Learning Unit 4 Consolidation of A Wholly Owned Subsidiary After

FAC2602
Open Rubric
LEARNING OUTCOME
You should be able to consolidate the financial statements of a group of companies if
the interest in the wholly owned subsidiary was acquired a few years ago in accordance
with International Financial Reporting Standards.
OVERVIEW
4.1 INTRODUCTION .................................................................................................. 2

4.2 TREATMENT OF GOODWILL ARISING ON ACQUISITION ............................... 2
4.3 CONSOLIDATION OF A WHOLLY OWNED SUBSIDIARY AFTER THE DATE
OF ACQUISITION ................................................................................................ 2
4.4 EXERCISES ....................................................................................................... 13
SELF-ASSESSMENT.................................................................................................... 26
KEY CONCEPTS
• Acquisition at a premium or discount
• Treatment of goodwill after acquisition
• Treatment of post-acquisition profits
• Net asset value
• Analysis of equity
• Pro forma consolidation entries
ASSESSMENT CRITERIA
After studying this learning unit, you should be able to:
• draft the consolidated annual financial statements of a group, in
accordance with IFRS, if the wholly owned subsidiary was
acquired a few years ago
• identify intragroup items and common items
• do the pro forma consolidation journal entries
• prepare and explain the analysis of equity
1
4.1 INTRODUCTION
In learning unit 2, we discussed the consolidation of a wholly owned subsidiary at the
date of acquisition. In this learning unit, we deal with preparing consolidated annual
financial statements at any date after the acquisition of an interest in a subsidiary. We
always eliminate the owner's equity (share capital and other components) of a subsidiary
that exists at the acquisition of the subsidiary against the investment in the subsidiary. It
does not form part of the owner's equity of the group. The parent originally paid for it.
Refer to examples 3 to 5 in learning unit 2 if you need to make sure that you understand
the above statement.
Therefore, all the profits the subsidiary makes after the date of acquisition become the
profits of the group and should be included as such in the consolidated statements. All
components of equity of a subsidiary which was formed after the date of acquisition form
part of the total equity of the group.
4.2 TREATMENT OF GOODWILL ARISING ON ACQUISITION

By now, you should be familiar with the term "goodwill". A parent may pay more or less
than the net asset value of the shares acquired with the purchase of the interest in the
subsidiary. This can be attributed to the following:
• specific items which have a market value that is higher or lower than the carrying
value (e.g. property or plant)
• the value of the undertaking as a whole
The goodwill that a parent pays for when acquiring a subsidiary represents the parent's
anticipation of future economic benefits. We reflect goodwill at cost price for the purposes
of this course. We will deal with future adjustments in value at third-year level.
We will also deal further with the alternative option and methods in IFRS 3 regarding the
calculation of goodwill at third-year level.
4.3 CONSOLIDATION OF A WHOLLY OWNED SUBSIDIARY AFTER

THE DATE OF ACQUISITION
Where consolidation takes place at a date after the acquisition of the interest in the
subsidiary, we must consolidate both the statements of financial position and the
statements of profit and loss and other comprehensive income of the parent and the
subsidiary.
2
We will still follow the same consolidation procedures:
• Eliminate common items

• Eliminate intragroup items
• Consolidate remaining items
We now turn our attention to a new aspect, namely that we will have to deal with various
periods when analysing the owner's equity of the subsidiary. The following serves as an
example of this:
Suppose A Ltd acquired its 100% interest in B Ltd on 1 January 20.1, and you are required
to draft the consolidated financial statements for the year ended 31 December 20.8. You
will have to divide the analysis of owner's equity into three parts.
Analysis of owner's equity of B Ltd

Total At Since
R R R
At acquisition
1 January 20.1 XX
Since acquisition to beginning of current year
2 January 20.1 to 31 December 20.7 XX
Current year
1 January 20.8 to 31 December 20.8 XX
As in the previous learning units, we will deal with the three situations that may arise when
a parent acquire shares in a subsidiary.
3
EXAMPLE 1
Acquisition of a wholly owned subsidiary at net asset value

