1. The following information is related to the investment in Spring Pte Ltd and Autumn Pte Ltd....
Question:
1. The following information is related to the investment in Spring Pte Ltd and Autumn Pte Ltd.
Spring Pte Ltd – Winter Limited invested in the company on 1 June 2010 and purchased 960,000 ordinary shares. At the date of acquisition, Spring Pte Ltd had 1,200,000 ordinary shares capital and retained earnings of $3,300,000.
Autumn Pte Ltd – the company’s investment by Winter Limited took place on 1 June 2012 when Winter Limited purchased 270,000 ordinary shares. Autumn Pte Ltd had 900,000 ordinary shares capital and $350,000 retained earnings recorded in the account at the acquisition date.
Spring Pte Ltd and Autumn Pte Ltd have not increased their share capital since the investment of Winter Limited. Winter Limited has adopted a partial method to value non-controlling interest.
2. At the acquisition date, Winder Limited determined that all the assets and liabilities of Spring Pte Ltd were measured and recorded at fair value except the land. The land was estimated at $400,000 above the carrying amount recorded in the account of Spring Pte Ltd. The $400,000 has not been recorded in Spring Pte Ltd’s accounts since the Winter Limited acquisition.
3. Winter Limited estimated a $300,000 goodwill impairment in Spring Pte Ltd on 31 May 2021.
4. Winter Limited sold inventories to Spring Pte Ltd for $150,000 during the financial year, and the cost of inventory was estimated at $90,000. 70% of these inventories remained in Spring Pte Ltd’s warehouse as of 31 May 2021.
5. On 31 May 2021, Spring Pte Ltd owed $50,000 to Winter Limited for the inventory transaction. The outstanding amount is included in Winter’s Limited trade receivables and Spring Pte Ltd’s trade payable accounts.
Winter ($) | Spring ($) | Autumn ($) | |
Assets | |||
Non-Current Assets | |||
Property, Plant and equipment | 6300000 | 4800000 | 2300000 |
Investment in spring pte ltd | 5700000 | - | - |
investment in autumn pte ltd | 480000 | - | - |
total non-current assets | 12480000 | 4800000 | 2700000 |
Current Assets | |||
inventories | 2160000 | 1080000 | 1350000 |
trade and other receivables | 1920000 | 1320000 | 1500000 |
Bank balances and fixed deposits | 60000 | 1200000 | 300000 |
Total current assets | 4140000 | 3600000 | 3150000 |
Total Assets | 16620000 | 8400000 | 5850000 |
Equity and Liabilities | |||
Equity | |||
Ordinary shares | 2400000 | 1200000 | 900000 |
Retained earnings | 12360000 | 6300000 | 4050000 |
Shareholders' fund | 14760000 | 7500000 | 4950000 |
Current liabilities | |||
Trade and other payables | 1260000 | 600000 | 900000 |
short-term loan | 600000 | 300000 | - |
Total current liabilities | 1860000 | 900000 | 900000 |
Total equity and liabilities | 16620000 | 8200000 | 5850000 |
Required:
a. Prepare a Consolidated Statement of Financial Position for Winter Limited as at 31 May 2021.
b. Discuss under what situations should equity method be used for the consolidated financial statements.
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn