Download Accounting Consolidated Balance Sheets [ADVANCED HIGHER]

NATIONAL QUALIFICATIONS CURRICULUM SUPPORT
Accounting
Consolidated Balance Sheets
[ADVANCED HIGHER]
Brian Bennie
The Scottish Qualifications Authority regularly reviews
the arrangements for National Qualifications. Users of
all NQ support materials, whether published by LT
Scotland or others, are reminded that it is their
responsibility to check that the support materials
correspond to the requirements of the current
arrangements.
Acknowledgement
Learning and Teaching Scotland gratefully acknowledge this contribution to the National
Qualifications support programme for Accounting.
© Learning and Teaching Scotland 2005
This resource may be reproduced in whole or in part for educational purposes by educational
establishments in Scotland provided that no profit accrues at any stage.
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Contents
Introduction
Section 1:
Section 2:
Section 3:
Section 4:
Section 5:
Section 6:
4
Where control is obtained by buying all of the
ordinary shares at balance-sheet value
5
Where control is obtained by buying all of the
ordinary shares where the subsidiary has reserves
8
Where control is obtained by buying all of the
ordinary shares at above or below balance-sheet
value
13
Where control is obtained but not all of the
ordinary shares are purchased
16
Preparing consolidated balance sheets at a date
after purchase
Post-acquisition profits
Unrealised profits
Current accounts
20
20
23
27
Writing off goodwill
36
Solutions
46
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CONSOLIDATED BALANCE SHEETS
Introduction
When one undertaking (the parent), has gained control of another (the
subsidiary), a Consolidated Balance Sheet shows how the group as a whole
relates to the outside world, and gives the shareholders in the parent an
overall view of the performance of their investment.
These notes describe the following possible situations under which control of
a subsidiary may be obtained and show how to prepare a consolidated balance
sheet at time of purchase in each case:
1.
2.
3.
4.
Buying
Buying
Buying
Buying
all of the ordinary shares at balance-sheet value.
all of the ordinary shares where the subsidiary has reserves.
all of the ordinary shares at above or below balance -sheet value.
a majority of the ordinary shares.
The notes then explain the procedures to be followed and show how to
prepare a consolidated balance sheet at the end of subsequent years taking
into account:
5.
6.
Post-acquisition profits, inter-company dealings, unrealised profits.
Writing down of goodwill.
All worked examples assume that the parent undertaking is X plc, and that the
subsidiary is Y plc.
So as not to obscure the principles involved:
• Worked examples and answers use a simplified balance sheet layout and
many of the headings, dates and groupings required by the Companies Acts
etc. are not used. It could be appropriate, however, for students to use the
detailed layout and headings covered in the section of the Advanced
Higher course dealing with ‘Final Accounts and Balance Sheets of a plc’
when completing questions 16 onwards and in examinations.
• Worked examples use relatively small numbers, not the millions which
may be involved in real-life exemples.
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CONSOLIDATED BALANCE SHEETS
Section 1
Where control is obtained by buying all of the ordinary shares
at balance-sheet value
Example 1
Summarised Balance Sheets prior to purchase
Bank
Other assets
Liabilities
£1 Ordinary Shares
X plc
£
400
800
1,200
200
1,000
Y plc
£
100
200
300
50
250
1,000
250
X then purchased all of the ordinary shares in Y for £250, paying by cheque.
• In the new balance sheet of X, the Bank balance goes down and this is
replaced by a new asset ‘Investment in Y plc’.
• There is no effect on the balance sheet of Y (the money is paid directly to
the shareholders, not to Y). The two balance sheets now appear as:
Balance Sheets of …. X plc
£
Investment in Y plc
250
Bank
150
Other assets
800
1,200
Liabilities
200
1,000
£1 Ordinary Shares
1,000
Y plc
£
100
200
300
50
250
250
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CONSOLIDATED BALANCE SHEETS
To consolidate the balance sheets, it is not simply a case of adding both
sets of figures together, although this will in fact happen to many
items. It is necessary first of all to eliminate any instances of the same
item being included in both balance sheets.
Thus the investment in Y, held as an asset by X, which is exactly the
same thing as the capital of Y, does not appear in the consolidated
balance sheet.
Showing all three balance sheets together:
Investment in Y
Bank
Other assets
Liabilities
£1 Ordinary Shares
X plc
Y plc
Consolidated Balance Sheet
£
250
150
800
1,200
200
1,000
£
100
200
300
50
250
Bank
Other assets
1,000
250
£1 Ordinary Shares
£
Liabilities
250
1,000
1,250
250
1,000
1,000
The same principle of elimination will also apply to:
• existing loans between the companies
• trading debts between the companies.
It should be noted that the ordinary share capital of the subsidiary will never
appear as an item in the consolidated balance sheet – the ordinary share
capital of the group is the same as the ordinary share capital of the parent.
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CONSOLIDATED BALANCE SHEETS
Example 2 (dealing with trading debts between the companies)
The following are the balance sheets of X and Y prior to purchase:
Bank
Debtor Y
Other assets
Creditors
£1 Ordinary Shares
X
£
600
100
1,200
1,900
400
1,500
1,500
Bank
Other assets
Creditors
Creditor X
£1 Ordinary Shares
Y
£
200
600
800
200
100
500
500
X purchases the entire ordinary share capital of Y for £500 paying by cheque.
Showing all three balance sheets together:
Investment in Y
Bank
Debtor Y
Other assets
Creditors
Creditor X
£1 Ordinary Shares
X plc
£
500
100
100
1,200
1,900
400
Y plc
£
Consolidated Balance Sheet
£
200
Bank
Other assets
1,500
600
800
200
100
500
1,500
500
£1 Ordinary Shares
Liabilities
300
1,800
2,100
600
1,500
1,500
Note that the debtor/creditor has been eliminated and does not appear in the
consolidated balance sheet.
A similar elimination would take place for any loans between the companies.
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CONSOLIDATED BALANCE SHEETS
Section 2
Where control is obtained by buying all of the ordinary shares
where the subsidiary has reserves
In addition to paying for the ordinary shares, a purchaser of a company will
also pay for any reserves, as these belong to the ordinary shareholders. Once
the business is purchased, the new owner will own the shares and the
reserves.
Example 3
The following are the balance sheets of X and Y prior to purchase:
Bank
Other Assets
X
£
800
1,400
2,200
Bank
Other Assets
Y
£
300
700
1,000
Creditors
400
1,800
Creditors
400
600
£1 Ordinary Shares
Profit and Loss
1,200
600
1,800
£1 Ordinary Shares
Profit and Loss
500
100
600
X purchases the entire ordinary share capital of Y for £600 by cheque.
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CONSOLIDATED BALANCE SHEETS
Consolidated Balance Sheet of X and Y
Bank (800–600+300)
Other Assets
£
500
2,100
2,600
Creditors
800
1,800
£1 Ordinary Shares
Consolidated Reserves*
1,200
600
1,800
Notice that the reserves of the
subsidiary on consolidation are
treated exactly the same as its
ordinary capital – i.e. they do
not appear in the consolidated
balance sheet.