The following are the abridged statements of financial position of A Ltd and its
subsidiary, B Ltd, as at 31 December 20.6:
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20.6
A Ltd B Ltd
R R
ASSETS
Property, plant and equipment 160 000 180 000
Investment in B Ltd
– 80 000 ordinary shares at fair value (cost price: R124 000) 124 000 -
Trade and other receivables 114 000 90 000
398 000 270 000
EQUITY AND LIABILITIES
Share capital – ordinary shares (100 000/80 000 shares) 100 000 80 000
Retained earnings 120 000 60 000
Trade and other payables 178 000 130 000
398 000 270 000
A Ltd acquired its interest in B Ltd on 1 January 20.6. B Ltd's retained earnings amounted
to R44 000 at the time. Assume that the carrying amount of the assets and liabilities of B
Ltd is equal to the fair value thereof at the date of acquisition.
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR

THE YEAR ENDED 31 DECEMBER 20.6
A Ltd B Ltd
R R
Profit before tax 35 000 23 000
Income tax expense (11 000) (7 000)
PROFIT FOR THE YEAR 24 000 16 000
Other comprehensive income for the year - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 24 000 16 000
4
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER
20.6
Share capital Retained Total
earnings
A Ltd B Ltd A Ltd B Ltd A Ltd B Ltd
R R R R R R
Balance at 1 January 20.6 100 000 80 000 96 000 44 000 196 000 124 000
Changes in equity for 20.6
Total comprehensive income for
the year
Profit for the year 24 000 16 000 24 000 16 000
Balance at 31 December 20.6 100 000 80 000 120 000 60 000 220 000 140 000
Suppose you have to draft the consolidated statement of profit or loss and other
comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of financial position at 31 December 20.6.
SOLUTION 1
Before you draft these statements, you should do the following:

• Analyse the owner's equity in B Ltd.
• Do the pro forma consolidation journal entries.
1. Analysis of owner's equity in B Ltd

A Ltd 1 00% NCI
Total At Since 0%
At acquisition – 1 Jan 20.6 R R R R
At acquisition – 1 Jan
Share
2 .6 capital 80 000 80 000 -
Retained
Share earnings
capital 44 000 44 000 -
Retained earnings
124 000 124 000 -
Purchase difference - - -
Purchase difference
Consideration and NCI 124 000 124 000 -
Consideration and NCI
Since acquisition
Since
Current acquisition
year
•Profit
Current year
for the year 16 000 16 000 -
Profit for the year
140 000 16 000 -
5
2. Pro forma consolidated journal entries
Dr Cr
R R
Share capital (B Ltd) 80 000
Retained earnings (B Ltd) 44 000
Investment in B Ltd (A Ltd) 124 000
Elimination of owner's equity of B Ltd at acquisition
A LTD GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20.6
R
Profit before tax (35 000 + 23 000) 58 000
Income tax expense (11 000 + 7 000) (18 000)
PROFIT FOR THE YEAR 40 000
Other comprehensive income for the year -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 40 000
A LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 20.6
Share Retained
Total
capital earnings
R R R
Balance at 1 January 20.6 100 000 96 000* 196 000
Total comprehensive income for the year
Profit for the year 40 000 40 000
Balance at 31 December 20.6 100 000 136 000 236 000
* Only parent's interest due to the fact that the interest was acquired on 1 January 20.6
6
A LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER

20.6
R
ASSETS
Non-current assets
Property, plant and equipment (160 000 + 180 000) 340 000
Current assets
Trade and other receivables (114 000 + 90 000) 204 000
Total assets 544 000

Equity attributable to owners of the parent
Share capital 100 000
Retained earnings 136 000
Total equity 236 000
Current liabilities
Trade and other payables (178 000 + 130 000) 308 000
Total equity and liabilities 544 000
EXAMPLE 2
Acquisition of a wholly owned subsidiary at a premium

The following are the abridged statements of financial position of A Ltd and its
subsidiary, B Ltd, as at 31 December 20.6:
7
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20.6
A Ltd B Ltd
ASSETS R R
Property, plant and equipment 160 000 180 000
Investment in B Ltd - 80 000 ordinary shares at fair value
(cost price: R148 000) 148 000 -
398 000 270 000

Share capital - ordinary shares (100 000/80 000 shares) 100 000 80 000
398 000 270 000
A Ltd acquired its interest in B Ltd on 1 January 20.5, at which time B Ltd's retained
earnings amounted to R26 000. At the date of acquisition, consider the carrying amount
of the assets and liabilities of B Ltd to be equal to the fair value thereof.
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR

