Advanced financial accounting - Lecture 43

Advanced financial accounting - Lecture 43. The main topics covered in this chapter include: income statement; profit after tax; less ordinary share capital; less impairment of owner’s equity; working minority interest;... Please refer to the lecture for details!

Advanced Financial

Accounting

Lec-43 Main Ahmad Farhan

Question Income Statement For the year ended 2000

Less Cost of goods

Gross profit 3,000 1,100 Less Operating

Operating profit 1,200 500 Add Dividend income 100 -Net profit before tax 1,300 500 Less Income tax 520 200 Net profit after tax 780 300 Less Dividend paid 250 125 Net profit after

dividend payment 530 175 Add Opening retained

Closing retained profit 1,530 625

The Parent Co acquired 80% equity of Subsidiary Co on 1st Jan 2003 for Rs 1,700 when S paid share capital was Rs 1,250 and it’s

reserves were worth Rs 50 All goodwill has been impaired

Required: Prepare the consolidated Income Statement for the year

ended for 31-12-2008

Working (Profit After Tax)

P Co = 300 x 80% = 240

S Co = 300 x 20% = 60

Working (Dividend)

P Co = 125 x 80% = 100

S Co = 125 x 20% = 25

Working

Holding % = 80%

Minority % = 20%

Working (Goodwill)

Less Ordinary share capital of S (1,300 x 80%) 1,040

Less Impairment of owner’s equity 660

0

Working Minority Interest

Due to ordinary share-holder 300 x 20% = 60

Working (Opening Balance of Group Retained Profit)

Post-acquisition part of opening retained of S Co to

Add Total opening balance of retained profit of

Opening balance of group retained profit 1,320

Less Goodwill Amortization 660

Solution Consolidated Income Statement For the year ended 31st Dec 2000

920

670

Question Income Statement For the year ended 2000

Less Cost of goods

Gross profit 3,000 1,100 Less Operating

Operating profit 1,200 500 Add Dividend income 100 -Net profit before tax 1,300 500 Less Income tax 520 200 Net profit after tax 780 300 Less Ordinary

dividend paid 250 125 Net profit after

dividend payment 530 175 Add Opening retained

Closing retained profit 1,530 625

The Parent Co acquired 80% equity of Subsidiary Co on 1st Jan 2003 for Rs 1,700 when S paid share capital was Rs 1,250 and it’s

reserves were worth Rs 50 During the year S sold to P goods

costing Rs 1,000 and selling price Rs 1,250 Total goodwill has been impaired so-far

Required: Prepare the consolidated Income Statement for the year

ended for 31-12-2008

Working

Holding % = 80%

Minority % = 20%

Working (Goodwill)

Ordinary share capital of S (1,250+50 x 80%) 1,040

Less Impairment of owner’s equity 660

0

Working (Opening Balance of Group Retained Profit)

Opening balance of retained profit of

Post-acquisition part of opening retained of S Co to

1,320 Less Goodwill Amortization 660

Working Minority Interest

Profit after tax of Subsidiary Co x Minority interest

300 x 20% = 60

Working Consolidated Sales

Sales of parent Co 7,500 Add Sales of subsidiary Co 4,000 Less Sales made by subsidiary Co 1,250 Consolidated sales 10,250

Working Cost of Goods Sold

6,190

Solution Consolidated Income Statement For the year ended 31st Dec 2000

928

670