You were recently appointed as the group financial accountant of the Strawberry Ltd group of companies. The
Question:
You were recently appointed as the group financial accountant of the Strawberry Ltd group of companies. The accountants of the various companies in the group finalized the trial balances of the individual companies and handed them to you for preparation of the consolidated financial
statements for publication.
The financial year-end of the group is 31 March 2021. The summarised trial balances are as follows:
CREDITS | STRAWBERRY LTD | GRAPE LTD | PEACH LTD | MANGO LTD |
N$'000 | N$'000 | N$'000 | N$'000 | |
Ordinary N$1 shares | 2,850 | 500 | 1,200 | 1,000 |
Retained earnings - 1 April 2020 | 710 | 840 | 150 | 250 |
Sales | 1,510 | 2,640 | 2,250 | 1,450 |
Investment income | 760 | - | - | - |
Creditors | 678 | 1,200 | 1,583 | 250 |
Deferred taxation | 564 | 95 | 75 | 30 |
Total | 7,072 | 5,275 | 5,258 | 2,980 |
DEBITS | ||||
Land and buildings at carrying amount | 1,932 | 1,475 | 1025 | 602 |
Machinery and equipment - at carrying amount | 1,645 | 800 | 1050 | 980 |
Investment in peach ltd - cost | 1,200 | - | - | - |
Investment in grape ltd - cost | 400 | - | - | - |
Investment in mango ltd - cost | - | - | 950 | - |
Cost of sales | 570 | 1,400 | 1,117 | 580 |
Operating expenses | 410 | 160 | 400 | 20 |
Finance costs | 57 | 80 | 8 | - |
Income tax expense | 128 | 300 | 165 | 238 |
Ordinary dividends declared | 125 | 200 | - | 20 |
Inventories | 200 | 775 | 475 | 400 |
Debtors | 245 | 68 | 60 | 85 |
Bank | 160 | 17 | 88 | 55 |
Total | 7072 | 5,275 | 5,258 | 2,980 |
ADDITIONAL INFORMATION
1. Grape Ltd
1.1 Strawberry Ltd acquired a 40 % interest in Grape Limited on 1 April 2012 for N$400 000. The retained earnings of Grape Ltd amounted to N$300 000 at that date. All assets and liabilities were regarded as being fairly valued.
1.2 Strawberry Ltd sold inventories from 1 April 2019 on a regular basis to Grape Ltd at a profit of 25% on cost. Total sales from Strawberry Ltd to Grape Ltd amounted to N$500 000 for the current financial year. Inventories to the value of N$100 000 which was sold by Strawberry Ltd to Grape Ltd was still on hand on 31 March 2020 and N$200 000 on 31 March 2021.
1.3 On 1 April 2019 machinery with a carrying value of N$125 000 was sold to Strawberry Ltd for N$150 000. The machine was still included in the property, plant, and equipment of Strawberry Ltd on 31 March 2021. Depreciation is provided at 20% per annum on the cost price of the machinery
2. Peach Ltd
2.1 Strawberry Ltd acquired 960 000 ordinary shares in Peach Ltd for N$1 200 000 a number of years ago when Peach Ltd’s retained earnings amounted to N$120 000. On this date, Strawberry Ltd valued the vacant land of Peach Ltd N$50 000 higher than the book value at that stage. Peach did not recognize the revaluation in their records. All other assets and liabilities were regarded as being fairly valued.
2.2 Peach Ltd sells inventories to Strawberry Ltd at cost price plus 25%. Included in inventories of Strawberry Ltd are the following inventories purchased from Peach Ltd;
The inventories on 1 April 2020 were sold fully to third parties by 31 March 2021.
Total sales of inventories by Peach Ltd to Strawberry Ltd amounted to N$500 000 during 2021 financial year.
3. Mango Ltd
3.1 Peach Ltd acquired 600 000 ordinary shares in Mango Ltd for N$950 000 on 1 October 2020. All assets and liabilities were regarded as being fairly valued.
3.2 The monthly sales and associated cost of sales of Mango Ltd increased by 25% from 1 August 2020. The operating expenses of Mango Ltd accrued evenly throughout the year.
4. General
4.1 Accounting policies
4.1.1 Investments are accounted for at cost in the separate financial statements of Strawberry Ltd Group.
4.1.2 It is the accounting policy of the Strawberry Ltd group to measure the non-controlling interest at its proportionate share of the acquiree’s identifiable net assets.
4.1.3 Investments in associated companies are accounted for in accordance with the equity method.
4.2 Taxation
4.2.1 Assume that the statutory tax rate has remained unchanged at 28% for a number of years.
4.3 Dividends
The dividends of all companies in the group were approved and authorized at directors’ meetings held on 15 March 2021. The dividends will be paid on 30 April 2021. The dividends were correctly accounted for by all companies in the group. Dividends payable and receivable are included in creditors and debtors respectively in the trial balances of the individual companies.
REQUIRED:
A) Prepare all the Pro-forma consolidation journal entries in the books of the group for the reporting period ended 31 March 2021. Journal narrations are not required.
B) Indicate at what amounts the following line items will be included in the consolidated financial statements of the Strawberry Ltd Group as at:
31 March 2021:
i. Investment in associate
ii. Share of profit of associate
Accounting Information Systems
ISBN: 9780132871938
11th edition
Authors: George H. Bodnar, William S. Hopwood