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Advance Financial Accounting (FIN-611)
VU
LESSON # 41
GROUP ACCOUNTS
Example - [ Case xiii ] Pre-acquistion Profits, Dividends
Balance Sheet as on 31st December 2008
P
S
Rs.
Rs.
Fixed Assets
3,500
1,450
Investment in S.
2,180
2,700
1,250
Current Assets
8,380
2,700
Share Capital (ordinary shares of Rs.1 each).
5,000
1,000
Reserves
3,380
1,700
8,380
2,700
The Parent Co. (P) acquired 800 of the 1,000 Re.1 ordinary shares of the Subsidary Co.
(S) on 1st January 2008 for Rs.2,500. S's balance sheet at 31 December 2007 showed a
payable ordinary dividend of Rs.400 and reserves of Rs.1,200. Goodwill has been
impaired by Rs. 105.
Hint: Share of P Co in the dividend payable out of the preacquisition profit is Rs. 320 being 80%
Prepare the Consolidated Balance Sheet as at
Required:  31/12/2008.
Solution - [ Case xv ]
Workings
W-1
Determine the % of holding by dividing the number of equity
shares acquired with the total number of shares of the
H%
1
subsidiary company
%age representing the minority interest is very simple to
MI%
0
calculate, just subtract H% from 100
W-2
Analysis of Equity of S Co
Pre-
Post-
acquisition
acquisition
Share Capital
1,000
Nil
Reserves
1,200
500
2,200
500
W-3
Calculation of goodwill
214
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Advance Financial Accounting (FIN-611)
VU
Rupees
Cost of investment
2,500
Dividend out of pre-acquisition profits
-320
2,180
Pre acquisition equity of S Co. to the extent of H% (2,200x 80%)
-1,760
Goodwill
420
Impairment loss
105
315
W-4
Group Reserves
All reserves of P Co
3,380
400
Post acquisition reserves of S Co to the extent of H% (500 x 80%)
3,780
Impairment loss of goodwill
-105
3,675
W-5
Minority Interest
Owners' equity of Subsidiary Company to the extent of MI% (2,700 x
20%)
540
Consolidated Balance Sheet
As at 31 December 2005
Rs.
Fixed Assets
4,950
Goodwill
315
Current Assets
3,950
9,215
Share Capital
5,000
3,675
Reserves
Minority Interest
540
9,215
Example - [ Case xiv ] Acquisition during the year
Balance Sheet as on 31st December 2008
P
S
Rs.
Rs.
Fixed Assets
5,500
4,500
Investment in S.
4,000
Current Assets
2,500
1,500
12,000
6,000
215
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Advance Financial Accounting (FIN-611)
VU
Share Capital
8,000
3,000
Reserves
2,500
2,008
Current Liabilities
1,500
1,000
12,000
6,008
The Parent Co. (P) acquired 80% shares of the Subsidary Co. (S) on 1st October 2008. S's
reserves on 31 December 2007 were worth Rs.1,200. (Assume that profits of S accrue
evenly throughout the year).
Prepare the Consolidated Balance Sheet as at
31/12/2008.
Required:
Solution - [ Case xiv]
Working
W-1
Reserves of S Co on 31-12-
2008
2,000
Reserves of S Co on 1-1-
2008
1,200
Profit for the year ending on 31-12-
2008
800
W-2
Profit for the year 2008 representing the pre-acquisition
period
from 1-1-2008 to 30-09-2008 (9 months) 800
x 9/12
600
Profit for the year 2008 representing the post-acquisition
period
from 1-10-2008 to 31-12-2008 (3 months)
800 x 3/12
200
800
W-3
Analysis of Equity of S Co
Pre-acquisition
Post-acquisition
Share Capital
3,000
Nil
Reserves
as on 1-1-2008
1,200
from 1-1-2008 to 30-9-
2008
600
200
4,800
200
216
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Advance Financial Accounting (FIN-611)
VU
H%
1
160
3,840
MI%
0
960
40
Minority Interest Rs.
1,000
W-4
Calculation of goodwill
Rupees
Cost of investment
4,000
Pre acquisition equity of S Co. to the extent of
H%
-3,840
160
Goodwill
W-5
Group Reserves
All reserves of P Co
2,500
Post acquisition reserves of S Co to the extent
200 x
of H%
80%
160
2,660
W-6
Minority Interest
Owners' equity of Subsidiary Company to the extent of
MI%
Rs. 5,000 x
20%
1,000
Consolidated Balance Sheet
As at 31 December 2008
Rs.
Fixed Assets
10,000
160
Goodwill
Current Assets
4,000
14,160
Share Capital
8,000
2,660
Reserves
10,660
Minority Interest
1,000
11,660
Current Liabilities
2,500
14,160
Example - [ Case xv] Negative
Goodwill
217
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Advance Financial Accounting (FIN-611)
VU
Balance Sheet as on 31st December 2008
P
S
Rs.
Rs.
Fixed Assets
1,000
600
400
Investment in S.
Current Assets
300
200
1,700
800
Share Capital
1,200
500
Reserves
400
200
Current Liabilities
100
100
1,700
800
The Parent Co. (P) acquired 80% shares of the Subsidary Co. (S) on 1st January 2008
when it's reserves were worth Rs.120.
Prepare the Consolidated Balance Sheet as at
31/12/2008.
Required:
Solution - [ Case xv]
Working
W-1
Analysis of Equity of S Co
Pre-acquisition
Post-acquisition
Share Capital
500
Nil
120
80
Reserves
620
80
H%
1
496
64
MI%
0
124
16
Minority
Interest 140
W-2
Calculation of goodwill
Rupees
Cost of investment
400
Pre acquisition equity of S Co. to the extent of
H%
-496
-96
Negative Goodwill
W-3
218
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Advance Financial Accounting (FIN-611)
VU
Group Reserves
All reserves of P Co
400
Post acquisition reserves of S Co to the extent
80 x
of H%
80%
64
464
Add Negative Goodwill
96
W-4
560
Minority Interest
Owners' equity of Subsidiary Company to the extent of
MI%
Rs. 700 x 20%
140
Consolidated Balance Sheet
As at 31 December 2008
Rs.
Fixed Assets
1,600
Goodwill
0
Current Assets
500
2,100
Share Capital
1,200
560
Reserves
1,760
Minority Interest
140
1,900
Current Liabilities
200
2,100
219