Basic Consolidation Exercises – Flashback
1. (SOFP) Basic Steps to Consolidate
Payne bought all of the shares in Singer many years ago for $22,000. At the date of acquisition, Singer had
retained earnings of $7,000 and no revaluation reserve. The statements of financial position of the two
companies at 30 June 20X8 were as follows:
Payne
$
123,000
50,000
Singer
Current assets
32,400
205,400
16,550
50,550
Share capital
Retained earnings
Revaluation reserve
60,000
106,000
14,500
15,000
21,400
6,000
Liabilities
24,900
205,400
8,150
50,550
Non-current assets
Investments
34,000
-
Prepare the consolidated statement of financial position at 30 June 20X8.
2. (SOFP) Non-Controlling Interest
Poodle bought 75% of the shares in Springer on 1 January 20X8 for $150,000. At the date of acquisition,
Singer had retained earnings of $130,000. The statements of financial position of the two companies at 31
December 20X8 were as follows:
Poodle
$
342,900
150,000
Springer
$
201,400
-
Current assets
75,600
568,500
41,600
243,000
Share capital
Retained earnings
120,000
379,500
70,000
145,000
Liabilities
69,000
568,500
28,000
243,000
Non-current assets
Investments
Prepare the consolidated statement of financial position at 31 December 20X8, assuming that the NCI is
measured using the proportion of net assets method.
3. (SOFP) Goodwill
Piano bought 60% of the ordinary shares in Swing on 1 August 20X8 for $170,000. At that date the fair value
of the net assets of Swing was $185,000, and the fair value of a non-controlling interest of 40% was $105,000.
What goodwill arises assuming that the non-controlling interest is measured using:
1. Proportion of net assets method
2. Fair value method
4. (SOFP) Reserves/ Non-Controlling Interest/ Goodwill
Postal acquired 60% of Steeple on 1 October 20X4. On this date the retained earnings of Steeple were
$34,000. At 30 September 20X8, the statements of financial position of Postal and Steeple were as follows:
Non-current assets
Investments
Postal
$
420,520
105,000
Steeple
$
99,330
10,000
Current assets
Total assets
78,900
604,420
26,190
135,520
Share capital $1
Share premium
Retained earnings
80,000
120,000
240,620
30,000
72,440
Non-current liabilities
100,000
10,000
Current liabilities
Equity and liabilities
63,800
604,420
23,080
135,320
1. As well as the investment in Steeple, Postal holds a small number of shares in various other companies.
These cost $61,000
2. Steeple has not issued any shares since acquisition
3. The Postal Group measures the non-controlling interest using the full goodwill method.
4. Goodwill has not been impaired
5. The market value of one steeple share on 30 September 20X4 was $2.20
Prepare the consolidated statement of financial position for the Postal Group at 30 September 20X8.
5. (SOFP) Intra-Group Balances
The following are extracts from the statements of financial position of Painter and Steamer, its subsidiary
company:
Receivables
Cash
Payables
Painter $000
13,000
190
6,330
Steamer $000
11,700
213
10,870
Included in Painter’s receivables balance is $1.7 million due from Steamer. Included in Steamer’s payables
balance is $1.5 million due to Painter. Steamer had sent $200,000 to Painter just before the year end, but
because of a postal strike, it was not received by P until after the reporting date.
What are the consolidated receivables, cash and payables balances?
6. (SOFP) Un-Realised Profits (URP) on Sale of Stock
(a) During the year Sam, an 80% subsidiary, sold goods to Pam, its parent, for $1.8million. Sam adds a 20%
mark up on cost to all its sales. Goods with a transfer price of $450,000 were included in Pam’s inventory
at its year end of 31 March 20X8.
(b) In the post-acquisition period, Play sold goods to Station, its subsidiary at a price of $6million. These
goods had cost Play $4million. Half of these goods were still in the inventory of Station at its year end of
31 March 20X8.
Calculate the unrealised profit and what consolidation adjustments are required to adjust the sale of goods
between Parent and Subsidiary?
7. (SOFP) Un-Realised Profits (URP) on Disposal of Asset
Parent buys a non-current asset for $100,000 on 1 January 20X5. It depreciates the asset over 10 years on the
straight line basis. On 1 January 20X7, Parent sells the asset to Subsidiary for $98,000. Subsidiary depreciates
the asset over the remaining 8 years of its useful life.