* This may simply be called ‘profit and loss’, or ‘consolidated profit and
loss’. On consolidation, it has the same value as the profit and loss balance
of the parent, but as these notes progress, it will be seen that in future years
this will include other items.
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CONSOLIDATED BALANCE SHEETS
Question 1
Big plc has total assets of £4,000 and this is represented by ordinary share
capital of the same value.
Small plc has total assets of £400 and this is also represented by ordinary
share capital of the same value.
Big purchased the entire capital of Small at balance-sheet value paying by
cheque.
Prepare the consolidated balance sheet.
Question 2
Great plc had the following assets and liabilities:
Bank
Other Assets
Liabilities
£
400
1,300
200
£1 Ordinary Shares
1,500
On the same date, the balance sheet of Small plc showed the following:
Bank
Other Assets
£
50
200
£1 Ordinary Shares
250
Great purchased the entire capital of Small at balance -sheet value paying by
cheque.
Prepare the consolidated balance sheet.
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CONSOLIDATED BALANCE SHEETS
Question 3
Large plc has total assets of £40,000 (including £1,000 owing to it by Little
plc). It has £5,000 of liabilities and is financed entirely by £1 ordinary
shares.
Little plc has total assets of £5,000 and £1,500 of liabilities. It is financed
entirely by £1 ordinary shares.
Large purchased the entire share capital of Little, paying by cheque.
Prepare the consolidated balance sheet.
Question 4
The following figures are from the summarised balance sheets of Major plc
and Minor plc as at 3 May year 1.
Buildings
Equipment
Major
£
10,000
20,000
Minor
£
2,000
1,000
Stocks
Debtors
Bank
30,000
20,000
30,000
2,000
2,000
800
Creditors
12,000
3,800
98,000
4,000
98,000
3,000
1,000
4,000
Financed by
£1 Ordinary Shares
Share Premium
On the above date, Major purchased the entire capital of Minor for £4,000
paying by cheque.
Included in the debtors and creditors figures is £500 owing by Minor to
Major.
Prepare the consolidated balance sheet as at 3 May year 1.
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CONSOLIDATED BALANCE SHEETS
Question 5
The following are the Balance Sheets of Town plc and Village plc as at
1 March year 1.
Property
Machinery
Town
£
40,000
30,000
Village
£
5,000
4,000
Stocks
Debtors
Bank
Loan to Village
20,000
30,000
30,000
5,000
5,000
8,000
1,000
Creditors
Loan from Town
20,000
135,000
5,000
5,000
13,000
110,000
25,000
135,000
10,000
3,000
13,000
Financed by
£1 Ordinary Shares
Profit and Loss
On the above date:
Included in the debtors and creditors figures is £1,000 owing by Town to
Village.
On 1 March year 1, Town purchased the entire capital of Village at balancesheet value of £13,000, paying by cheque.
Prepare the consolidated balance sheet at 1 March year 1.
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CONSOLIDATED BALANCE SHEETS
Section 3
Where control is obtained by buying all of the ordinary shares
at above or below balance-sheet value
• Where the amount paid exceeds the balance-sheet value, goodwill
is created.
• Where the amount paid is less than the balance-sheet value,
goodwill with a negative value is created.
Thus if the subsidiary has 10,000 £1 ordinary shares and reserves of £4,000
and the business is purchased for £15,000, goodwill of £1,000 is created; if it
is purchased for £12,000, negative goodwill of £2,000 is created.
Example 4
The following are the Balance Sheets of X and Y prior to purchase.
Bank
Other Assets
X
£
1,000
1,400
2,400
Y
£
Bank
Other Assets
200
600
800
Creditors
600
1,800
Creditors
300
500
£1 Ordinary Shares
Profit and Loss
1,400
400
1,800
£1 Ordinary Shares
Profit and Loss
400
100
500
X purchases the entire Ordinary Share Capital of Y for £550 by cheque.
Goodwill is therefore valued at £50 (550–(400+100).
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CONSOLIDATED BALANCE SHEETS
Consolidated Balance Sheet of X and Y after purchase
£
50
650
2,000
2,700
900
1,800
Goodwill
Bank
Other Assets
Creditors
Ordinary Shares
Consolidated Reserves
1,400
400
1,800
Question 6
The following are the summarised Balance Sheets of Glasgow plc and Dundee
plc prior to purchase on 8 September year 1.
Fixed Assets
Current Assets
Current Liabilities
Ordinary Shares
Profit and Loss
G
£
50,000
25,000
75,000
10,000
65,000
D
£
10,000
6,000
16,000
3,000
13,000
50,000
15,000
65,000
11,000
2,000
13,000
Notes
The balance sheets include £1,000 owing by Glasgow to Dundee for goods
supplied.
Glasgow purchased all of the ordinary share capital of Dundee for £15,000.
Prepare the consolidated balance sheet immediately after purchase.
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CONSOLIDATED BALANCE SHEETS
Question 7
The following are the Balance Sheets of Tay plc and Don plc prior to
purchase on 9 May year 1.
Buildings
Equipment
Tay
£
50,000
90,000
Don
£
20,000
10,000
Stocks
Debtors
Loan to Don
Bank
15,000
20,000
5,000
10,000
5,000
4,000
Bank
Loan from Tay
£1 Ordinary Shares
Profit and Loss
3,000
5,000
190,000
31,000
170,000
20,000
190,000
30,000
1,000
31,000
Notes
Tay purchases all of the ordinary share capital of Don, paying £28,000 by
cheque.
Prepare the consolidated balance sheet immediately after purchase.
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CONSOLIDATED BALANCE SHEETS
Section 4
Where control is obtained but not all of the ordinary shares
are purchased
Where more than 50%, but less than 100%, of the subsidiary’s ordinary
shares are purchased, it follows that some of the ordinary shares will remain
in the hands of the original owners.
Thus the subsidiary is not wholly owned and the consolidated balance sheet
must show this.
The ‘top part’ of the balance sheet treats all of the assets and
liabilities of the subsidiary as if they were fully owned by the
parent. No attempt is made to split items such as machinery or
stocks into the amount owned by the parent, and the amount owned
by the other shareholders. Instead, all of these items are included
at full value, since although they are not fully owned, they are fully
under the control of the parent.
The ‘capital and reserves’ section of the balance sheet however
includes a value for MINORITY INTEREST, i.e. the share of the
subsidiary which the parent undertaking does not own and is
therefore still owned by the other shareholders of the subsidiary.
As before, the ordinary share capital and the reserves of the
subsidiary do not appear in the consolidated balance sheet.
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CONSOLIDATED BALANCE SHEETS
Example 5
Y has 40,000 £1 ordinary shares and reserves of £10,000. X purchases
30,000 shares in Y, paying £42,000 by cheque.
