QUESTION THREE (30 MARKS)
KK Ltd regularly sells goods to its wholly-owned subsidiary company Ash Ltd, which it has owned since Ash Ltd.'s incorporation. The statement of financial position of the two companies on 28th February 2020 is given below.
Required: Prepare a consolidated account for the group that ended 28th February 2020.
STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2020
KK Ltd (R) Ash Ltd (R)
Assets
Non-Current Assets 90,000 60,000
PPE 35,000 60,000
Investments in 55,000 shares in Ash Ltd at cost 55,000
Current Assets 55,000 51,000
Inventory 16,000 27,000
Trade receivable: Ash Ltd 2,000
Other 21,000 24,000
Bank 16,000
Total Assets 145,000 111,000
Equity and Liability
Members' interest and reserves 116,000 69,000
55,000 R1 ordinary shares 55,000
85,000 R1 ordinary shares 85,000
Retained earnings 31,000 14,000
Non-Current Liabilities
Current Liabilities
Bank overdraft 8,000
Trade payables: KK Ltd 2,000
Other 29,000 32,000
Total Liabilities 29,000 42,000
Total Equity and Liabilities 145,000 111,000
CONSOLIDATED ACCOUNT FOR THE GROUP AS AT 28TH FEBRUARY 2020:
Assets:
Non-Current Assets:
PPE - 90,000
Investments - 55,000
Total Non-Current Assets - 145,000
Current Assets:
Inventory - 16,000
Trade Receivable - 2,000
Other Current Assets - 21,000
Bank - 16,000
Total Current Assets - 55,000
Total Assets - 200,000
Equity and Liability:
Members' Interest and Reserves:
55,000 R1 Ordinary Shares - 55,000
85,000 R1 Ordinary Shares - 85,000
Retained Earnings:
KK Ltd - 31,000
Ash Ltd - 14,000
Total Members' Interest and Reserves - 185,000
Non-Current Liabilities: - 0
Current Liabilities:
Bank Overdraft - 8,000
Trade Payables:
KK Ltd - 2,000
Other - 29,000
Total Current Liabilities - 39,000
Total Equity and Liabilities - 224,000
To prepare the consolidated account for the group ending on 28th February 2020, follow these steps:
Step 1: Eliminate the investment in subsidiary account.
- Remove the investment in 55,000 shares in Ash Ltd at cost from KK Ltd's non-current assets and add it to the non-current assets of Ash Ltd.
- This will consolidate the ownership of Ash Ltd under KK Ltd.
Consolidated non-current assets:
KK Ltd (R): 90,000
Ash Ltd (R): 60,000 + 55,000 = 115,000
Step 2: Consolidate the current assets.
- Add the current assets of KK Ltd and Ash Ltd together.
- Include inventory, trade receivables, other current assets, and bank balances.
Consolidated current assets:
KK Ltd (R): 55,000
Ash Ltd (R): 51,000
Total: 55,000 + 51,000 = 106,000
Step 3: Consolidate equity and liabilities.
- Add the members' interest and reserves of KK Ltd and Ash Ltd together.
- Include the capital shares and retained earnings.
Consolidated members' interest and reserves:
KK Ltd (R): 116,000
Ash Ltd (R): 69,000
Total: 116,000 + 69,000 = 185,000
Step 4: Consolidate non-current liabilities.
- Combine any non-current liabilities of KK Ltd and Ash Ltd.
Consolidated non-current liabilities: None mentioned in the given information.
Step 5: Consolidate current liabilities.
- Combine any current liabilities of KK Ltd and Ash Ltd.
Consolidated current liabilities:
KK Ltd (R): Bank overdraft: 8,000
Ash Ltd (R): Trade payables: 29,000 + Other: 32,000 = 61,000
Total: 8,000 + 61,000 = 69,000
Step 6: Prepare the consolidated statement of financial position.
Consolidated Statement of Financial Position as at 28th February 2020:
Assets:
Non-Current Assets: 205,000 (90,000 + 115,000)
Current Assets: 106,000
Equity and Liabilities:
Members' Interest and Reserves: 185,000
Current Liabilities: 69,000
Total Assets: 311,000 (205,000 + 106,000)
Total Equity and Liabilities: 311,000
Please note that without additional information regarding any intercompany transactions or adjustments required, this is a simplified consolidation. It is recommended to consult the relevant accounting standards and seek professional advice for a comprehensive consolidation.
To prepare a consolidated account for the group that ended 28th February 2020, you need to combine the financial information of KK Ltd and Ash Ltd. Consolidated accounts are used to present the financial position and performance of a group of companies as a single entity.
Here are the steps to prepare the consolidated account:
1. Combine the assets: Add up the non-current assets and current assets of both KK Ltd and Ash Ltd. In this case, the non-current assets of KK Ltd and Ash Ltd are 90,000 R and 60,000 R respectively. The total non-current assets would be 90,000 R + 60,000 R = 150,000 R. For the current assets, the total would be 55,000 R + 51,000 R = 106,000 R.
2. Combine the liabilities: Add up the non-current liabilities and current liabilities of both companies. In this case, the non-current liabilities of KK Ltd and Ash Ltd are 0 R, and the current liabilities are 8,000 R and 42,000 R respectively. The total liabilities would be 8,000 R + 42,000 R = 50,000 R.
3. Combine the members' interest and reserves: Add up the members' interest and reserves of both companies. In this case, the members' interest and reserves of KK Ltd are 116,000 R, and for Ash Ltd, it is 69,000 R. The total members' interest and reserves would be 116,000 R + 69,000 R = 185,000 R.
4. Prepare the consolidated statement of financial position: The consolidated statement of financial position would show the combined information for the group. It would include the combined assets, liabilities, and members' interest and reserves.
Consolidated Statement of Financial Position as at 28th February 2020:
Assets:
Non-Current Assets: 150,000 R
PPE: 95,000 R (35,000 R + 60,000 R)
Investments in Ash Ltd: 55,000 R
Current Assets: 106,000 R
Inventory: 43,000 R (16,000 R + 27,000 R)
Trade receivable: 2,000 R
Other: 45,000 R (21,000 R + 24,000 R)
Bank: 16,000 R
Total Assets: 256,000 R
Equity and Liabilities:
Members' interest and reserves: 185,000 R
55,000 R1 ordinary shares: 55,000 R
85,000 R1 ordinary shares: 85,000 R
Retained earnings: 45,000 R (31,000 R + 14,000 R)
Non-Current Liabilities: 0 R
Current Liabilities: 50,000 R
Bank overdraft: 8,000 R
Trade payables: 31,000 R (2,000 R + 29,000 R)
Other: 42,000 R
Total Liabilities: 50,000 R
Total Equity and Liabilities: 256,000 R
Please note that the figures in the consolidated statement of financial position are calculated by combining the respective figures from KK Ltd and Ash Ltd.