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DEAR SIR ,
I WOULD LIKE TO SEEK UNDERSTANDING ON ,On 1 january 2000 Gasta acquired 75% of the share capital of Erica 1380000. The retained earnings of Erica at that date was $480000. Erica’s share capital has remained unchanged since the acquisition . The following draft balance sheets for the companies have been prepared at 31 december 2006 .
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Gasta~~~~~~~~~~~~~Erica
Investment in Erica~~~~~~~~~~~~~~~~~ 1380000
Sundry net assets~~~~~~~~~~~~~~~~~~~2660000~~~~~~~~~~~1660000Total ~~~~~~~~~~~~~~~~~~~~~~~~~~~~4040000 ~~~~~~~~~~1660000
Ordinary share capital~~~~~~~~~~~~~~~~2000000 ~~~~~~~~~~1000000
Retained Earnings ~~~~~~~~~~~~~~~~~~2040000 ~~~~~~~~~~660000Total~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4040000~~~~~~~~~~1660000
Goodwill arising on the acquisition has been fully written off.
Before consolidation , it was found that the inventories of both companies at 31 december 2006 has been overstated, Gasta by $400000 and Erica ‘s by $150000.
Prepare the consolidated balance sheet of gasta and the subsidiary Erica as at 31 dec 2006,after adjusting for the inventory errors.retained earnings 1392500 – how to get this answer
finding minority interest and goodwill ??( T account)
Final answer in Gasta Group $ 3770000Thank you sir .
The goodwill on acquisition (that has now been written off) is
1380000 – 75%(1000000+480000) = 270,000.The retained earnings of Gasta after adjusting for the inventory are 2040000 – 400000 = 1640000
The post-acquisition retained earnings of Erica after adjusting for inventory are
660000 – 480,000 – 150000 = 30,000Therefore the consolidated retained earnings are
1,640,000 + (75% x 30,000) – 270,000 = 1,392,500There is no goodwill – the question says that it has been written off!!!
The minority interest is 25% x (1,000,000 + (660,000 – 150,000)) = 377,500 (not 377,000)
You cannot ever be asked to produce t-accounts for this in the exam!!
Have you not watched our free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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