Y has a value of
X owns 75% of Y
Minority Interest owns 25% of Y
£50,000
£37,500
£12,500
Minority Interest appears in the ‘financed by’ section of the conso lidated
balance sheet. It should be shown separately from the other items in this
section.
The price paid for the business is not relevant to the calculation of Minority
Interest.
Goodwill, however, will be purchase price less value of Y purchased, i.e.
£42,000 less £37,500.
Example 6
The following are the summarised balance sheets of X plc and Y plc prior to
purchase.
Buildings
Equipment
X
£
40,000
25,000
Y
£
10,000
20,000
Stock
Debtors
Bank
15,000
10,000
30,000
6,000
3,000
4,000
Creditors
12,000
108,000
3,000
40,000
£1 Ordinary Shares
Profit and Loss
100,000
8,000
108,000
36,000
4,000
40,000
X purchased 60% of the ordinary shares of Y for £29,000 paying by cheque.
X owns 60% of £40,000 =
Minority Interest owns 40% of £40,000 =
£24,000
£16,000
Y paid £29,000 for its share of £24,000 – therefore goodwill is £5,000.
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CONSOLIDATED BALANCE SHEETS
Consolidated Balance Sheet
£
5,000
50,000
45,000
100,000
Goodwill
Buildings
Equipment
Stock
Debtors
Bank
Creditors
21,000
13,000
5,000
39,000
15,000
Financed by:
£1 Ordinary Shares
Consolidated Reserves
Minority Interest
24,000
124,000
100,000
8,000
108,000
16,000
124,000
Question 8
(a) Calculate Minority Interest and Goodwill in each of the following
examples.
A
B
C
Total number of £1 ordinary shares
40,000
100,000
50,000
Profit and loss balance (£)
10,000
20,000
5,000
Number of shares purchased
24,000
60,000
40,000
Purchase Price (£)
32,000
78,000
47,000
Minority Interest
Goodwill
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CONSOLIDATED BALANCE SHEETS
The following are the summarised balance sheets of Parent p lc and Child plc
prior to purchase on 3 October year 1.
Buildings
Equipment
Parent
£
40,000
60,000
Child
£
20,000
20,000
Stocks
Debtors
Bank
25,000
20,000
10,000
5,000
4,000
Bank
Creditors
£1 Ordinary Shares
Profit and Loss
14,000
141,000
2,000
2,000
45,000
120,000
21,000
141,000
30,000
15,000
45,000
The share capital of Child consists of £1 ordinary shares. Parent
purchases 24,000 of these paying £40,000 by cheque.
Parent partly finances this by the issue of 25,000 £1 ordinary shares at a
premium of £0.20 per share
Included in the balance sheets above is £1,000 owing by Child to Parent
for goods purchased.
(b)
Prepare the Consolidated Balance Sheet on 3 October year 1.
(c)
Explain how your answer would have been different if the purchase
price had been £30,000.
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CONSOLIDATED BALANCE SHEETS
Section 5
Preparing consolidated balance sheets at a date after purchase
So far, the consolidated balance sheet has been drawn up immediately upon
the purchase being made. However the situation is ongoing and it will be
necessary to prepare a consolidated balance sheet at the end of each financial
year.
Goodwill will still be calculated at time of purchase and included in the
balance sheet at these values. (See later regarding the writing down of
goodwill.)
However, there are three new considerations.
(i)
Post-acquisition profits
Any profits made by the subsidiary company after purchase must be
shared between the parent and minority interest.
This profit will be found by comparing the reserves (profit and loss
balances) of the subsidiary at the date of consolidation and at the
end of the year in question. Any increase will be treated as a profit,
part of which will be added to the consolidated reserves, and part
added to the minority interest. This profit is known as ‘PO STACQUISITION PROFITS’ and will be shared out in proportion to
ordinary share ownership.
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CONSOLIDATED BALANCE SHEETS
Example 7
On 30 September year 1, Y plc has 1,000 £1 ordinary shares and a profit and
loss balance of £400. On that date X purchases 60% of these shares for £90 0.
On 31 December of that year, the balance sheet of Y shows a profit and loss
balance of £500.
On purchase goodwill is valued:
Price paid
Value taken over (60% of £1,400)£840
Goodwill
£900
£60
On purchase minority interest may be calculated:
Value of Y
£1,400
Value taken over
£840
Minority interest (i.e. 40% of £1,400)
£560
On preparing consolidated balance sheet at year end :
Reserves at purchase
£400
Reserves at balance sheet date
£500
Post-acquisition profits
£100
Which are shared by adding to:
Consolidated reserves
Minority interest
£60
£40
Minority Interest therefore equals £600 (560+40)
In most examples it will not be necessary to find minority interest in this
way. It can be found simply by taking the closing balance sheet of the
subsidiary and applying the minority interest percentage to the total of
ordinary capital plus reserves at that date.
In the above example:
Ordinary shares
Reserves at end of year
£1,000
500
£1,500
40% of £1,500 = £600
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CONSOLIDATED BALANCE SHEETS
You should now be aware of the different treatments applied to the
reserves of a subsidiary.
Any reserves which are in existence at the time of consolidation are
included in the initial calculation of goodwill and of minority interest.
Changes in the profit and loss balance over the years are included in the
calculation of consolidated reserves and of minority interest.
In neither case do the reserves appear as separate items in the
consolidated balance sheet.
Question 9
Complete the table below for each of the four illustrations.
DATA
At date of purchase
£1 Ordinary Shares in subsidiary
Reserves in subsidiary
Number of ordinary shares
purchased
Price paid
Goodwill
At year end
Reserves in subsidiary
Total post-acquisition profits
Value added to consolidated reserves
Value added to minority interest
Final Minority Interest*
(i)
(ii)
(ii)
(iv)
5,000
£1,000
4,000
10,000
£2,000
7,500
25,000
£5,000
22,500
50,000
£5,000
30,000
£5,500
£9,000
£26,000
£37,000
£1,500
£3,000
£6,000
£4,000
* Remember that this can be calculated in 2 ways:
• Minority Interest at time of purchase plus amount added since purchase,
or
• Minority Interest % multiplied by value of subsidiary ordinary shares
plus reserves at end.
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CONSOLIDATED BALANCE SHEETS
(ii)
Unrealised profits
It is an established accounting principle that profit is recognised at point of
sale.
Assume X buys goods for £100 and sells them to Y for £150. This gives X a
profit of £50.
If, however, the goods have not yet been sold by Y, from the point of view of
the group no goods have actually been sold – and therefore no profit has yet
been made by the group.
There is also a difference in stock valuation.
The goods will have been entered into the books of Y at a cost price of £150,
but as far as the group is concerned the cost price is only £100.
Therefore, looking at the individual accounts of the two companies results in
a profit of £50 and a closing stock of £150, whereas from the group
perspective there is no profit and the closing stock is worth only £100.
Profits generated in this way are referred to as ‘ unrealised profits’ and this
must be taken into account when preparing the consolidated balance sheet.