THE YEAR ENDED 31 DECEMBER 20.6
A Ltd B Ltd
R R
Profit from operations 25 000 23 000
Dividends received from subsidiary 10 000 -
Profit before tax 35 000 23 000
Income tax expense (11 000) (7 000)

PROFIT FOR THE YEAR 24 000 16 000
Other comprehensive income for the year - -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 24 000 16 000
8
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER
20.6
Share capital Retained earnings Total

A Ltd B Ltd A Ltd B Ltd A Ltd B Ltd
R R R R R R
Balance at 1 January 20.6 100 000 80 000 111 000 54 000 211 000 134 000
Profit for the year 24 000 16 000 24 000 16 000
Dividend paid: ordinary (15 000) (10 000) (15 000) (10 000)
Balance at 31 December 20.6 100 000 80 000 120 000 60 000 220 000 140 000
REQUIRED
Draft the consolidated statement of profit or loss and other
comprehensive income, the consolidated statement of changes in
equity and the consolidated statement of financial position at 31
December 20.6 in compliance with the requirements of IFRS.
9
SOLUTION 2
Calculations
1. Analysis of owner's equity of B Ltd

A Ltd 100% NCI
Total At Since 0%
R R R R
At acquisition - 1 Jan 20.5
Share capital 80 000 80 000
106 000 106 000
Equity represented by (1)
42 000 42 000
goodwill - parent
148 000 148 000
Consideration
Since acquisition
• To beginning of current
(2)
year 28 000 28 000
Retained earnings
(54 000 31/12/20.5 -
26 000 1/1/20.5)
• Current year 16 000 16 000
Profit for the year (10 000) (10 000)
Dividend paid 182 000 148 000 34 000

Dr Cr
R R
Share capital (B Ltd) 80 000
Retained earnings (B Ltd) 26 000
Goodwill 42 000(1)
Investment in B Ltd (A Ltd) 148 000
10
Dividend received (A Ltd) 10 000(4)
Dividend paid (B Ltd) 10 000
Elimination of intragroup dividend
A LTD GROUP
R
Profit before tax (35 000 – 10 000(4) + 23 000) 48 000
Profit for the year 30 000

(3)

A LTD GROUP
31 DECEMBER 20.6
Share Retained Total

capital earnings
R R R
#
100 000 139 000 239 000
Balance at 1 January 20.6
Profit for the year (3)
30 000 30 000
Dividends paid: ordinary (15 000) (15 000)
Balance at 31 December 20.6 100 000 154 000 254 000
# [111 000 + 28 000(2)]
11
A LTD GROUP
20.6
R
ASSETS
Non-current assets
Property, plant and equipment (160 000 + 180 000) 340 000
(1)
Goodwill 42 000
382 000
Current assets

Retained earnings 154 000
Current liabilities
COMMENT
Note that we eliminate all intragroup transactions. Therefore, we eliminate the
dividends the subsidiary paid to the parent. Consequently, the group's profit before tax
will not include the dividends received from the subsidiary. The dividends in the
statement of changes in equity under retained income will consist of dividends paid by
the parent only.
EXAMPLE 3
Acquisition of a wholly owned subsidiary at a discount
The acquisition of a wholly owned subsidiary at a discount does not form part of this course
and will be dealt with in detail at third-year level.
12
4.4 EXERCISES
We conclude this learning unit with a few revision questions. It is important that you work
through these questions carefully while paying special attention to the comments.
QUESTION 1
The following are the trial balances of P Ltd and its subsidiary, S Ltd, at 31 December
20.8:
P Ltd S Ltd
R R
Credits
100 000 50 000
Share capital - ordinary shares (100 000/50 000 shares)
Retained earnings - 1 January 20.8 250 000 130 000
Gross profit 410 000 360 000
Dividends received 30 000 -
Accumulated depreciation - 31 December 20.8 50 000 30 000
Bank overdraft 30 000 -

