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Advanced Financial Accounting

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Advance Financial Accounting (FIN-611)
VU
LESSON # 42
GROUP ACCOUNTS
Profit & Loss
Example - [ Case i ] Simple
Consolidation
Income Statement for the year ended 31st December 2008
P
S
Rs.
Rs.
Sales
7,500
4,000
(2,900)
Cost of Goods Sold
(4,500)
Gross Profit
3,000
1,100
Operating Expenses
(1,800)
(600)
Operating Profit
1,200
500
Income Tax
(480)
(200)
Net Profit after Tax
720
300
Retained Profits b/f
1,000
450
750
Retained Profits c/f
1,720
The Parent Co. (P) acquired 100% equity of the Subsidary Co. (S) on 1st January
2008 for Rs.1,700 when S's paid up share capital was Rs.1,250 & it's reserves
were worth Rs.450. (Assume all reserves comprise only of Retained Profits).
Prepare the Consolidated Income Statement for the
year ended 31/12/2008.
Required:
Solution - [ Case i ]
Computation of Goodwill
Rs.
Rs.
Cost of Acquisition
1,700
Ordinary Share Capital of S
1,250
Pre-acquisition Retained Profits of
S
450
0
Goodwill
1,700
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
220
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Advance Financial Accounting (FIN-611)
VU
opening balance of
retained profits of S
Co
450
pre-acquisition
retained profits
-450
0
Opening balance of Group's Retained
Profits b/f
1,000
Consolidated Income Statement
For the year ended 31st December 2008
Rs.
Sales
11,500
Cost of Goods Sold
(7,400)
Gross Profit
4,100
Operating Expenses
(2,400)
Operating Profit
1,700
Income Tax
(680)
Net Profit after Tax
1,020
Retained Profits b/f
1,000
Retained Profits c/f
2,020
Example - [ Case ii ] Post acquisition opening balance of retained
profits
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
Income Tax
(480)
(200)
Net Profit after Tax
720
300
Retained Profits b/f
1,000
450
Retained Profits c/f
1,720
750
The Parent Co. (P) acquired 100% equity of the Subsidary Co. (S) on 1st January
2007 for Rs.1,700 when S's paid up share capital was Rs.1,250 & it's reserves
were worth Rs.150. (Assume all reserves comprise only of Retained Profits).
Prepare the Consolidated Income Statement for the
Required:
year ended 31/12/2008.
221
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Advance Financial Accounting (FIN-611)
VU
Solution - [ Case ii ]
Computation of Goodwill
Rs.
Rs.
Cost of Acquisition
1,700
Ordinary Share Capital of S
1,250
Pre-acquisition Retained Profits of
(1,400)
S
150
300
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
-150
300
Opening balance of Group's Retained
Profits b/f
1,300
Consolidated Income Statement
For the year ended 31st December 2008
Rs.
Sales
11,500
Cost of Goods Sold
(7,400)
Gross Profit
4,100
Operating Expenses
(2,400)
Operating Profit
1,700
Income Tax
(680)
Net Profit after Tax
1,020
Retained Profits b/f
1,300
Retained Profits c/f
2,320
Example - [ Case iii ] Inter Co.
Dvidends
Income Statement for the year ended 31st December 2008
P
S
Rs.
Rs.
Sales
7,500
4,000
222
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Advance Financial Accounting (FIN-611)
VU
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
125
500
Net Profit before Tax
1,325
Income Tax
(530)
(200)
Net Profit after Tax
795
300
Dividend Paid
(250)
(125)
545
175
Retained Profits b/f
1,000
450
Retained Profits c/f
1,545
625
The Parent Co. (P) acquired 100% equity of the Subsidary Co. (S) on 1st January
2006 for Rs.1,700 when S's paid up share capital was Rs.1,250 & it's reserves
were worth Rs.50. (Assume all reserves comprise only of Retained Profits).
Prepare the Consolidated Income Statement for the
year ended 31/12/2008.
Required:
Solution - [ Case iii ]
Computation of Goodwill
Rs.
Rs.
Cost of Acquisition
1,700
Ordinary Share Capital of S
1,250
Pre-acquisition Retained Profits of
S
50
(1,300)
400
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
400
Opening balance of Group's Retained
Profits b/f
1,400
223
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Advance Financial Accounting (FIN-611)
VU
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
125
Net Profit before Tax
1,325
500
Income Tax
(530)
(200)
Net Profit after Tax
795
300
Dividend Paid
(250)
(125)
545
175
Retained Profits b/f
1,000
450
Retained Profits c/f
1,545
625
Consolidated Income Statement
For the year ended 31st December 2008
Rs.
Sales
11,500
Cost of Goods Sold
(7,400)
Gross Profit
4,100
Operating Expenses
(2,400)
Operating Profit
1,700
Income Tax
(730)
Net Profit after Tax
970
Dividend Paid
(250)
720
Retained Profits b/f
1,400
Retained Profits c/f
2,120
Example - [ Case iv ] Minority
Interest
Income Statement for the year ended 31st December 2008
P
S
Rs.
Rs.
4,000
Sales
7,500
Cost of Goods Sold
(4,500)
(2,900)
Gross Profit
3,000
1,100
Operating Expenses
(1,800)
(600)
Operating Profit
1,200
500
Income Tax
(480)
(200)
Net Profit after Tax
720
300
224
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Advance Financial Accounting (FIN-611)
VU
Dividend Paid
(200)
520
300
Retained Profits b/f
1,000
450
Retained Profits c/f
1,520
750
The Parent Co. (P) acquired 80% equity of the Subsidary Co. (S) on 1st January
2006 for Rs.1,700 when S's paid up share capital was Rs.1,250 & it's reserves
were worth Rs.50. (Assume all reserves comprise only of Retained Profits).
Prepare the Consolidated Income Statement for the
Required:
year ended 31/12/2008.
Solution - [ Case iv ]
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)
80% of Rs. 1300
660
Computation of opening balance of Group's Retained Profits
Rs.
Rs.
Total amount of opening balance of retained
1,000
profits of P Co
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
400
320
H% i.e.80%
Opening balance of Group's Retained
Profits b/f
1,320
Computation of Minority Interest
Rs.
Profits after tax of S Co. to the extent of
MI%
20% of Rs.300
60
225
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Advance Financial Accounting (FIN-611)
VU
Consolidated Income Statement
For the year ended 31st December 2008
Rs.
Rs.
Sales
11,500
Cost of Goods Sold
(7,400)
Gross Profit
4,100
Operating Expenses
-2,400
Operating Profit
1,700
Income Tax
(680)
Net Profit after Tax
1,020
Minority Interest
(60)
960
Dividend Paid
(200)
760
Retained Profits b/f
1,320
Retained Profits c/f
2,080
226
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