It might be worthwhile to recap on paragraph 1, page 4 of these notes, which
said:
‘When one company (the parent), gains control of another (the
subsidiary), a Consolidated Balance Sheet shows how the group as a
whole relates to the outside world.’
It follows then that the group figures, and not the individual company ones,
must be shown in the consolidated balance sheet
Where goods have been traded between the two companies, when
preparing a consolidated balance sheet, any unrealised profits on
these goods must be deducted from
• consolidated reserves and
• consolidated stocks.
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CONSOLIDATED BALANCE SHEETS
A more likely situation is where X has sold goods to Y and at balance sheet
date some of them have been sold on. It is then necessary to calculate the
amount of over-recorded profit on the ones that have NOT yet been sold.
Example 8
X purchases goods at a cost of £1,000. These are s old to Y for £1,500. At
balance sheet date, Y has sold 60% of these goods for £1,200.
PROFITS SHOWN BY INDIVIDUAL COMPANIES
X will record:
Sales
Purchases
Profit
Y will record:
Sales
Purchases
Less stock
Profit
£1,500
£1,000
£500
£1,200
£1500
£600
Total profit
£900
£300
£800
PROFITS SHOWN BY GROUP AS A WHOLE
Goods costing £600 have been sold for £1,200 = total profit £600
Therefore on consolidation, profit is over -recorded by £200.
From the perspective of the group, the closing stock ought to be valued at
cost to the group, i.e. £400, not £600.
Therefore, on consolidation, closing stock is over -recorded by £200.
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CONSOLIDATED BALANCE SHEETS
Method:
It is not necessary to go through the above process, simply:
• Calculate profit made by X as if all goods were sold.
• Apply percentage unsold by Y to this figure.
• Reduce profits and closing stock by answer.
£500
40%
£200
Beware:
• The selling price and any profit made by Y is not relevant – this profit
has been made and does not require to be adjusted.
• Questions may give you the amount sold, or the amount unsold.
Question 10
(a) Calculate the adjustment required to consolidated profits and closing
stock in each of the following four cases:
(i)
(ii)
(iii)
(iv)
Cost of goods produced by X
£100
£200
£400
£500
Price charged to Y
£200
£300
£600
£650
% sold by Y
40%
60%
80%
30%
Reduction required in recorded profit
Reduction required in stocks
(b)
At the end of the financial year stocks held by Peter plc and Paul plc
were £40,000 and £20,000 respectively and consolidated reserves
amounted to £75,000.
However, towards the end of the year goods costing £6,000 were sold
by Peter to Paul at a mark-up of 25%. At the end of the year 30% of
these goods were unsold.
Calculate the figures to appear in the year-end balance sheet for
(i)
(ii)
consolidated reserves
closing stock.
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CONSOLIDATED BALANCE SHEETS
(c)
At the end of the financial year stocks held by Grand and Petit were
£10,000 and £3,000 respectively.
However 1,000 units of brand Z had been produced by Grand at a cost
of 60p per unit and sold to Petit at a price of 80p per unit. To date,
Petit had sold 700 of these for £1.10 each.
26
(i)
Calculate the profit recorded by
Grand
Petit
Group (and show unrealised profit)
(ii)
Calculate the value of the group closing stock.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
(iii)
Current accounts
Adjustment must be made for any funds in transfer between the
companies. In some cases, the two companies operate CURRENT or
TRANSFER ACCOUNTS which record transactions between them.
Any payments made just before balance sheet date are likely to be
recorded in the current account of the paying company, but not yet
in the account of the receiving one. To prepare the consolidated
balance sheet, assume that any payments recorded by one company
have been received by the other.
Example 9
On 28 December Y owes X £500 – this is recorded in current accounts in both
companies.
If balance sheets were to be prepared on that date, Y would have a current
liability, X a current asset, and nothing would appear in the consolidated
balance sheet.
If, however, Y then repays X £200, the transaction would immediately affect
the bank and current account in the books of Y, but would probably not reach
X by the year end.
Extract from balance sheets:
Bank
Current (asset)
Current (liability)
Before repayment
X
Y
4,000
800
500
500
After repayment
X
Y
4,000
600
500
300
To consolidate, it is necessary to eliminate the current accounts and adjust the
total bank balance.
Thus the consolidated balance sheet will show only the bank fig ure of £4,800
(not £4,600). The ‘missing £200’ belongs to the group – it has to be included
in its balance sheet.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
27
CONSOLIDATED BALANCE SHEETS
Question 11
On 1 July year 1, the balance sheet of Valley plc contained the following:
Debtors
Stocks
Debentures
£1 Ordinary Shares
Profit and Loss
(a)
£
5,000
4,000
10,000
30,000
6,000
If, on the above date, ordinary shares in Valley were purchased by Glen
plc, calculate the goodwill (if any) in each of the following possible
situations:
(i)
20,000 £1 shares were purchased for £25,000
(ii)
22,500 £1 shares were purchased for £30,000
(iii) 18,000 £1 shares were purchased for £23,000
(iv) 5,000 £1 shares were purchased for £7,000
(b)
Calculate the value of the minority interest in each of the above
situations.
(c)
During years 4 to 6 goods were sold by Glen to Valley.
Calculate the adjustment required to consolidated profits in each of the
following possible situations:
(i)
Year 4 – Goods costing £3,000 were sold for £5,000 and 80% of
these are unsold by Valley
(ii)
Year 5 – Goods costing £2,000 were sold at a mark-up of 25% and
60% of these are unsold by Valley
(iii) Year 6 – Goods costing £4,200 were sold at a gross profit of 25%
on sales. Valley had sold 60% of these for £6,000.
28
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
(d)
At the end of years 2 to 4, the profit and loss balances of Valley were as
shown below.
Calculate the adjustment required to consolidated reserves in each year
for option (i) in (a) above.
(i)
Year 2
(ii) Year 3
(iii) Year 4
£7,200
£5,700
£9,000
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
29
CONSOLIDATED BALANCE SHEETS
Question 12
On 1 September year 1, the balance sheet of Foggie plc contained 40,000 £1
ordinary shares and a profit and loss balance of £10,000.
When Turra plc gained control of Foggie plc on the above date, goodwill was
calculated to be £5,000.
(a)
Calculate the purchase price in each of the following possible
situations:
(i)
25,000 ordinary shares were purchased
(ii)
30,000 ordinary shares were purchased
(iii) 35,000 ordinary shares were purchased
(b)
If on 31 December year 2, the profit and loss balance of Foggie was
£12,000, calculate the minority interest in each of the above situations.
(c)
Turra manufactures products at a cost of £2 per unit. During year 4,
5,000 units were sold to Foggie:
Calculate the unrealised profits under each of the following possible
arrangements:
(i)
Mark-up on cost was 20%, 3,000 units were sold by Foggie.
(ii)
Selling price to Foggie was £3, and these were then resold to
customers for £5. 800 units were unsold.