950 000 630 000
Debits
Property, plant and equipment at cost price 152 000 100 000
Investment in S Ltd
- 50 000 shares at fair value (cost price: R150 000) 150 000 -
Inventories 180 000 160 000
Bank - 68 000
Auditors' remuneration 15 000 12 000
Staff cost 100 000 80 000
Depreciation 15 000 10 000
Taxation for the year 108 000 90 000
Dividends paid 40 000 30 000
950 000 630 000
13
Additional information
P Ltd acquired its interest in S Ltd on 2 January 20.5, at which date the retained earnings
of
S Ltd was R80 000. Consider the carrying amount of the assets and liabilities of S Ltd to
be equal to the fair value thereof at the date of acquisition.
REQUIRED
Draft the consolidated statement of financial position, the consolidated
statement of profit or loss and other comprehensive income and the
consolidated statement of changes in equity of the P Ltd Group for the
year ended 31 December 20.8 in compliance with the requirements of
IFRS.
QUESTION 2
The following are the trial balances of A Ltd and its subsidiary, B Ltd, at 31 December
20.8:
A Ltd B Ltd
Credits R R
Gross profit 410 000 360 000
950 000 630 000
14
Debits
152 000 100 000
Property, plant and equipment at cost price
Investment in B Ltd
Bank - 68 000
Staff cost 100 000 80 000
950 000 630 000
A Ltd acquired its interest in B Ltd on 2 January 20.5, and at that date the retained earnings
of B Ltd was R80 000. Consider the carrying amount of the assets and liabilities of B Ltd
to be equal to the fair value thereof at the date of acquisition.
REQUIRED
Draft the consolidated statement of financial position of the A Ltd
Group as at 31 December 20.8 in compliance with the requirements of
IFRS.
15
QUESTION 3
The following are the trial balances of J Ltd and its subsidiary, L Ltd, at 31 December
20.8:
J Ltd L Ltd
Credits R R
Gross profit 410 000 360 000

950 000 630 000
Debits
152 000 100 000
Property, plant and equipment at cost price
Investment in L Ltd
Bank - 68 000
Staff cost 100 000 80 000
950 000 630 000
16
J Ltd acquired its interest in L Ltd on 2 January 20.5, at which date the retained earnings of
L Ltd was R80 000. Consider the carrying amount of the assets and liabilities of L Ltd to
be equal to the fair value thereof at the date of acquisition.
REQUIRED
Draft the consolidated statement of profit or loss and other
comprehensive income and the consolidated statement of changes in
equity of the J Ltd Group for the year ended 31 December 20.8 in
compliance with the requirements of IFRS.
SOLUTIONS
QUESTION 1
P LTD GROUP
20.8
R
ASSETS
Non-current assets
Property, plant and equipment 172 000
[(152 000 + 100 000) - (50 000 + 30 000)]
(2)
Goodwill 20 000
192 000
Current assets
Inventories (180 000 + 160 000) 340 000
Cash and cash equivalents 68 000
678 000
17
(3)
Current liabilities
Bank overdraft 30 000
Total liabilities 170 000
P LTD GROUP
Note R
Gross profit (410 000 + 360 000) 770 000

Administrative expenses (15 000 + 12 000 + 15 000 + 10 000 (232 000)
+ 100 000 + 80 000)
Profit before tax 1 538 000
PROFIT FOR THE YEAR 340 000
P LTD GROUP
NOTES FOR THE YEAR ENDED 31 DECEMBER 20.8
1. Profit before tax

Profit before tax is arrived at after taking into account the following:
Expenses R
Auditors’ remuneration (15 000 + 12 000) 27 000
Depreciation (15 000 + 10 000) 25 000
Staff cost (100 000 + 80 000) 180 000
18
P LTD GROUP
31 DECEMBER 20.8

