BIG COMPANY LIMITED

Big Company Limited acquired 80% shares of Small Company Limited on January 1, 2019, for Tk. 203,000.
The trial balances of the two companies on December 31, 2021, included the following amounts:

Big Company Limited Small Company Limited

Debit Credit Debit Credit
Cash 78,000 25,000
Accounts Receivable 50,000 55,000
Inventory 170,000 100,000
Land 80,000 20,000
Buildings & Equipment 500,000 250,000
Investment in Small 203,000
Cost of Goods Sold 500,000 150,000
Depreciation Expense 25,000 15,000
Other Expenses 75,000 75,000
Dividends Declared 50,000 20,000
Accumulated Depreciation 155,000 75,000
Accounts Payable 66,000 35,000
Mortgages Payable 200,000 60,000
Common Stock 300,000 50,000
Retained Earnings 290,000 180,000
Sales 700,000 300,000
Dividend Income . 20,000 . 10,000
1,731,000 1,731,000 710,000 710,000

Other Information:
1) On January 1, 2019, the equity of Small Company consisted of common stock Tk. 50,000 and
retained earnings Tk. 100,000.

2) On acquisition date the market price of Small Company’s inventory was Tk. 190,750 while the
inventory amount on balance sheet was Tk. 180,000. On the same date the market price of
Small’s depreciable assets was Tk. 33,000 higher than the book value with an estimated remaining
life of 11 years. Amount assigned to goodwill has no impairment in any of the years.

3) Analysis of receivables and payables showed that Small Company owed Tk. 12,000 to Big
Company as on December 31, 2021.

Required:
Prepare consolidated financial statements of Big Company Limited, except cash flow statement.
Show all necessary workings.

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Workings:
Timeline:
2019 2021
Jan 1 Dec 31
2019 2020 2021

Step I
Acquisition Differential 100% R/E (2) I/S(1) B/S

Shares -
Cash 203,000
Consideration [80%] 203,000

Implied market price 253,750

Less: C/Stock 50,000
R/Earnings 100,000 150,000
Acquisition Differential 103,750

Allocated to:
Inventory 10,750 10,750 - -
Buildings & Equipment (11) 33,000 6,000 3,000 24,000
Goodwill 60,000 - - 60,000
103,750 16,750 3,000 84,000

Step II
Eliminating Journal Entries

(a) Acquisition

Common Stock 50,000

Retained Earnings 100,000
Investment in Small 203,000
Non-Controlling Interest 50,750
Inventory 10,750
Buildings & Equipment 33,000
Goodwill 60,000

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(b) Inter-Company Receivables/Payables

Accounts Payable 12,000

Accounts Receivable 12,000

(c) Inter-Company Dividends

Dividends Income 16,000

Dividends Paid 20,000
Non-Controlling Interest 4,000

Step III
Consolidated Beginning Retained Earnings

Beginning Retained Earnings – Big Company 290,000

Pick up from Small Company:

Beg. Retained Earnings – Small Company 180,000
Less: Acquisition date R/E of Small Company 100,000
80,000
Less: Prior years’ unrecorded expenses 16,750
Adjusted Beg. R/E of Small Company 63,250

80% thereof 50,600

Consolidated Beginning Retained Earnings 340,600

Step IV
(a) Non-Controlling Interest – Income Statement

Net Profit – Small Company 70,000

Less: Current year’s unrecorded expenses 3,000
Adjusted Net Profit – Small Company 67,000

20% thereof 13,400

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(b) Non-Controlling Interest – Balance Sheet

Common Stock – year end 50,000

Retained Earnings – year end:
R/E – beg. of year 180,000
Add: Net profit 70,000
250,000
Less: Dividends paid 20,000 230,000
280,000
Add: Increase in assets 84,000
Adjusted equity of Small Company 364,000

20% thereof 72,800

Solution:

Big Company Limited

Consolidated Income Statement
For the year ended December 31, 2021

Sales [B + S] Tk. 10,00,000

Dividend Income [B + S -16,000] 14,000
Total Revenue 10,14,000

Cost of Goods Sold [B + S] 6,50,000

Depreciation Expense [B + S + 3,000] 43,000
Other Expenses [B + S] 1,50,000
Total Expenses 8,43,000

Consolidated Net Profit Tk. 1,71,000

Attributed to Non-Controlling Interest [Step IV] 13,400

Attributed to Big Company 1,57,600
Total Amount Tk. 1,71,000

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 Big Company Limited
Consolidated Retained Earnings Statement
For the year ended December 31, 2021

Consolidated Beg. R/E Balance [Step III] Tk. 3,40,600

Consolidated Net Profit – attributed to Big 1,57,600
4,98,200
Less: Dividends Paid [Big only] 50,000
Consolidated Ending R/E Balance Tk. 4,48,200

Big Company Limited

Consolidated Balance Sheet
For the year ended December 31, 2021

Assets

Cash [B + S] Tk. 1,03,000

Accounts Receivable [B + S – 12,000] 93,000
Inventory [B + S] 2,70,000
Land [B + S] 1,00,000
Buildings & Equipment [B + S + 33,000] 7,83,000
Accumulated Depreciation [B + S + 9,000] (2,39,000)
Goodwill [B + S + 60,000] 60,000
Total Assets Tk. 11,70,000

Liabilities and Shareholders’ Equity

Accounts Payable [B + S – 12,000] Tk. 89,000

Mortgage Payable [B + S] 2,60,000
Total Liabilities 3,49,000
Common Stock 3,00,000
Consolidated Retained Earnings 4,48,200
Non-Controlling Interest [Step IV] 72,800
Total Liabilities and Shareholders’ Equity Tk. 11,70,000

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Optional:

Non-Controlling Interest Continuity Schedule:

NCI balance on acquisition date Jan 1, 2019. 50,750 (Step I 253,750 – 203,000)
Add: 20% of adjusted R/E of Small 12,650 (Step III 63,250 X 20%)
Add: 20% of adjusted net profit of Small 13,400 (Step IV (a) 67,000 X 20%)
Less: Dividend income received from Small (4,000) (Step II 20,000 X 20%)
NCI balance as on December 31, 2021. 72,800

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