(iii) Goods were sold at a price to allow Turra a gross profit ratio of
50%. Foggie has 2,500 units in stock.
(d)
The balance sheet of Foggie on 31 December year 6 included the
following which were financed by ordinary shares and reserves
Fixed Assets:
Current Assets:
Current Liabilities
Debentures
£
50,000
20,000
5,000
5,000
Calculate the minority interest in each of the possibilities in (a) above.
30
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
Question 13
On 1 July year 1 Grant plc purchased 1,275 ordinary shares in Baker plc,
paying £5,300 by cheque. At the time of purchase, Baker’s profit and loss
account balance was £1,000 and share premium was £500.
During the year Grant sold goods to Baker to the value of £900 being cost
plus 25%. An estimated 65% of these were unsold at the end of the year.
A cheque for £300 sent to clear a current account balance was in transit at
balance sheet date.
The following are the balance sheets of Grant plc and Baker plc:
Balance Sheets as at 31 December year 1
Fixed Assets
£
Buildings
Investment in Baker plc
Current Assets
Stocks
Debtors
Current Account
Bank
Current Liabilities
Creditors
Long-term Loans
Capital and Reserves
£1 Ordinary Shares
Share Premium
Revaluation Reserve
Profit and Loss
Grant
£
£
17,000
5,300
22,300
1,200
1,500
300
50
3,050
5,600
Baker
£
4,900
800
260
400
1,460
–2,550
19,750
6,000
13,750
6,500
600
4,500
2,150
13,750
800
660
5,560
1,300
4,260
1,500
500
2,260
4,260
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
31
CONSOLIDATED BALANCE SHEETS
(a)
Calculate:
(i)
(ii)
(iii)
(iv)
(v)
(b)
32
Goodwill
Post-acquisition profits
Unrealised profits in stock holdings
Minority Interest at 31 December
Consolidated Reserves at 31 December
Prepare the consolidated balance sheet as at 31 December year 1.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
Question 14
On 1 July year 1 Dawson plc purchased 80% of the ordinary shares of Smith
plc, paying £7,000 by cheque. At the time of purchase, Smith’s profit and
loss account balance was £1,200.
During the year Dawson produced goods at a cost of £800 which were then
sold to Smith at cost plus 25%. An estimated 40% of these goods were unsold
by Smith at the end of year 1.
There is a cheque in transit between the companies.
The following are the balance sheets of Dawson plc and Smith plc:
Balance Sheets as at 31 December year 1
Fixed Assets
Buildings
Investment in Smith plc
Current Assets
Stocks
Debtors
Current
Bank
Current Liabilities
Creditors
Current
£
£
3,000
1,200
2,500
600
200
400
4,600
7,000
39,000
2,000
37,000
Capital and Reserves
£1 Ordinary Shares
4,000
3,000
Smith
£
6,000
6,000
3,000
2,200
300
4,000
9,500
Long-term Loans
Revaluation Reserve
Profit and Loss
Dawson
£
25,000
7,000
32,000
3,800
9,800
2,700
7,100
30,000
5,000
7,000
37,000
2,100
7,100
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
33
CONSOLIDATED BALANCE SHEETS
(a)
Calculate:
(i)
(ii)
(iii)
(iv)
(b)
34
Goodwill
Post-acquisition profits
Unrealised profits in stock holdings
Consolidated reserves at 31 December year 1.
Prepare the consolidated balance sheet as at 31 December year 1.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
Question 15
On 1 July year 1 Strachan plc purchased 3,000 £1 ordinary shares of
Mackenzie plc, paying £1.50 per share by cheque. At the time of purchase,
Mackenzie’s profit and loss account balance was £1 ,200 and share premium
was £400.
During the year goods were traded between the companies at a profit of £100.
An estimated 75% of these are unsold at the end of the year.
Balance Sheets as at 31 December year 1
Fixed Assets
Buildings
Equipment
Investment in Mackenzie plc
Current Assets
Stocks
Debtors
Bank
Current Liabilities
Creditors
£
5,000
3,400
3,000
11,400
2,500
Debentures
Capital and Reserves
£1 Ordinary Shares
Share Premium
Revaluation Reserve
Profit and Loss
(a)
Mackenzie
£
£
4,000
800
4,800
3,000
1,200
4,200
8,900
44,500
1,500
43,000
1,000
32,000
4,000
2,000
5,000
3,200
8,000
1,000
7,000
5,000
400
11,000
43,000
1,600
2,000
7,000
Calculate:
(i)
(ii)
(b)
Strachan
£
30,000
1,100
4,500
35,600
Goodwill
Shares of post-acquisition profits
Prepare the consolidated balance sheet as at 31 December year 1.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
35
CONSOLIDATED BALANCE SHEETS
Section 6
Writing off goodwill
FRS 10 states that positive purchased goodwill should be capitalised
and, unless it has an indefinite life, it should be amortised over its
useful life by the straight-line method.
The consequence of this is that the value of goodwill calculated on
purchase will gradually be reduced over a number of years. The
‘balancing entry’ will be to reduce consolidated reserves by a
similar amount.
Thus, if goodwill on consolidation is calculated to be £3,000 and this is to be
amortised over 10 years, £300 will be deducted from the goodwill figure and
from consolidated reserves each year. In the first year, depending upon the
date of acquisition and company policy, a full year’s charge may be made, or
a proportion or none at all.
The answer to question 15 should have included:
Goodwill
Consolidated Reserves
£540
£5,165
If the figures had related to year 3, and goodwill had to b e written down by a
full 10% each for each of the 3 years, the balance sheet would then have
shown:
Goodwill
Consolidated Reserves
36
£378
i.e. down 3 times 54
£5,003
i.e. down 3 times 54
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
Summary
In any consolidation question you are likely to be requir ed to do the
following:
1.
Calculate GOODWILL at time of purchase, i.e. purchase price
less (percentage of ordinary shares purchased times subsidiary’s
ordinary shares and reserves).
2.
ELIMINATE common items, e.g. investment held by parent and
ordinary shares and reserves of subsidiary, current or transfer
accounts, loans.
3.
Calculate POST-ACQUISITION PROFITS – increase in
subsidiary’s reserves since purchase has to be shared and relevant
amount added to consolidated reserves (and depending upon
method used, also added to minority interest if already
calculated).
4.
Calculate UNREALISED PROFITS – ‘profits’ on unsold goods
deducted from consolidated reserves and stock values.
5.
Write down GOODWILL based on straight-line method – also
reduce consolidated reserves.
6.
Calculate CONSOLIDATED RESERVES taking into account the
above changes.
7.
Calculate MINORITY INTEREST – i.e. relevant percentage of
ordinary shares and reserves in subsidiary’s balance sheet.
8.
Complete CONSOLIDATED BALANCE SHEET.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
37
CONSOLIDATED BALANCE SHEETS
Question 16
On 1 January year 1 Tay plc purchased 9,000 £1 ordinary shares in Don plc
for a total of £14,200. On that date the reserves of Don included a profit and
loss of £2,800.
