Oak acquired the entire share capital of Acorn on 1.1.00. The balance sheets of
ID: 2560051 • Letter: O
Question
Oak acquired the entire share capital of Acorn on 1.1.00. The balance sheets of the two companies at that date are shown below:
Oak
Acorn
Property, plant & equipment
100,000
10,000
Investment at cost
30,000
130,000
10,000
Current assets
Account with Acorn
8,000
Other assets
51,000
43,000
59,000
43,000
Current liabilities
Account with Oak
6,000
Other liabilities
31,000
17,000
31,000
23,000
Net current assets
28,000
20,000
158,000
30,000
Ordinary £1 shares
100,000
20,000
Preference shares
5,000
Retained profits
58,000
5,000
158,000
30,000
The difference on the current account is due to cash in transit.
Required:
Prepare the consolidated balance sheet as at 1 January 2000.
Oak
Acorn
Property, plant & equipment
100,000
10,000
Investment at cost
30,000
130,000
10,000
Current assets
Account with Acorn
8,000
Other assets
51,000
43,000
59,000
43,000
Current liabilities
Account with Oak
6,000
Other liabilities
31,000
17,000
31,000
23,000
Net current assets
28,000
20,000
158,000
30,000
Ordinary £1 shares
100,000
20,000
Preference shares
5,000
Retained profits
58,000
5,000
158,000
30,000
Explanation / Answer
Consolidated Balance Sheet
(As at 1 January, 2000)
Non-current Assets;
Property, plant & equipment (100000 + 10000)
110000
Current Assets;
Other assets (51000 + 45000)
96000
Current Liabilities;
Other liabilities (31000 + 17000)
48000
Net Current Assets
48000
Total Assets
158000
Shareholders’ Fund;
Ordinary £1 shares
100000
Retained profits
58000
Total Shareholders’ Fund
158000
Working Note;
1. Investment shown in the balance sheet of Oak will not be shown in the consolidated balance sheet.
2. Account with Acorn and Account with Oak both will be eliminated. As it is given in the question that $2000 cash is in transit so $2000 will be added back to cash balance of Acorn and $2000 will be added to as current liability to Oak.
Thus now there will be a balance of ($6000 + $2000) = $8000 (Account with Oak) in the given balance sheet of Acorn. So inter-current liability & inter-current assets of $8000 will be eliminated.
3. Only capital of the Oak will be shown in the consolidated balance sheet.
4. Only retained earnings of Oak will be shown in the consolidated balance sheet.
Consolidated Balance Sheet
(As at 1 January, 2000)
Non-current Assets;
Property, plant & equipment (100000 + 10000)
110000
Current Assets;
Other assets (51000 + 45000)
96000
Current Liabilities;
Other liabilities (31000 + 17000)
48000
Net Current Assets
48000
Total Assets
158000
Shareholders’ Fund;
Ordinary £1 shares
100000
Retained profits
58000
Total Shareholders’ Fund
158000
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