Rajarata University of Sri Lanka

Faculty of Management Studies

B.Sc. (Accountancy & Finance/ Business Management/ Business Information

Technology) Special Degree Program

Year I, Semester II

Financial Accounting II (ACF 1233)

Consolidated Statement of Financial Position Tutorial

EXAMPLE 01

When O Ltd Purchased 24,000 equity shares in P Ltd on 01.01.2008, P Ltd had Rs. 22,500
in General Reserve and Rs. 37,500 (Dr) in Profit and Loss account. Following are the
Statements of Financial Position of Both the Companies as at 31st December, 2010.

O Ltd P Ltd O Ltd P Ltd

Stated shares capital 750,000 300,000 Fixed Assets 675,000 150,000
(Rs. 10)
Profit and Loss 90,000 7,500
account
General Reserve 60,000 67,500 Investment in P Ltd 210,000
Sundry Creditors 105,000 31,500 Current Assets 120,000 256,500

1,005,000 406,500 1,005,000 406,500

At the date acquisition, the Fair Value of the fixed assets equaled to the book value
except one building element. The fair value of the building exceeded the book value by
Rs. 20,000. Buildings are depreciated at a rate of 10% per annum. Stock of O Ltd
includes Rs. 30,000 on which P ltd made Rs. 7,500 profit.

Prepare group statement of financial position as at 31.12.2010.

EXAMPLE 02

A Ltd acquired 2000 shares of Rs. 100 each in B Ltd on 31st December, 2009. The
summarized statements of financial position of the two companies as on 31.12.2010
were as follows.

A Ltd B Ltd A Ltd B Ltd

Stated shares capital 800,000 250,000 Fixed Assets 700,000 250,000
Profit and Loss 150,000 120,000

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account
General Reserve 300,000 50,000 Investment in P Ltd 300,000
Sundry Creditors 200,000 50,000 Current Assets 450,000 220,000

1,450,000 470,000 1,450,000 470,000

B Ltd had a credit balance of Rs. 50,000 in the General reserve and Rs. 20,000 in the
Profit and Loss account when A Ltd acquired the shares in B Ltd. B Ltd issued bonus
shares in the ratio of one for every five shares held out of the profit earning during 2010.
This is not shown in the above statement of financial position of B Ltd.

Prepare the group statement of financial position as at 31st December, 2010.

EXERCISE NO 03

1. Modern Ltd. acquired 90% of the equity shares of Ancient Ltd. on 31 March, 2014.
At that date the market value of the Modern Ltd.s Rs.1 equity shares was Rs.3 and
the Ancient Ltd shares had a market value of Rs.2.80 per share.

The Purchase Consideration was paid in following manner.

for every 2 shares acquired Modern Ltd. issued 1 new share

a payment of Rs.1.21 for each 2 shares acquired payable on 1 April 2016
a payment of Rs.0.50 per share acquired immediately.

The Modern Ltd.s cost of capital is 10% per annum and none of purchase
consideration has been recorded except the cash payment made on 31 March 2014.

On 31 October 2014, the respective Statements of Financial Position were:

Modern Ltd. Ancient Ltd.

Property, Plant and 280,000 210,000
Equipment
Investment in Ancient 36,000
Inventory 80,000 55,000
Receivables 62,000 65,000
Current account with Ancient 18,000 -
Cash 15,000 175,000 36,000 156,000
Total Assets 491,000 366,000

Equity and Liabilities

Rs.1 Equity shares 100,000 80,000

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 Retained Earnings 245,000 124,000
345,000 204,000
Non Current Liabilities
3% Debentures 30,000 60,000

Current Liabilities 116,000 90,500

Current account with Modern 11,500
Total Equity and Liabilities 491,000 366,000

Following information is also relevant;

i. Profits for the two companies for the year ended 31 October, 2014 (before any
adjustments necessary to be made) were respectively Rs.50,000 and
Rs.48,000.

ii. On 31 July 2014, Ancient had sold an item of property, plant and equipment
to Modern realizing a profit on sale of Rs.24,000. Modern was depreciating
this item over its remaining useful life of 3 years. It is group policy to charge
a full years depreciation in the year of purchase, and none in the year of sale.

iii. On 1 October, 2014 Modern had dispatched goods to Ancient at a transfer

value of Rs.60,000. Modern sells goods at a Markup of 20%. Ancient had sold
50% of these goods by the Statement of Financial Position date.

iv. The current accounts did not reconcile at the year end because Ancient had
sent a payment of Rs.6,500 to Modern, but Modern only received it on 2
November 2014.

v. Goodwill is impaired by Rs.10,000 on 31 October, 2014.

vi. Both entities have declared but not yet accounted for a dividend per share of
10 cents (Modern) and 3 cents (Ancient).

vii. The directors valued the NCI investment on a fair value basis using the
market value of the Ancient shares as a fair measure.

