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GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit) |
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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
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
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
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:
- ACCOUNTING FOR INCOMPLETE RECORDS
- PRACTICING ACCOUNTING FOR INCOMPLETE RECORDS
- CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
- SINGLE ENTRY CALCULATION OF MISSING INFORMATION
- SINGLE ENTRY CALCULATION OF MARKUP AND MARGIN
- ACCOUNTING SYSTEM IN NON-PROFIT ORGANIZATIONS
- NON-PROFIT ORGANIZATIONS
- PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
- DEPARTMENTAL ACCOUNTS 1
- DEPARTMENTAL ACCOUNTS 2
- BRANCH ACCOUNTING SYSTEMS
- BRANCH ACCOUNTING
- BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
- STOCK AND DEBTORS SYSTEM
- INDEPENDENT BRANCH
- BRANCH ACCOUNTING 1
- BRANCH ACCOUNTING 2
- ESSENTIALS OF PARTNERSHIP
- Partnership Accounts Changes in partnership firm
- COMPANY ACCOUNTS 1
- COMPANY ACCOUNTS 2
- Problems Solving
- COMPANY ACCOUNTS
- RETURNS ON FINANCIAL SOURCES
- IASB’S FRAMEWORK
- ELEMENTS OF FINANCIAL STATEMENTS
- EVENTS AFTER THE BALANCE SHEET DATE
- PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
- ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1
- ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2
- BORROWING COST
- EXCESS OF THE CARRYING AMOUNT OF THE QUALIFYING ASSET OVER RECOVERABLE AMOUNT
- EARNINGS PER SHARE
- Earnings per Share
- DILUTED EARNINGS PER SHARE
- GROUP ACCOUNTS
- Pre-acquisition Reserves
- GROUP ACCOUNTS: Minority Interest
- GROUP ACCOUNTS: Inter Company Trading (P to S)
- GROUP ACCOUNTS: Fair Value Adjustments
- GROUP ACCOUNTS: Pre-acquistion Profits, Dividends
- GROUP ACCOUNTS: Profit & Loss
- GROUP ACCOUNTS: Minority Interest, Inter Co.
- GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit)
- Comprehensive Workings in Group Accounts Consolidated Balance Sheet