capital earnings
R
R R
Balance at 1 January 20.8 100 000 300 000# 400 000
Profit for the year 340 000 340 000
Dividend paid: ordinary (40 000) (40 000)
(3)
# (250 000 + 50 000(1))
Calculations
2. Analysis of owner's equity of S Ltd
P Ltd 100% NCI
Total
At Since 0%
R R R R
At acquisition – 2 Jan 20.5
Share capital 50 000 50 000 -
Retained earnings 80 000 80 000 -
130 000 130 000 -
Equity represented by goodwill –
parent 20 000 20 000(2)
Consideration 150 000 150 000 -
Since acquisition
• To beginning of current year
Retained earnings 50 000 50 000(1)
(130 000 31/12/20.7 –
80 000 2/1/20.5)
• Current year
Profit for the year (calculation 2) 168 000 168 000
Dividends paid (30 000) (30 000)
338 000 188 000 -
19
3. Profit for the year
R
Gross profit 360 000
Auditors' remuneration (12 000)
Staff cost (80 000)
Depreciation (10 000)
258 000
Taxation for the year (90 000)
168 000
Dr Cr
R R
(2)
Goodwill 20 000
Investment in S Ltd 150 000
Elimination of owner's equity of S Ltd at acquisition
Dividends received – P Ltd 30 000
Dividends paid – S Ltd 30 000
Elimination of intragroup dividends
COMMENT
In this example, we divide the analysis of owner's equity into three parts (periods)
because we require the figure for retained earnings for the subsidiary at the beginning
of the year in order to draft the statement of changes in equity.
Note that we eliminated the intragroup item, namely dividends of R30 000 paid by the
subsidiary.
Note also that if the parent or a subsidiary has a bank overdraft, we may not deduct it
from the favourable bank balance of another company in the group. We must show both
balances separately. The deduction is permitted only if the conditions of IAS 1 and IAS
32 mentioned in learning unit 3 are met.
20
QUESTION 2
A LTD GROUP
20.8
ASSETS R
Non-current assets
Property, plant and equipment 172 000
[(152 000 + 100 000) - (50 000 + 30 000)]
(2)
Goodwill (calculation 1) 20 000
192 000
Current assets
Inventories (180 000 + 160 000) 340 000
Cash and cash equivalents 68 000
678 000

Retained earnings [412 000 (calculation 2) - 30 000 (dividend received) 600 000
+ 188 000(1) + 30 000 (dividend paid)]
Current liabilities
Bank overdraft 30 000
Total liabilities 170 000
21
Calculations
1. Analysis of owner's equity of B Ltd

A Ltd 100% NCI
Total At Since 0%
R R R R
At acquisition ─ 2 Jan 20.5
Share capital 50 000 50 000
130 000 130 000

Equity represented by
goodwill - parent (2)
20 000
20 000
Consideration
150 000 150 000
Since acquisition
• To end of current year
3 Jan 20.5 to 31 Dec
20.8
(31/12/20.8) 218 000
Profit for the year
Retained earnings 168 000*
130 000
31/12/20.7
Retained earnings
(80 000)
2/1/20.5
Dividend paid (30 000)

(30 000)
(1)
338 000 188 000
* 360 000 - 90 000 - 12 000 - 80 000 - 10 000
22
2. Retained earnings of A Ltd – 31 December 20.8
R
Gross profit 410 000
Dividends received 30 000
Expenses (130 000)
Auditors' remuneration 15 000
Staff cost 100 000
Depreciation 15 000
310 000
Income tax expense (108 000)
Dividends paid (40 000)
Retained earnings 1 January 20.8 250 000
412 000
Dr Cr
R R
(2)
Goodwill 20 000
Investment in B Ltd 150 000
Dividends received – A Ltd 30 000
Dividends paid – B Ltd 30 000
COMMENT
Since the question only asked for a consolidated statement of financial position, the
analysis of owner's equity is different from that in question 1. Because we did not have
to do the consolidated statement of profit or loss and other comprehensive income nor
the consolidated statement of changes in equity, we did not require the figure for
retained earnings at the beginning of the year. Therefore, we can combine the "since
acquisition" sections in the analysis and include all movements in retained earnings for
the period since acquisition to the end of the current year.
Because a complete consolidated statement of changes in equity is no longer available,

we should calculate retained earnings separately, as in calculation 2 (100% holding).
23
QUESTION 3
J LTD GROUP
Note R
Gross profit (410 000 + 360 000) 770 000
Administrative expenses (15 000 + 12 000 + 15 000 (232 000)
+ 10 000 + 100 000 + 80 000)
Profit before tax 1 538 000
(2)
PROFIT FOR THE YEAR 340 000
J LTD GROUP
NOTES FOR THE YEAR ENDED 31 DECEMBER 20.8
1. Profit before tax

