ACCT 401-Assignment-Deadline is Monday 11 December Submit hard copy in the class

Question

ACCT 401-Assignment-Deadline is Monday 11 December Submit hard copy in the class on Monday 11 December Below are the Balance Sheets of Alpha, Beta and Gamma Ltd for the year to 31 December 2007 Gamma Alpha 450 300 Beta 80 Plant Assets Investment in: Beta 153 50 30 40 170 197 110 95 180 1330 200 A/R Cash Total Assets 348 A/P 200 100 Share capital Retained earnings Total liabilities and equity 700 430 1330 348 170 Alpha bought 75% of the share capital of Beta on 1/1/2006 when Beta's retained earnings were £60 Alpha bought 80% of the share capital of Gamma on 1/1/2007 when Gamma's retained earnings were £32 The inventory of Alpha includes inventory bought from Beta for £50. Beta sold this inventory at cost plus a 25% mark-up. All the inventory remains unsold by Alpha. iii) iv) In 1/1/2007, Alpha sold a plant asset to Beta for £80. It had originally purchased it in 2001 for £100. It used straight-line depreciation based on a life of ten years (including full year depreciation in year of purchase). Beta depreciates this asset over its remaining life using straight line method. v) The A/R of Alpha includes £10 due for Beta. Beta paid back this amount on 22 December 2007, but Alpha has not entered this into its accounts yet. v) The goodwill on the acquisition of Gamma has been impaired by an estimated 50% in 2007 Required

Explanation / Answer

Working Note 1 Analysis of Retained earnings of subsidiary Company Beta Gama Beta Gama % of holding by Alpha 75% 80% Group Interest Minority Interest Group Interest Minority Interest Retained earning on December 31, 2007 (see Note 2 below) 98 56 Retained earning on January 1, 2007 60 Retained earning on January 1, 2006 32 Net Income transferred from this year 38 24 Interest in Capital Profit 45 15 25.6 6.4 Interest in Revenue Profit 28.5 9.5 19.2 4.8 Total 73.5 24.5 44.8 11.2 2 Consolidation of balances Total Minority Interest Pre acquisition Post acqusition Beta Share capital 200 50 150 Retained earnings 108 24.5 45 28.5 Total 74.5 195 28.5 Less : cost of Investment 300 Goodwill 105 Gamma Share capital 100 20 80 Retained earnings 56 11.2 25.6 19.2 Total 31.2 105.6 19.2 Less : cost of Investment 153 Goodwill 47.4 2 Revised Balances In the books of Alpha Beta Beta Beta Alpha Alpha Beta Alpha Inventory Retained earnings Accounts payable Cash Retained earnings Goodwill Plants asset A/R Balances 197 108 40 63 430 152.4 80 197 Inventory reserve -10 -10 Cash in Transit 10 10 Goodwill impairment -23.7 -23.7 Intercompany balances -10 -10 Unreaslized profit Sale of Plant asset -36 -36 Balances 187 98 40 73 370.3 128.7 44 187 profit on sale of asset Sale price 80 Carrying value of plant in the books of Alpha Ltd 40 = Cost-accumulated depreciation = =100-60 Profit on transfer 40 Rate of depreication 10% Depreciation on profit element 4 Unrealized profit to be eliminated 36 Group Consolidated balance sheet Plant asset 544 Goodwill 128.7 Inventory 347 A/R 295 Cash 163 Total asset 1477.7 A/P 254 Minority Interest 105.7 Share Capital 700 Retained earnings 418 Toal equity & Liability 1477.7 Journal entries in the books of parent company Date/Sr.No Account title & Explanation Debit Credit Amount in $ Amount in $ 1 Retained earnings 23.7 Goodwill 23.7

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