Consolidated Statement Adjustments

Question 1

The intangible asset in Watling Ltd’s statement of financial position relates to goodwill which arose on the acquisition of an unincorporated business, immediately prior to Tongwell plc purchasing its shares in Watling Ltd.

Cumulative impairments of £18,000 in relation to this
goodwill had been recognised by Watling Ltd as at 31 March 2012.

The fair values of the remaining assets acquired and liabilities assumed by Tongwell plc at the acquisition date were equal to their carrying amounts, with the exception of a building purchased on 1 April 2008, which had a fair value on the date of acquisition of £120,000.

This building is being depreciated by Watling Ltd on a straight-line basis over 50 years and is included in the above statement of financial position at a carrying amount of £92,000

Question 2

Groveway Ltd is a joint venture, set up by Tongwell plc and a fellow venturer on 30 June 2010. Tongwell plc paid cash of £100,000 for its 40% share of Groveway Ltd.

Answer 2

Calculate investment in joint venture:
Cost
(Add post acquisition profits
Less: PURP
--------------
Multiply answer by P%)
Less impairment losses to date

e.g.:
Cost 100,000
Post acq profit 12,000
Less PURP (3,000)
-------------
9,000 x 40% = 3,600
-----
103,600
Less impairment to date (10,000)
---------
93,600

This goes under investment in joint venture in assets in the consolidated statement of financial position
The 3,600 is added to the retained earnings calculation

Question 3

At 31 March 2012 Tongwell plc’s trade receivables included £50,000 due from Watling Ltd.

However, Watling Ltd’s trade payables included only £40,000 due to Tongwell plc. The difference was due to cash in transit.

Answer 3

In the consolidated statement of financial position:

• Deduct 50,000 from the combined receivables
• Deduct 40,000 from the combined payables

Question 4

At 31 March 2012 impairment losses of £25,000 and £10,000 respectively in respect of goodwill arising on the acquisition of Watling Ltd and the carrying amount of Groveway Ltd need to be recognised in the consolidated financial statements.

Answer 4

• 25,000 deducted from W2 the calculation of goodwill for Watling
• 10,000 deducted in the calculation of investment in joint venture for Groveway
• Both impairments deducted from the retained earnings calculation

Question 5

At 31 March 2012 impairment losses of £25,000 and £10,000 respectively in respect of goodwill arising on the acquisition of Watling Ltd and the carrying amount of Groveway Ltd need to be recognised in the consolidated financial statements.

Answer 5

• 25,000 deducted from W2 the calculation of goodwill for Watling
• 10,000 deducted in the calculation of investment in joint venture for Groveway
• Both impairments deducted from the retained earnings calculation

Question 6

During the current year Tongwell plc sold goods to Watling Ltd for £12,000 and to Groveway Ltd for £15,000, earning a 20% gross margin on both sales.
All of these goods were still in the purchasing companies’ inventories at the year end.

Answer 6

Selling price 100% 15,000 12,000
Cost (80)% (12,000) (9,600)
———————————————————
Gross profit 20 3,000 2,400

• Watling PURP - 2,400 deducted from the retained earnings calculation