Question

Sales

Cost of sales
Gross profit
Operating expenses
Profit from operations
Interest
Profit before tax
TaX
Profit after tax
2.550,000
(1,650,000)
900.000
(465,000)
435,000
(98,550)
336,450
(67.290)
269,160
Saul plc
£
360.000
(150,000)
210.000
(120.000)
90.000
(8,775)
81.225
(16.245)
64.980
The following points are relevant to the preparation of the consolidated accounts:
(1)
Abba pc acquired 70% of the ordinary £1 shares of Saul plc on 1 Jan 2022 for
£ 420,000 in cash. The balance of the retained profit in Saul pl was £ 217,500
at acquisition. The fair value of Saul plc's non-current assets (PPE) at the date
of acquisition was £ 40,000 higher than their book value. Saul plc does not
account for this amount in its own accounts. Saul depreciates its PPE using the
straight-line, and at 1 January these assets had a useful remaining life of 10
years.
(2)
Abba plc sold goods to Saul ple for £ 50,000 during 2022. The original cost of
these goods was £ 30,000. Half of these goods were included in Saul plc's
closing inventory on 31 Dec 2022.
(3)
For the year ended 31 Dec 2022, goodwill impairment on the acquisition of Saul
pc was determined by the directors to be £ 15,000.
(4)
At 31 December 2022 Saul pc owed Abba pc £ 20,000.
(5)
Non-controlling interest (NCI) is determined using the partial goodwill method
(Method 1).

Answer 1

Explanation:

To prepare the consolidated accounts, the following adjustments need to be made:

Adjust for the fair value of non-current assets (PPE) acquired in the acquisition of Saul plc by Abba pc:

Increase the value of PPE by £40,000

Depreciate the increased value of PPE over its useful remaining life of 10 years

Record a corresponding increase in the accumulated depreciation balance

Eliminate intercompany sales between Abba pc and Saul plc:

Remove the sales revenue of £50,000 recorded by Abba pc

Remove the cost of goods sold of £30,000 recorded by Abba pc

Remove the corresponding inventory balance of £15,000 recorded by Saul plc

Recognize goodwill and goodwill impairment on the acquisition of Saul plc by Abba pc:

Recognize goodwill of £147,000 (£210,000 - £63,000 partial goodwill)

Recognize a goodwill impairment charge of £15,000 for the year ended 31 Dec 2022

Record a corresponding decrease in the carrying amount of goodwill

Eliminate intercompany balances between Abba pc and Saul plc:

Remove the accounts payable balance of £20,000 owed by Saul plc to Abba pc

After making the above adjustments, the consolidated accounts can be prepared. The non-controlling interest (NCI) will be calculated using the partial goodwill method (Method 1), which involves valuing the NCI at its proportionate share of the fair value of the identifiable net assets of Saul plc. The consolidated statement of profit or loss will show the profit from operations, interest income or expense, and profit before tax for the group, with tax expense deducted to arrive at the consolidated profit after tax.