During December of year 3 Tay sold goods to Don. These had cost £600 to
produce and were sold at a price allowing Tay a gross profit of 25% on sales.
Only 40% of these goods had been sold by Don by 31 December year 3.
During the last week of year 3, a cheque for £300 had been sent by Don to
Tay, but this had not been received by Tay by the end of the year.
Goodwill is to be written down by 10% (straight line) for each year.
Balance Sheets on 31 December year 3
Fixed Assets
£
Buildings
Machinery
Investment in Don plc
Current Assets
Stocks
Debtors
Current Account
Bank
Current Liabilities
Creditors
Current Account
38
5,000
4,000
400
1,000
10,400
2,500
6,000
5,400
5,700
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
£
40,000
25,000
14,200
79,200
Long-term Loans
Capital and Reserves
£1 Ordinary Shares
Share Premium
Revaluation Reserve
Profit and Loss
Tay
£
Don
£
10,000
12,000
22,000
1,000
500
100
1,600
7,900
800
100
87,100
15,000
72,100
700
22,700
6,000
16,700
55,000
12,000
1,800
17,100
72,100
2,900
4,700
16,700
CONSOLIDATED BALANCE SHEETS
(a)
Calculate:
(i)
(ii)
(iii)
(b)
Goodwill
Shares of post-acquisition profits
Unrealised profits in stock holding
Prepare the consolidated balance sheet as at 31 December year 3.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
39
CONSOLIDATED BALANCE SHEETS
Question 17
A gained control of B in September year 1, purchasing 3,500 £1 ordinary
shares for £6,050. On that date B’s share premium and profit and loss
balance amounted to £1,200.
(a)
Calculate goodwill at that date.
During year 3 A sold goods to B for £2,000 at a mark -up of 25% on
cost. On 31 December of that year 65% of these goods are unsold. In
addition on that date there is a cheque for £10 0 in transit.
Company policy is to depreciate goodwill by 10% per annum (straight
line) for each complete year of ownership.
(b)
Prepare the consolidated balance sheet as at 31 December year 3.
Balance Sheets as at 31 December year 3
Fixed Assets
£
Buildings
Investment in B plc
Current Assets
Stocks
Debtors
Current Account
Bank
Current Liabilities
Creditors
40
1,200
1,900
100
2,350
5,550
4,600
B
£
4,900
4,900
900
450
200
1,550
950
25,000
3,000
22,000
550
15,000
2,500
3,000
1,500
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
£
18,000
6,050
24,050
Long-term Loans
Capital and Reserves
£1 Ordinary Shares
Share Premium
Revaluation Reserve
Profit and Loss
A
£
1,000
5,900
500
5,400
4,000
1,000
7,000
22,000
400
1,400
5,400
CONSOLIDATED BALANCE SHEETS
Question 18
On 1 April year 1, Central plc purchased 5,000 £1 ordinary shares in Belt plc
for £1.50 per share.
At that date, Belt’s balance sheet contained:
10% Debentures
£1 Ordinary Shares
Share Premium
Profit and Loss
£
6,000
8,000
600
1,400
On 31 December year 4, the Balance Sheets were:
£
Buildings
Investment in Belt plc
Stocks
Debtors
Bank
Current
Current
Creditors
Central
£
40,000
7,500
47,500
£
2,500
3,000
1,000
1,200
7,700
3,000
Belt
£
£
10,000
5,400
2,500
500
8,400
4,700
52,200
900
2,100
3,000
5,400
15,400
Debentures
£1 Ordinary Shares
Share Premium
Profit and Loss
10,000
12,200
52,200
6,000
9,400
30,000
8,000
22,200
52,200
600
800
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
1,400
9,400
41
CONSOLIDATED BALANCE SHEETS
Goodwill is to be written down on a monthly basis at a rate of 8% per annum.
During the course of the month of December, goods costing £1,000 were sold
by Central to Belt at a mark-up of 40%. 30% of these goods remain unsold.
There is money in transit at the end of the year.
Prepare the Consolidated Balance Sheet at the end of year 4.
42
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
Question 19
1.
Primary became a plc in year 1 when it issued 200,000 25p ordinary
shares to the public at a premium of 10p per share.
2.
On 28 April year 3, Academy plc gained control of Primary Plc by
purchasing 160,000 ordinary shares for £65,000.
3.
The purchase of Primary was mainly financed by the issue of 40,000 £1
ordinary shares in Academy for £1.40 each.
4.
On the date of purchase, the profit and loss balance of Primary was
calculated to be £5,000.
(a)
Select the information from above and calculate as at 28 April, year 3:
(i)
(ii)
Goodwill
Minority Interest.
On 31 December year 6, the individual balance sheets of Academy and
Primary include:
Stocks
Profit and Loss
Academy
£
5,000
7,000
Primary
£
3,000
6,000
Stocks held by Primary include 500 units which were purchased from
Academy for £5 per unit. (cost plus 25%)
Goodwill has been written down so that it is now 75% of its value on
creation.
(b)
From the above information calculate as at 31 December year 6.
(i)
(ii)
(iii)
(iv)
Goodwill
Minority Interest
Consolidated Stock
Consolidated Reserves
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
43
CONSOLIDATED BALANCE SHEETS
Question 20
Explain the meaning, significance and treatment of each of the following
terms.
(a)
(b)
(c)
(d)
44
Goodwill
Minority Interest
Consolidated Reserves
Post-Acquisition Profits.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
Question 21
On 27 November year 1, High plc purchased 20,000 50p ordinary shares in
Low plc. At that date, Low’s balance sheet contained:
Ordinary Shares
Profit and Loss
£
15,000
3,000
On 31 December year 3, the Balance Sheets were:
£
Buildings
Machinery
Investment in Low plc
Stocks
Debtors
Bank
Current
Creditors
High
£
30,000
3,000
14,500
47,500
3,500
2,000
1,000
2,200
8,700
3,000
£
Low
£
10,000
6,200
16,200
3,400
1,500
1,500
6,400
5,700
53,200
1,000
5,400
21,600
Debentures
1,000
52,200
3,000
18,600
Ordinary Shares
30,000
15,000
22,200
52,200
3,600
18,600
Share Premium
Profit and Loss
5,000
17,200
Goodwill is to be written down at 10% per annum.
During the course of the month of December, goods costing £600 were sold
by High to Low at a mark-up of 30%. 80% of these goods have been sold.
There is money in transit at the end of the year.
