On 1 January 2020, Petre Ltd acquired a 60% interest in the issued share capital of Sanford Ltd, for a cash consideration of $6,000,000. On the acquisition date, the retained profits of Sandford Ltd were $3,000,000. The statement of financial position of the two companies for the year ended 31 December 2020 were as follow:- Petre Ltd Sanford Ltd ASSETS Property, plant and equipment 15,500 8,800 Investment in Sanford Ltd 6,000 - Inventories 5,000 3,000 Receivable from Sanford Ltd 500 - Other current assets 4,500 2,000 Total Assets 31,500 13,800 EQUITY AND LIABILITIES Ordinary share capital of $1 each 16,000 4,000 Retained earnings 7,500 6,000 Payable to Petre Ltd - 500 Liabilities 8,000 3,300 Total Equity and Liabilities 31500 13800 Additional information: Included in the property, plant and equipment of Sanford Ltd is a freehold land recorded at cost of $1,000,000. At the acquisition date, this land was assessed to have fair value of $3,000,000. No adjustment has been made in the accounts to reflect the fair value. During the year 2020, Petre Ltd has provided inter-company advances of $500,000 to Sanford Ltd. It is Petre Ltd’s policy to measure non-controlling interest equal to its proportionate share of net assets of the subsidiary. REQUIRED: Define and compute “Goodwill on Consolidation”. Define and compute “Non-Controlling Interest”. Explain why intra-group transactions and balances are eliminated in consolidation. Prepare the Consolidated Statement of Financial Position for Petre Ltd and its subsidiary as at 31 December 2020. (Show all workings)
On 1 January 2020, Petre Ltd acquired a 60% interest in the issued share capital of Sanford Ltd, for a cash consideration of $6,000,000. On the acquisition date, the retained profits of Sandford Ltd were $3,000,000. The
Petre Ltd Sanford Ltd
ASSETS
Property, plant and equipment 15,500 8,800
Investment in Sanford Ltd 6,000 -
Inventories 5,000 3,000
Receivable from Sanford Ltd 500 -
Other current assets 4,500 2,000
Total Assets 31,500 13,800
EQUITY AND LIABILITIES
Ordinary share capital of $1 each 16,000 4,000
Payable to Petre Ltd - 500
Liabilities 8,000 3,300
Total Equity and Liabilities 31500 13800
Additional information:
- Included in the property, plant and equipment of Sanford Ltd is a freehold land recorded at cost of $1,000,000. At the acquisition date, this land was assessed to have fair value of $3,000,000. No adjustment has been made in the accounts to reflect the fair value.
- During the year 2020, Petre Ltd has provided inter-company advances of $500,000 to Sanford Ltd.
- It is Petre Ltd’s policy to measure non-controlling interest equal to its proportionate share of net assets of the subsidiary.
REQUIRED:
- Define and compute “
Goodwill on Consolidation”. - Define and compute “Non-Controlling Interest”.
- Explain why intra-group transactions and balances are eliminated in consolidation.
Prepare the Consolidated Statement of Financial Position for Petre Ltd and its subsidiary as at 31 December 2020. (Show all workings)
Step by step
Solved in 3 steps with 4 images
