Advanced financial accounting - Lecture 43

Advanced Financial
Accounting
Lec-43
Main Ahmad Farhan


Question
Income Statement
For the year ended 2000
Rs.

Rs.

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

100

---

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
profit

1,000

450

Closing retained profit

1,530

625

Add Dividend income
Net profit before tax


Question
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)
Cost of investment
1,700
Less Ordinary share capital of S (1,300 x 80%) 1,040
Less Goodwill
660
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
the extent of holding %
Add Total opening balance of retained profit of
P Co.
Opening balance of group retained profit
Less Goodwill Amortization
Closing balance

320
1,000
1,320
660

660


Solution
Consolidated Income Statement
For the year ended 31st Dec. 2000
Sales
Less Cost of goods sold
Gross profit
Less Operating expenses
Operating profit
Less Income tax
Net profit after tax
Less Minority interest
Less Dividend paid
Opening balance group retained profit
Closing balance group retained profit

11,500
7,400
4,100
2,400
1,700
720
980
60
920
250
670
660

1,330


Question
Income Statement
For the year ended 2000
Rs.

Rs.

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

100

---

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

Add Dividend income

Net profit before tax


Question
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)
Cost of investment
Ordinary share capital of S (1,250+50 x 80%)
Goodwill
Less Impairment of owner’s equity

1,700
1,040
660
660
0

Working
(Opening Balance of Group Retained Profit)
Opening balance of retained profit of
P Co.
Post-acquisition part of opening retained of S Co. to
the extent of holding % (450-50)x80%
Less Goodwill Amortization
Closing balance

1,000
320
1,320
660
660


Working
Minority Interest
Profit after tax of Subsidiary Co. x Minority interest
300 x 20% = 60


Working
Consolidated Sales
Sales of parent Co.
Add Sales of subsidiary Co.
Less Sales made by subsidiary Co.
Consolidated sales

7,500
4,000
1,250
10,250


Working
Cost of Goods Sold
Cost of goods sold of parent Co.
Add Cost of goods sold of subsidiary Co.
Less Increase in purchase of parent Co.
Add Unrealized profit

4,500
2,900
1,250
40
6,190


Solution
Consolidated Income Statement
For the year ended 31st Dec. 2000
Sales
Less Cost of goods sold
Gross profit
Less Operating expenses
Operating profit
Less Income tax

Net profit after tax
Less Minority interest
Less Dividend paid
Opening balance group retained profit
Closing balance group retained profit

10,250
6,150
4,100
2,400
1,700
720
980
52
928
250
670
660
1,330