Prepare the Consolidated Balance Sheet at the end of year 3.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
45
CONSOLIDATED BALANCE SHEETS
Solutions
Solutions – showing essential information only
Question 1
Consolidated Balance Sheet of Big and Small
Total Assets
4,000
Capital
4,000
Question 2
Consolidated Balance Sheet of Great and Small
Bank
Other Assets
Liabilities
Ordinary Share Capital
200
1,500
1,700
200
1,500
(400–250+50)
1,500
Question 3
Consolidated Balance Sheet of Little and Large
Total Assets
40,500
(40000–1000–3500+5000)
Total Liabilities
5,500
35,000
(5000–1000+1500)
Ordinary Share Capital
35,000
46
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
Question 4
Consolidated Balance Sheet of Major and Minor as at 3 May year 1
Buildings
Equipment
12,000
21,000
Stocks
Debtors
Bank
32,000
21,500
26,800
80,300
15,300
Creditors
Ordinary Share Capital
33,000
65,000
98,000
98,000
Question 5
Consolidated Balance Sheet of Town and Village as at 1 May year 1
Property
Machinery
45,000
34,000
79,000
Stocks
Debtors
Bank
25,000
37,000
18,000
80,000
Creditors
24,000
(30000+1000–13000)
56,000
135,000
Ordinary Share Capital
Consolidated Reserves
110,000
25,000
135,000
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
47
CONSOLIDATED BALANCE SHEETS
Question 6
Consolidated Balance Sheet of Glasgow and Dundee as at 8 September year
1.
Goodwill
Other Fixed Assets
Current Assets
Current Liabilities
2,000
60,000
15,000
12,000
£1 Ordinary Shares
Consolidated Reserves
62,000
(25000+6000–15000–1000)
3,000
65,000
50,000
15,000
65,000
Question 7
Consolidated Balance Sheet of Tay and Don as at 9 May year 1
Goodwill
Buildings
Equipment
Stocks
Debtors
Bank
–3,000
70,000
100,000
20,000
24,000
44,000
21,000
£1 Ordinary Shares
Consolidated Reserves
48
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
(28000–31000)
167,000
23,000
190,000
170,000
20,000
190,000
(10000–3000–28000)
CONSOLIDATED BALANCE SHEETS
Question 8
(a)
Total number of £1 ordinary shares
Profit and loss balance (£)
Number of shares purchased
Purchase Price (£)
Minority Interest
Goodwill
(b)
A
40,000
10,000
24,000
32,000
£20,000
£2,000
B
100,000
20,000
60,000
78,000
£48,000
£6,000
C
50,000
5,000
40,000
47,000
£11,000
£3,000
Consolidated Balance Sheet of Parent and Child as at 3 October year 1.
Goodwill
Buildings
Equipment
4,000
60,000
80,000
144,000
Stocks
Debtors
Creditors
Bank
30,000
23,000
53,000
15,000
2,000
Ordinary Share Capital
Share Premium
Consolidated Reserves
Minority Interest
17,000
36,000
180,000
145,000
5,000
21,000
171,000
9,000
180,000
Goodwill = 40000 – 80% x 45000
Minority Interest = 20% x 45000
(c)
If purchase price was £10,000 less, then Goodwill would be a negative
of £6,000. Bank balance would have been £10,000 higher.
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
49
CONSOLIDATED BALANCE SHEETS
Question 9
DATA
At date of purchase
£1 Ordinary Shares in
subsidiary
Reserves in subsidiary
Number of ordinary shares
purchased
Price paid
Goodwill
At year end
Reserves in subsidiary
Total post acquisition profits
Value added to consolidated
reserves
Value added to minority interest
Final Minority Interest*
*
** Note that this is negative.
50
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
(i)
(ii)
(ii)
(iv)
5,000
10,000
25,000
50,000
£1,000
4,000
£2,000
7,500
£5,000
22,500
£5,000
30,000
£5,500
£700
£9,000
nil
£26,000
£1,000**
£37,000
£4,000
£1500
£500
£400
£3000
£1,000
£750
£6000
£1,000
£900
£4000
–£1,000
£-600
£100
£1,300
20% of
£6,500
£250
£3,250
25% of
£13,000
£100
£3,100
10% of
£31,000
–£400
£21,600
40% of
£54,000
CONSOLIDATED BALANCE SHEETS
Question 10
(a)
(i)
£100
£200
40%
£60
£60
Cost of goods sold by X
Selling price to Y
% sold by Y
Reduction required in recorded profit
Reduction required in stocks
(b)
(i)
(ii)
consolidated reserves
closing stock
(c)
(i)
Grand
Petit
Group
Unrealised profit
Closing stock
(ii)
(ii)
£200
£300
60%
£40
£40
(iii)
£400
£600
80%
£40
£40
£74,550
£59,550
1,000
700
700
300
x
x
x
x
20p
30p
50p
20p
=
=
=
=
£200
£210
£350
£60
£12,940
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
(iv)
£500
£650
30%
£105
£105
51
CONSOLIDATED BALANCE SHEETS
Question 11
(a) Goodwill
(i)
25000 – (2/3 x 36000) =
(ii) 30000 – (3/4 x 36000) =
(iii) 23000 – (3/5 x 36000) =
(iv) not applicable, less than 50% of
(b)
(c)
(d)
Minority Interest
(i)
1/3 x 36000 =
(ii) 1/4 x 36000 =
(iii) 2/5 x 36000 =
£12,000
£9,000
£14,400
Unrealised profits
(i)
2000 x 80% =
(ii) 500 x 60% =
(iii) 1400 x 40% =
£1,600
£300
£560
Post-acquisition profits
(i)
(7200 – 6000) x 2/3 =
(ii) (5700 – 6000) x 2/3 =
(iii) (9000 – 6000) x 2/3 =
£800
–£200
£2,000
Question 12
(a) Purchase Price
(i)
31250 + 5000 =
(ii) 37500 + 5000 =
(iii) 43750 + 5000 =
(b)
(c)
(d)
52
£1,000
£3,000
£1,400
shares purchased
Minority Interest
(i)
15/40 x 52000 =
(ii) 10/40 x 52000 =
(iii) 5/40 x 52000 =
Unrealised profits
(i)
(20% x £2) x 2000 =
(ii) £1 x 800 =
(iii) £2 x 2500 =
Minority Interest
(i)
15/40 x 60000 =
(ii) 10/40 x 60000 =
(iii) 5/40 x 60000 =
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
£36,250
£42,500
£48,750
£19,500
£13,000
£6,500
£800
£800
£5,000
£22,500
£15,000
£7,500
CONSOLIDATED BALANCE SHEETS
Question 13
(a) Goodwill 5300 – (85% of 3000) =
£2,750
(i)
Post-Acquisition Profits = 2260 – 1000 =
(ii)
Unrealised Profit 900 ´ 20% = 180 x 65% =
£1,260
£117
(iii) Minority Interest 15% of 4,260 =
£639
(iv) Consolidated Reserves 2150 + (85% x 1260) – 117 =
(b)
£3,104
Consolidated Balance Sheet as at 31 December year 1.