You are required to;

a) Calculate the Goodwill arose on acquisition of Ancient Ltd.

b) Prepare a Consolidated Statement of Financial Position for the Modern Group
as at 31 October, 2014.

(24 Marks)

(Total 30 Marks)

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 EXERCISE NO 04

(1) H Ltd. acquired 80% of the equity shares of S Ltd. on 01st April 2014. At that date,
Retained Earnings and General Reserve of S Ltd. were Rs.3,000,000 and Rs.1,000,000
respectively. The Statements of Financial Position of both the companies as at 31 st
March 2015 are as follows.

H Ltd. S Ltd.
Rs.000 Rs.000
Assets
Non-Current Assets
Property, Plant and Equipment 47,000 28,000
Other Non Current Assets 7,000 4,000
Investment in shares of S Ltd. 24,000 -
78,000 32,000
Current Assets
Inventory 15,000 8,000
Bills of Receivable 2,000 -
Trade Receivables 12,000 10,000
Bank 3,000 -

Total Assets 110,000 50,000

Equity and Liabilities

Equity
Equity shares of Rs.1 each 55,000 20,000
General Reserve 4,000 2,000
Retained Earnings 23,000 6,000
82,000 33,000
Non- Current Liabilities
10% Loan Notes 10,000 -

Current Liabilities
Trade Payables 18,000 17,000
Bank Overdraft - 4,000
Bills of Payable - 1,000
Total Equity and Liabilities 110,000 50,000

Following additional information is provided:

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 I. At the date of acquisition H Ltd. conducted a fair value exercise on S Ltd.s net
assets, which were equal to their carrying amounts with the exception of
buildings, which had a fair value of Rs.2,000,000 above its carrying amount.
Buildings are depreciated at 10% per annum.

II. H Ltd.s policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose, Fair value of non-controlling interest should be
considered as Rs.4,000,000.

III. Since the acquisition, H Ltd. has sold goods costing Rs.10,000,000 to S Ltd. at a
markup of 10%. 20% of these goods were remained in the stock of S Ltd. as at 31 st
March 2015.

IV. H Ltd.s current account balance with S Ltd. at 31st March 2015 was Rs.500,000
which did not agree with the corresponding balance of S Ltd. due to a payment
of Rs.200,000 made by S Ltd. on 28th March 2015, which was not received H Ltd.
until 04th April 2015.

V. Bills receivable of H Ltd. include Rs.250,000 of bills due from S Ltd.

Required:
a) Calculate the Goodwill arising on the acquisition of S Ltd. on 01 April 2014.
(08 Marks)
b) Prepare the Consolidated Statement of Financial Position for P Group as at 31
March 2015. (16 Marks)
(Total 24 Marks)

EXERCISE NO 05

(2) On 1 January 2013, P Ltd acquired 75% of S Ltds equity shares for the consideration of
Rs 13,500,000. At that date accumulated loss of S Ltd was Rs. 4,000,000. P Ltds policy
is to value the non-controlling interest at fair value at the date of acquisition. For this
purpose, the fair value of the shares held by the non-controlling interest is valued to
Rs. 6,000,000.

The summarized statements of financial position of the two companies as at 31

December 2013 are:
P Ltd S Ltd
Rs. 000 Rs.000
Assets

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 Non-Current Assets
Property, Plant and Equipment 47,000 25,000
Other Non Current Assets 7,900 3,700
Investment in shares of S Ltd. 13,500 -
68,400 28,700
Current Assets
Inventory 20,500 7,400
Bills of Receivable 1,900 -
Trade Receivables 12,800 10,000
Bank 2,100 -

Total Assets 105,700 46,100

Equity and Liabilities

Equity
Equity shares of Rs. 1 each 52,000 20,000
Retained Earnings 26,600 4,000
78,600 24,000
Non- Current Liabilities
10% Loan Notes 9,500 -

Current Liabilities
Trade Payables 17,600 15,000
Bank Overdraft - 5,600
Bills of Payable - 1,500
Total Equity and Liabilities 105,700 46,100

Following additional information is provided;

I. Each month since acquisition, P Ltds sales to S Ltd were consistently Rs.
4,600,000. P Ltd had marked these up by 15% on cost. S Ltd had one months
supply (Rs.4, 600,000 million) of these goods in inventory at 31 December 2013. P
Ltds normal mark-up (to third party customers) is 40%.

