Reference no: EM131391418
Q1. Part A - On 1 April 2012, Blue Company acquired 60% of the shares of Green Company.
The statement of comprehensive income for the year ended 31 December 2012 and statement of financial position as at 31 December 2012 are as follows:
Statement of comprehensive income for the year ended 31 December 2012
Blue Company Green Company
£ £
Revenue 240,000 115,000
Cost of sales (120,000) (55,000)
Gross profit 120,000 60,000
Other income - 20,000
120,000 80,000
Administrative expenses (including depreciation) (35,000) (22,500)
Profit before taxation 85,000 57,500
Taxation (12,000) (9,000)
Profit after taxation 73,000 48,500
Statement of financial position as at 31 December 2012
Blue Company Green Company
£ £ £ £
Assets
Non-current assets
Tangible assets 123,000 75000
Investment in Green 60,000
Current assets Inventories 29,000 39,000
Receivables 25,000 20,000
Others 7,500 61,500 18,500 77500
Total assets 244,500 152500
Equity and liabilities
Capital and Reserves
Ordinary shares 125,000 75,000
Retained earnings 98,000 62,500
223,000 137,500
Current liabilities
Payables 21,500 15,000
Total equity and liabilities 244,500 152,500
Brought forward reserves 25,000 14,000
Additional information:
On 1 July 2012, Green Company sold non-current assets worth £40,000 to Blue Company for £60,000. Blue Company charges depreciation at 20% per annum. The unrealised profit on the sale of non-current assets creates 6 temporary differences. The tax rate applicable to both entities is 20%. The fair value of the non-controlling interest at the date of acquisition is £40,000.
Required: Prepare consolidated statement of comprehensive income for the period ended 31 December 2012 and consolidated statement of financial position as at 31 December 2012. Show appropriate workings for adjustments made.
Part B - Novartis AG is a Swiss multinational pharmaceutical company which prepares group financial statements. Obtain the annual report of Novartis Group for 2010 (available online on www.novartis.com) and review the information about acquisitions. This information may be provided in different parts of the annual report including financial statements. List the acquisitions made during the year.
Prepare a report which shows:
1. Your research into the reasons for success or failure of acquisitions in general.
2. Potential advantages of each of the acquisitions in 2010 for Novartis Group.
3. Impact on the consolidated financial statements of these acquisitions including adjustments to subsidiary's book values.
4. Your views about goodwill on each acquisition and subsequent goodwill impairment charges, if any
Q2. P Company purchased a 90% interest in S Company for £1,200,000 cash on 1 January 2012. S Company's statement of financial position on the date of acquisition was as follows:
£
Assets
Cash 20,000
Inventory 280,000
Fixed assets (net) 1,080,000
Total assets 1,380,000
Liabilities and Equity
Accrued payables 180,000
Bonds payable 200,000
Ordinary shares (£10 par) 400,000
Retained earnings 600,000
Total liabilities and equity 1,380,000
The excess of consideration over book value was attributed to depreciable fixed assets with a 15-year remaining life and straight-line depreciation.
P Company issued £600,000, 20-year, 12% bonds at par value to pay for the acquisition. Consolidated net income for 2012 was £311,777.
P Company declared and paid dividends of £20,000 and S company declared and paid dividends of £10,000.
There were no purchases and sales of fixed assets during the year.
The following information was also available at the end of 2012:
P Company 31 December 2011
Debits Credits
£ £
Cash 780,000
Inventory 380,000
Fixed assets 1,500,000
Accrued payables 300,000
Bonds payable 400,000
Ordinary shares (£10 par) 400,000
Additional paid-in capital 1,100,000
Retained earnings 460,000
Total 2,660,000 2,660,000
Consolidated 31 December 2012
Debits Credits
£ £
Cash 127,000
Inventory 908,000
Fixed assets 2,771,110
Accrued payables 222,000
Bonds payable 1,200,000
Ordinary shares (£10 par) 400,000
Non-controlling interest 146,110
Additional paid-in capital 1,100,000
Retained earnings 738,000
Total 3,806,110 3,806,110
Required: Prepare a consolidated statement of cash flows using the indirect method for P Company and its subsidiary S Company for the year end.
Attachment:- Assignment File.rar