Profits b/f
660
Retained Profits c/f
1,298
Example - [ Case viii ] During the Year Acquisition of Wholly Owned
Subsidiary
Income Statement for the year ended 31st December 2008
P
S
Rs.
Rs.
Sales
900
600
Cost of Goods
Sold
(400)
(360)
Gross Profit
500
240
Operating
Expenses
(200)
(48)
Selling & Distribution
Expenses
(100)
(36)
Operating Profit
200
156
Income Tax
(90)
(72)
Net Profit after
Tax
110
84
The Parent Co. (P) acquired 100% equity of the Subsidary Co. (S) on 30th September
2008. (Assume profits and losses accrue evenly throughout the year).
Prepare the Consolidated Income Statement for the year ended
Required: 31/12/2008.
Solution - [ Case viii ]
Income Statement for the year ended 31st December 2008
12
3
months
months
235
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Advance Financial Accounting (FIN-611)
VU
S
S
Rs.
Rs.
Sales
600
150
Cost of Goods Sold
(360)
(90)
Gross Profit
240
60
Operating Expenses
(48)
(12)
Selling & Distribution
Expenses
(36)
(9)
Operating Profit
156
39
Income Tax
(72)
(18)
Net Profit after Tax
84
21
Consolidated Income Statement
For the year ended 31st December 2008
Rs.
Sales
(900+150)
1,050
Cost of Goods Sold
(400+90)
(490)
Gross Profit
560
Operating Expenses
(200+12)
(212)
Selling & Distribution
Expenses
(100+9)
(109)
Operating Profit
239
Income Tax
(90+18)
(108)
Net Profit after Tax
131
236
Table of Contents:
  1. ACCOUNTING FOR INCOMPLETE RECORDS
  2. PRACTICING ACCOUNTING FOR INCOMPLETE RECORDS
  3. CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
  4. SINGLE ENTRY CALCULATION OF MISSING INFORMATION
  5. SINGLE ENTRY CALCULATION OF MARKUP AND MARGIN
  6. ACCOUNTING SYSTEM IN NON-PROFIT ORGANIZATIONS
  7. NON-PROFIT ORGANIZATIONS
  8. PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
  9. DEPARTMENTAL ACCOUNTS 1
  10. DEPARTMENTAL ACCOUNTS 2
  11. BRANCH ACCOUNTING SYSTEMS
  12. BRANCH ACCOUNTING
  13. BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
  14. STOCK AND DEBTORS SYSTEM
  15. INDEPENDENT BRANCH
  16. BRANCH ACCOUNTING 1
  17. BRANCH ACCOUNTING 2
  18. ESSENTIALS OF PARTNERSHIP
  19. Partnership Accounts Changes in partnership firm
  20. COMPANY ACCOUNTS 1
  21. COMPANY ACCOUNTS 2
  22. Problems Solving
  23. COMPANY ACCOUNTS
  24. RETURNS ON FINANCIAL SOURCES
  25. IASBíS FRAMEWORK
  26. ELEMENTS OF FINANCIAL STATEMENTS
  27. EVENTS AFTER THE BALANCE SHEET DATE
  28. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
  29. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1
  30. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2
  31. BORROWING COST
  32. EXCESS OF THE CARRYING AMOUNT OF THE QUALIFYING ASSET OVER RECOVERABLE AMOUNT
  33. EARNINGS PER SHARE
  34. Earnings per Share
  35. DILUTED EARNINGS PER SHARE
  36. GROUP ACCOUNTS
  37. Pre-acquisition Reserves
  38. GROUP ACCOUNTS: Minority Interest
  39. GROUP ACCOUNTS: Inter Company Trading (P to S)
  40. GROUP ACCOUNTS: Fair Value Adjustments
  41. GROUP ACCOUNTS: Pre-acquistion Profits, Dividends
  42. GROUP ACCOUNTS: Profit & Loss
  43. GROUP ACCOUNTS: Minority Interest, Inter Co.
  44. GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit)
  45. Comprehensive Workings in Group Accounts Consolidated Balance Sheet