II. S Ltds current account balance with P Ltd at 31 December 2013 was Rs.
2,800,000, which did not agree with P Ltds equivalent receivable due to a
payment of Rs. 900,000 made by S Ltd. on 28 December 2013, which was not
received by P Ltd until 3 January 2014.

III. The Bills of Receivable by P Ltd included Rs. 650,000 of bills due from S Ltd. out
of these bills Rs. 300,000 of bills have been discounted by P Ltd from a Bank.

IV. Goodwill arose on business acquisition has been impaired by Rs. 300,000 during
the year ended 31 December 2013.

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Required:
c) Calculate the Goodwill arising on the acquisition of S Ltd. on 01 January 2013.
(08 Marks)
d) Prepare the Consolidated Statement of Financial Position for P Group as at 31
December 2013.
(16Marks)

(Total 30 Marks)

EXERCISE NO 07

On 1 October 2012, Paradigm acquired 75% of Stratas equity shares by means of a share
exchange of two new shares in Paradigm for every five acquired shares in Strata. In
addition, Paradigm issued to the shareholders of Strata a Rs.100 10% loan note for every
1,000 shares it acquired in Strata. Paradigm has not recorded any of the purchase
consideration, although it does have other 10% loan notes already in issue. The market
value of Paradigms shares at 1 October 2012 was Rs.2 each.

The summarized statements of financial position of the two companies as at 31 March

2013 are:

Paradigm Strata
Assets Rs.000 Rs.000
Non-current assets
Property, plant and equipment 47,400 25,500
Financial asset: equity investments (notes (i) and (iv)) 7,500 3,200

54,900 28,700
Current assets
Inventory (note (ii)) 20,400 8,400
Trade receivables (note (iii)) 14,800 9,000
Bank 2,100 nil

Total assets 92,200 46,100

Equity and liabilities

Equity
Equity shares of Rs.1 each 40,000 20,000
Retained earnings/(losses) at 1 April 2012 19,200 (4,000)
for year ended 31 March 2013 7,400 8,000

66,600 24,000
Non-current liabilities
10% loan notes 8,000 nil
Current liabilities
Trade payables (note (iii)) 17,600 13,000

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Bank overdraft nil 9,100

Total equity and liabilities 92,200 46,100

The following information is relevant:

(i) At the date of acquisition, Strata produced a draft statement of profit or loss which
showed it had made a net loss after tax of Rs.2 million at that date. Paradigm accepted
this figure as the basis for calculating the pre- and post-acquisition split of Stratas profit
for the year ended 31 March 2013.
Also at the date of acquisition, Paradigm conducted a fair value exercise on Stratas net
assets which were equal to their carrying amounts (including Stratas financial asset
equity investments) with the exception of an item of plant which had a fair value of Rs.3
million below its carrying amount. The plant had a remaining economic life of three
years at 1 October 2012.
Paradigms policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose, a share price for Strata of Rs.120 each is representative of
the fair value of the shares held by the non-controlling interest.

(ii) Each month since acquisition, Paradigms sales to Strata were consistently Rs.46
million. Paradigm had marked these up by 15% on cost. Strata had one months supply
(Rs.46 million) of these goods in inventory at 31 March 2013. Paradigms normal mark-
up (to third party customers) is 40%.

(iii) Stratas current account balance with Paradigm at 31 March 2013 was Rs.28
million, which did not agree with Paradigms equivalent receivable due to a payment of
Rs.900,000 made by Strata on 28 March 2013, which was not received by Paradigm until
3 April 2013.

(iv) The financial asset equity investments of Paradigm and Strata are carried at their
fair values as at 1 April 2012. As at 31 March 2013, these had fair values of Rs. 71
million and Rs.39 million respectively.

(v) There were no impairment losses within the group during the year ended 31 March
2013.

Required Prepare the consolidated statement of financial position for Paradigm as at

31 March 2013.