Goodwill
Buildings
Stocks
Debtors
Bank
Creditors
2,750
21,900
1,883
1,760
750
4,393
6,400
Long-term Loan
Share Capital
Share Premium
Revaluation Reserve
Consolidated Reserves
Minority Interest
24,650
-2,007
22,643
7,300
15,343
6,500
600
4,500
3,104
8,204
14,704
639
15,343
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
53
CONSOLIDATED BALANCE SHEETS
Question 14
(a) (i)
Goodwill = 7000 – (80% x 6200) =
(ii)
£2,040
Post-acquisition Profits = 2100–1200 =
£900 (split 720/180)
(iii) Unrealised Profits = 40% x (800 x 25%) =
(iv) Consolidated Reserves = 3000 + (80% x 900) – 80 =
(b)
Consolidated Balance Sheet at 31 December year 1
Goodwill
Buildings
2,040
31,000
Stocks
Debtors
Bank
5,920
3,400
4,500
13,820
3,100
Creditors
Long-term Loan
Share Capital
Revaluation Reserve
Consolidated Reserves
Minority Interest
54
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
33,040
10,720
43,760
4,700
39,060
30,000
4,000
3,640
7,640
37,640
1,420
39,060
£80
£3,640
CONSOLIDATED BALANCE SHEETS
Question 15
(a) (i)
Goodwill = 4500 – (6600 x 3/5) = £540
(ii)
(b)
Post-acquisition profits 1600–1200 = £400,
divided consolidated reserves 240, minority interest 160
Consolidated Balance Sheet at 31 December year 1
Goodwill
Buildings
Equipment
540
34,000
1,900
36,640
Stocks
Debtors
Bank
Creditors
7,925
4,600
3,000
15,525
3,500
Long-term Loan
Share Capital
Share Premium
Revaluation Reserve
Consolidated Reserves
Minority Interest
12,025
48,465
2,500
45,965
32,000
4,000
2,000
5,165
11,165
43,165
2,800
45,965
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
55
CONSOLIDATED BALANCE SHEETS
Question 16
(a) (i)
Goodwill = 14200 – (3/4 x 16600) =
Less 3 x 175 =
(ii)
£1,750
£525
Post-acquisition profits =
£100 split 75/25
(iii) Unrealised profits cost 600, selling price 800,
profit 200, unsold 60% =
(b)
£1,225
£120
Consolidated Balance Sheet as at 31 December year 3
Goodwill
Buildings
Machinery
1,225
50,000
37,000
Stocks
Debtors
Bank
5,880
4,500
1,400
11,780
3,300
Creditors
Long Term Loan
Share Capital
Share Premium
Revaluation Reserve
Consolidated Reserves
Minority Interest
88,225
8,480
96,705
21,000
75,705
55,000
6,000
5,400
5,130
16,530
71,530
4,175
75,705
Working
Consolidated reserves = 5700 + 75 – 120 – 525 =
Minority interest ¼ x 16700 =
56
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
£5,130
£4,175
CONSOLIDATED BALANCE SHEETS
Question 17
(a) Goodwill = 6050 – (7/8 x 5200) = 1500 – 300 = £1,200
(b)
Consolidated balance sheet as at 31 December year 3
Goodwill
Buildings
Stocks
Debtors
Bank
Creditors
1,200
22,900
24,100
1,840
2,350
2,650
6,840
5,150
1,690
25,790
3,500
22,290
Long-term Loan
Share Capital
Share Premium
Revaluation Reserve
Consolidated Reserves
15,000
2,500
3,000
1,115
6,115
21,615
675
22,290
Minority Interest
Working
Minority interest = 5400 x 1/8 =
£675
Unrealised profits = cost 1600, selling 2000, profit 400 x 65% =
£260
Post-acquisition profits =
£200 split 175/25
Consolidated Reserves 1500 +175 –260 – 300 =
£1,115
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
57
CONSOLIDATED BALANCE SHEETS
Question 18
Consolidated Balance Sheet of Central and Belt as at 31 December year 4
£
Goodwill
Buildings
Stocks
Debtors
Bank
Creditors
7,780
5,500
1,800
15,080
5,100
Debentures
Ordinary Share Capital
Share Premium
Consolidated Reserves
£
875
50,000
50,875
9,980
60,855
6,000
54,855
30,000
10,000
11,330
Minority Interest
21,330
51,330
3,525
54,855
Working
Goodwill = 7500 – (5/8 x 10000) =
Written down by 30% =
Final value
Consolidated reserves
12200 – 375 – 375 – 120 =
Minority Interest
9400 x 3/8 =
58
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
1250
375
£875
£11,330
£3,525
CONSOLIDATED BALANCE SHEETS
Question 19
(a) (i)
Goodwill = 65,000 – 80% x (50,000 + 20,000 + 5,000) =
£5,000
(ii)
Minority Interest = 20% x (50,000 + 20,000 + 5,000) =
£15,000
(b)
(i)
Goodwill = 75% x 5,000 =
£3,750
(ii)
Minority Interest = 15000 + 20% x (6000 – 5000) =
£15,200
(iii) Consolidated Stock = 8000 – 500 =
£7,500
(iv) Consolidated Reserves = 7000+(80% x 6000 – 5000)–
(25% x 5000) – (500 x 1) =
£6,050
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
59
CONSOLIDATED BALANCE SHEETS
Question 20
Goodwill
• The purchase price less appropriate proportion of ordinary shares plus
reserves
• Calculated on consolidation
• Appears in the balance sheet as a fixed as set
• May be written down over a number of years
Minority Interest
• The value of that part of the group not under the control of the parent
• Calculated by applying the percentage of ordinary shares not purchased to
the total of ordinary shares plus reserves
• Appears separately from other parts of the ‘capital and reserves’ section of
the balance sheet
Consolidated Balance Sheet
• A statement showing an overall view of the group as a whole, as opposed
to its individual parts
• Contains the totals for many items but must eliminate common items such
as current accounts
• Does not show the capital or reserves of the subsidiary
Post-Acquisition Profits
• Profits made by subsidiary after purchase
• Belong to group and to minority interest in proportion to sh are of ordinary
shares
Unrealised Profits
• Arises where goods have been sold by e.g. parent to subsidiary and not all
of these goods have been sold by subsidiary
• Profits counted by parent on unsold goods by subsidiary must be
discounted
• Consolidated reserves and stock values must be reduced.
60
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
CONSOLIDATED BALANCE SHEETS
Question 21
Balance Sheet as at 31 December year 3
Goodwill
Buildings
Machinery
Stocks
Debtors
Bank
Creditors
2,000
40,000
9,200
51,200
6,864
3,500
4,700
15,064
4,000
Debentures
Ordinary Shares
Share Premium
Consolidated Reserves
11,064
62,264
4,000
58,264
30,000
5,000
17,064
Minority Interest
Goodwill = 14,500 – 2/3 x 18,000 =
Less 10% for 2 years =
22,064
52,064
6,200
58,264
2,500
£2,000
Unrealised Profits = 180 x 20% =
£36
ACCOUNTING (ADVANCED HIGHER)
© Learning and Teaching Scotland 2006
61