Following are the draft Balance Sheets of two companies A Ltd. and B Ltd. as at 31.03.1996:
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(Rs. in lakhs) |
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Liabilities |
A Ltd. |
B Ltd. |
Assets |
A Ltd. |
B Ltd. |
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Share Capital |
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Fixed Assets |
5.00 |
1.50 |
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(Rs. 100 each) |
6.00 |
3.00 |
Investment: |
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Profits: |
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2,400 Shares in B Ltd. |
3.00 |
- |
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Capital Profit |
0.80 |
0.85 |
1,200 Shares in A Ltd. |
- |
2.00 |
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Reserve Profit |
3.20 |
0.29 |
Current Assets: |
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Creditors |
1.50 |
0.81 |
Debtors |
2.00 |
0.80 |
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Stock |
0.40 |
0.30 |
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_____ |
____ |
Cash and Bank |
1.10 |
0.35 |
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11.50 |
4.95 |
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11.50 |
4.95 |
The following adjustments were not yet made:
1. Stock worth Rs. 5,000 in B Ltd. was found to be obsolete with no value.
2. A Ltd. acquires an asset costing Rs. 50,000 on 31.3.1996. No effect has been given for both the purchase and payment.
3. During the year A Ltd. sold an asset for Rs. 60,000 (original cost Rs. 40,000). The profit was included in the revenue profit.
4. Debtors of A Ltd. included a sum of Rs. 50,000 owed by B Ltd.
You are required to prepare the consolidated Balance Sheet of both the companies as on 31.3.1996 after giving effect to the above adjustments. (15 marks)(November, 1996)
Answer
Consolidated Balance Sheet of A Ltd. and its subsidiary B Ltd.
as at 31st March, 1996
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(Rs. in thousands) |
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Liabilities |
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Amount |
Assets |
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Amount |
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Share Capital |
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Fixed Assets |
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(less:1,200 shares held by B Ltd.) |
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480 |
A Ltd. |
550 |
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Minority Interest |
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105 |
B Ltd. |
150 |
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Capital profit |
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60 |
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|
700 |
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Revenue Profit |
|
304 |
Cost of Control |
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40 |
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Creditors |
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Current Assets: |
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A Ltd. |
150 |
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Stock |
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B Ltd. |
81 |
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A Ltd. |
40 |
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231 |
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B Ltd. |
25 |
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Less: Mutual indebtedness |
50 |
181 |
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65 |
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Debtors |
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A Ltd. |
200 |
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B Ltd. |
80 |
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280 |
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Less: Mutual indebtedness |
50 |
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230 |
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Cash and Bank |
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A Ltd. |
110 |
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Less: Payment for asset |
50 |
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60 |
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B Ltd. |
35 |
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____ |
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95 |
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1,130 |
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1,130 |
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Working Notes:
(1) Adjustment of Revenue and Capital Profits:
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(Rs. in lakhs) |
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A Ltd. |
B Ltd. |
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Revenue profits |
3.20 |
0.29 |
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Less: Stock written off |
- |
0.05 |
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Less: Transfer to capital profit |
0.20 |
- |
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(Profit on sale of asset) |
____ |
____ |
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3.00 |
0.24 |
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Capital profits |
0.80 |
0.85 |
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Add: Transfer from revenue profit |
0.20 |
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|
1.00 |
0.85 |
(2) Calculation of Minority Interest in Revenue Profits
Let A = Revenue profits of A Ltd., and
B = Revenue profit of B Ltd.
A = 3,00,000 + (4/5) ´ B
B = 24,000 + (1/5) ´ A
B = 24,000 + (1/5) ´ [3,00,000 + (4/5) ´ B]
B = 24,000 + 60,000 + (4/25) ´ B
B = 84,000 + (4/25) ´ B
(21/25) ´ B = 84,000
B = Rs. 1,00,000
Minority interest in revenue profits is 1/5 of Rs. 1,00,000 or Rs. 20,000. Total revenue profits being Rs. 3,24,000 for A Ltd. and B Ltd. together, Rs. 3,04,000 remains for the group.
(3) Calculation of Minority Interest in Capital Profits
Let A = Capital profits of A Ltd., and
B = Capital profits of B Ltd.
A = 1,00,000 + (4/5) B
B = 85,000 + (1/5) ´ A
B = 85,000 + (1/5) ´ [1,00,000 + (4/5) ´ B]
B = 85,000 + 20,000 + (4/25) ´ B
B = 1,05,000 + (4/25) ´ B
(21/25) ´ B = 1,05,000
B = Rs. 1,25,000
Minority interest (1/5) would be Rs. 25,000. Shares of A Ltd. will be Rs. 1,00,000. Capital profits of A Ltd. = 1,85,000 – 1,25,000 = Rs. 60,000.
(4) Total Minority Interest
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Rs. |
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Shares held by outsiders |
60,000 |
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Revenue profit |
20,000 |
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Capital profit |
25,000 |
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Minority Interest |
1,05,000 |
(5) Cost of control
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Rs. |
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Amount paid by both companies |
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5,00,000 |
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Less: Face value of shares in B Ltd. |
2,40,000 |
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Face value of shares in A Ltd. |
1,20,000 |
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Capital profits |
1,00,000 |
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4,60,000 |
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Cost of control |
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40,000 |
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