Profit before tax is arrived at after taking into account the following:
Expenses R
Auditors' remuneration (15 000 + 12 000) 27 000
Depreciation (15 000 + 10 000) 25 000
Staff cost (100 000 + 80 000) 180 000
J LTD GROUP
31 DECEMBER 20.8

capital earnings
R R R
Balance at 1 January 20.8 100 000 300 000# 400 000
(2)
Profit for the year 340 000 340 000
Dividend paid: ordinary (40 000) (40 000)
# (250 000 + 50 000(1))
24
Calculations
1. Analysis of owner's equity of L Ltd
Total J Ltd 100% NCI
At Since 0%
R R R R
At acquisition – 2 Jan 20.5 50 000 50 000 -
Share capital 80 000 80 000 -
Retained earnings 130 000 130 000 -
Equity represented by goodwill –
,,parent 20 000 (3)
20 000
Consideration 150 000 150 000 -
Since acquisition
• To beginning of current year
(1)
(130 000 31/12/20.7 –
80 000 2/1/20.5)
• Current year
Profit for the year (calc 2) 168 000 168 000
Dividends paid (30 000) (30 000)
338 000 188 000 -
2. Profit for the year

360 000
Gross profit
Auditors' remuneration (12 000)
Staff cost (80 000)
Depreciation (10 000)
258 000
Taxation for the year (90 000)
168 000
25
Dr Cr
R R
(3)
Goodwill 20 000
Investment in L Ltd 150 000
Elimination of owner's equity of L Ltd at acquisition
Dividends received – J Ltd 30 000
Dividends paid – L Ltd 30 000
COMMENT
In this question, you are merely expected to draft a consolidated statement of profit or
loss and other comprehensive income and a consolidated statement of changes in
equity. However, you will notice that the calculations for questions 1 and 3 are very
similar.
SELF-ASSESSMENT
After studying this learning unit, are you able to:
• draft the consolidated annual financial statements of a group, in
accordance with IFRS, if the wholly owned subsidiary was acquired
a few years ago?
• identify intragroup items and common items?
• do the pro forma consolidation journal entries?
• prepare and explain the analysis of equity?
26

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FAC2602

4.1 INTRODUCTION .................................................................................................. 2

4.2 TREATMENT OF GOODWILL ARISING ON ACQUISITION

4.3 CONSOLIDATION OF A WHOLLY OWNED SUBSIDIARY AFTER

• Eliminate common items

Analysis of owner's equity of B Ltd

Acquisition of a wholly owned subsidiary at net asset value

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20.6

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR

Profit before tax 35 000 23 000

Income tax expense (11 000) (7 000)

PROFIT FOR THE YEAR 24 000 16 000

Other comprehensive income for the year - -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 24 000 16 000

Before you draft these statements, you should do the following:

1. Analysis of owner's equity in B Ltd

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER

EQUITY AND LIABILITIES

Acquisition of a wholly owned subsidiary at a premium

398 000 270 000

EQUITY AND LIABILITIES

Trade and other payables 178 000 130 000

398 000 270 000

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR

Profit before tax 35 000 23 000

Income tax expense (11 000) (7 000)

Share capital Retained earnings Total

1. Analysis of owner's equity of B Ltd

2. Pro forma consolidated journal entries

Profit for the year 30 000

Other comprehensive income for the year -

Share Retained Total

# [111 000 + 28 000(2)]

EQUITY AND LIABILITIES

Acquisition of a wholly owned subsidiary at a discount

Gross profit 410 000 360 000

Dividends received 30 000 -

Trade and other payables 80 000 60 000

Accumulated depreciation - 31 December 20.8 50 000 30 000

Bank overdraft 30 000 -

Trade and other receivables 190 000 80 000

Auditors' remuneration 15 000 12 000

Staff cost 100 000 80 000

Depreciation 15 000 10 000

Taxation for the year 108 000 90 000

Dividends paid 40 000 30 000

950 000 630 000

Gross profit 410 000 360 000

Dividends received 30 000 -

Trade and other payables 80 000 60 000

Accumulated depreciation - 31 December 20.8 50 000 30 000

Bank overdraft 30 000 -

950 000 630 000

Trade and other receivables 190 000 80 000

Auditors' remuneration 15 000 12 000

Staff cost 100 000 80 000

Depreciation 15 000 10 000