Advanced financial accounting - Lecture 44

Advanced financial accounting - Lecture 44. The main topics covered in this chapter include: income statement; cost of investment; ordinary share capital; less impairment of owner’s equity; opening balance of group retained profit; less goodwill amortization;... Please refer to the lecture for details!

Advanced Financial

Accounting

Lec-44 Main Ahmad Farhan

Solution

Question Income Statement For the year ended 2000

Sales 7,500 4,000 Less Cost of goods

sold 4,500 2,900 Gross profit 3,000 1,100 Less Operating

expenses 1,800 600 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

profit 1,000 450 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

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

Question Income Statement For the year ended 2008

Less Cost of goods

Gross profit 500 240 Less Operating

Less Selling &

distribution expenses 100 36 Operating profit 200 156 Less Income tax 90 72 Net profit after tax 110 84

The Parent Co acquired 100% equity of Subsidiary Co on 30 Sep

2008

Required: Prepare the consolidated Income Statement for the year

ended for 31-12-2008

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

Rs Rs

Working

Sales

600 x 9/12 = 450

600 x 3/12 = 150

Cost of goods sold

360 x 9/12 = 270

360 x 3/12 = 90

Operating expenses

48 x 9/12 = 36

48 x 3/12 = 12

Selling & distribution expenses

36 x 9/12 = 27

36 x 3/12 = 9

Income tax

72 x 9/12 = 54

72 x 3/12 = 18

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

Rs

Less Cost of goods sold (400+90) 490