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- This topic has 3 replies, 3 voices, and was last updated 7 years ago by MikeLittle.
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- June 13, 2016 at 10:48 am #322712
Sir in your group account lecture you said to exclude investment of subsidiary from consolidation
why should i exclude this investment from consolidation?????
you also said that subsidiaries share capital should be excluded from group account or consolidation
why should i exclude this?????
June 14, 2016 at 11:49 pm #322954The answer to both your questions is “We exclude the item Investment in Subsidiary and the item Subsidiary Share Capital from the consolidation because that’s the way consolidated financial statements are prepared”
The investment in the subsidiary is excluded because that investment was made to purchase the shares of the subsidiary that are themselves represented by the assets of the subsidiary
And we include the fair value of those assets in full in the consolidated financial statements
We exclude the subsidiary’s share capital because we are preparing the consolidated financial statements for the benefit of the members of the parent company
Does that help?
June 30, 2016 at 9:29 pm #324502Hi mike Thank you for your lecture however I have a few queries.in June 1013 first in part 1 (a) Paradigm I do not understand how you got the 6 million in the shares section you add the 40 million + 6 million =46 million and the pre -acquisition of 6 million also,In point ( 111)can you explain the question a little more I understand the concept but not the question . In part (b)you have cost , profit & selling price 4mil+1.5 =560 thousand or 5.6 million & how do you arrive at 5months @ 1.2 million equal 6 million
July 1, 2016 at 8:36 am #324518“in June 1013” – I don’t have copies of exams going so far back into history!
“I do not understand how you got the 6 million in the shares section you add the 40 million + 6 million =46 million” – the question says that Paradigm issued 2 shares for every 5 acquired and Paradigm acquired 75% of the $20,000,000 $1 equity shares in Strata
So …. 75% x 20,000,000 / 5 x 2 = 6,000,000
“and the pre -acquisition of 6 million also” – the question says that “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 $2 million at that date”
Further to that $2,000,000 loss for the period up to date of acquisition, there was a $4,000,000 loss brought forward and that, together with the $2,000,000 loss for the pre-acquisition period, gives us the $6,000,000 pre-acquisition position
This topic is covered, with an example, in the free course notes on this site! The example is Jurate and Dovile and is an example covering both cash in transit and goods in transit and non-equal current accounts that have to be equalised and cancelled
In Paradigm’s records which are maintained in, say, Ocho Rios, there is an amount receivable from Strata (but we’re not told how much)
In Strata’s records which are maintained in, say, Mandeville, there is an amount owing to Paradigm of $2,800,000. In addition, we are told that Strata has sent a payment to Paradigm but Paradigm has not yet received that money
So receive it! Pretend that Paradigm HAS received it and we now need to record the receipt in Paradigm’s records
Dr Cash / Bank $900,000
Cr Receivables (Strata) $900,000Now whatever figure we DID have as a receivable from Strata, that amount has decreased by $900,000 and the current accounts (Account Payable in Strata’s records in Ocho Rios and Account Receivable in Paradigm’s records in Mandeville) now agree
At what figure do they agree? Well, the question started by telling us the balance in Strata’s accounts payable and we have NOT adjusted Strata’s records when we recorded that $900,000. So the Strata balance of $2,800,000 has not altered and that must therefore also be the remaining receivable shown in Paradigm’s Accounts Receivable
So now cancel – deduct $2,800,000 from total payables and deduct a further $2,800,000 from total receivables
“In part (b)you have cost , profit & selling price 4mil+1.5 =560 thousand or 5.6 million & how do you arrive at 5months @ 1.2 million equal 6 million”
Here’s the question again
“Each month since acquisition, Paradigm’s sales to Strata were consistently $4·6 million. Paradigm had marked these up by 15% on cost. Strata had one month’s supply ($4·6 million) of these goods in inventory at 31 March 2013. Paradigm’s normal mark-up (to third party customers) is 40%”
If Paradigm marks up goods sent to Strata by 15%, can you accept that goods that cost Paradigm $4,000,000 would be sold on to Strata at $4,000,000 + 15% = $4,600,000. So at the end of the year, Strata has one month’s supply of these marked-up goods from Paradigm in inventory and that calls for an adjustment for pups in Paradigm’s records of $600,000
If Paradigm had sold these goods to Strata at its normal mark-up percentage of 40%, each month’s sales would have been $4,000,000 + 40% = $5,600,000. If this had been the situation, Strata’s cost of sales would have been $5,000,000 greater than shown and profits correspondingly $5,000,000 less than shown
Why $5,000,000? Because the transactions have been going on since acquisition 6 months ago. Strata still has 1 month’s purchases in inventory so these have not yet been sold
But the other 5 months’ worth of goods purchased from Paradigm HAVE been sold and instead of showing 5 months cost of sales as $5,600,000 per month, Strata is showing only $4,600,000 per month
Finally, please check that I haven’t written “4mil+1.5 =560 thousand or 5.6 million” and that I haven’t written “5months @ 1.2 million equal 6 million”
OK now?
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