What consolidation adjustments are required to adjust the sale of non-current asset from Parent to
Subsidiary.
8. (SOFP) Fair Value Adjustments/Impairment of Goodwill
A parent, Cushe, buys 80% of a subsidiary for $950m at the year start, when the share capital is $70m and
retained earnings are $300m. A fair value adjustment upwards of $100m is required on machines with a life
of five years. The fair value of the non-controlling interest is $222m.
During the year the subsidiary made retained profits of $100m. Goodwill has an indefinite life and a yearend review reveals a value in use (VIU) of $440m and a fair value less costs to sell (FVLCTS) or net realisable
value (NRV) of $666m. It is the group’s policy to measure the non-controlling interest at fair value.
Calculate Goodwill and Non-Controlling Interest.
9. (SOFP) Mid-Year Acquisition
Plaistow acquired 100% of Slough for $300,000 on 31 October 20X8. The net assets of the two companies at
31 December 20X8 are represented by:
Share capital
Retained earnings
Plaistow $
50,000
460,000
Slough $
20,000
193,000
At 1 January 20X8, Slough had retained earnings of $175,000.
Calculate goodwill and group retained earnings at 31 December 20X8.
10. (SOPL) Basic Steps to Consolidate/Non-Controlling Interest
Pringle acquired 80% of the share capital of Sutherland a number of years ago. In the year ended 31
December 20X8, the individual income statements of the two companies were as follows:
Revenue
Cost of sales
Gross profit
Investment income
Distribution costs
Administrative expenses
Operating profit
Finance costs
Profit before tax
Taxation
Profit for the year
Pringle $000
678
(211)
467
79
(62)
(215)
269
(16)
253
(70)
183
Sutherland $000
322
(165)
157
(31)
(74)
52
(4)
48
(12)
36
During the year, Sutherland paid a dividend of $64,000.
Prepare the consolidated income statement for the Pringle Group for the year ended 31 December 20X8.
11. (SOPL) Mid-Year Acquisition
Pannal acquired 60% of the share capital of Sunbury on 1 February 20X8. This is Pannal’s only investment. In
the year ended 31 October 20X8, the individual income statements of the two companies were as follows:
Revenue
Cost of sales
Gross profit
Investment income
Expenses
Operating profit
Finance costs
Profit before tax
Taxation
Profit for the year
Pannal $000
1,214
(632)
582
12
(308)
286
(23)
263
(50)
213
Sunbury $000
421
(211)
210
(96)
128
(5)
123
(24)
99
Prepare the consolidated income statement for the Pannal Group for the year ended 31 October 20X8.
12. (SOPL) Intra-Group Balances & Un-Realised Profit (URP) on Sale of Goods:
Abbreviated income statements of Primula and its 90% subsidiary Sunflower for the year ended 31 May 20X9
are as follows:
Primula $
197,000
(94,500)
102,500
(34,000)
(12,000)
56,500
Revenue
Cost of sales
Gross profit
Expenses
Tax
Profit after tax
Sunflower $
154,230
(81,200)
73,030
(17,600)
(6,800)
48,630
During the year, Sunflower sold goods to Primula for $56,000 based on a Gross profit margin of 45%. A
quarter of these remain in stock at the year end.
Prepare a consolidated income statement for the Primula Group.
13. (SOPL) Un-Realised Profit (URP) on Disposal of Asset:
On 1 October 20X7, Pluto transferred a machine to its 75% subsidiary Saturn for $35,000. The asset originally
cost $55,000 on 1 October 20X4 and was being depreciated over 10 years on a straight line basis. Cost of
sales in Pluto’s individual accounts for the year ended 30 September 20X8 is $287,650 and in Saturn’s
$176,500.
What is consolidated cost of sales for the year?
14. (SOPL) Fair Value Adjustments
Pick acquired 75% of Stick half way through the current year. A fair value exercise was carried out for Stick
at acquisition with the following results:
Land
Plant
Book value $000
20,000
25,000
Fair value $000
23,000
30,000
The fair values have not been reflected in Stick’s financial statements. Plant is depreciated at 20% per
annum on a straight line basis. Cost of sales in Pick’s income statement is $4.4 million, and in Stick’s income
statement $3.6million.
What is the consolidated cost of sales?