Albert Ltd regularly sells goods to its wholly-owned subsidiary company Brooklyn Ltd, which it has owned since Brooklyn Ltd.'s incorporation. The statement of financial position of the two companies on 28th February 2023 is given below.
Required:
Show the proforma journals for each
Which accounting standards influence the preparation of the consolidated accounts for the group?
Prepare a consolidated account for the group that ended 28th February 2023.
Albert Ltd regularly sells goods to its wholly-owned subsidiary company Brooklyn Ltd, which it has owned since Brooklyn Ltd.'s incorporation. The statement of financial position of the two companies on 28th February 2023 is given below.
Statement of financial position as at 28 February 2023
Albert LTD Brookly ltd
Assets
Non-Current assets R90 000 R60 000
PPE R35 000 R60 000
Investment in 55,000 shares in Brooklyn Ltd at cost R55 000
Current Assets
Inventory R16 000 R27 000
Trade receivable: Brooklyn ltd R 2 000
Other R 21 000 R24 000
Bank R16 000
Total Assets R145 000 R111 000
Equity and liability
Members interest and reserves R116 000 R69 000
55 000 R1 ordinary shares R55 000
85 000 R1 ordinary shares R85 000
Retained earnings R31 000 R14 000
Non-current liabilities
Current Liabilities
Bank overdraft R8 000
Total trade payables: Albert LTD R2 000
Other R29 000 R32 000
Total Liabilities R29 000 R42 000
Total Equity and Liabilities R145 000 R111 000
Proforma journals for each company:
Albert Ltd:
1) Remove investment in Brooklyn Ltd at cost:
Dr Investment in Brooklyn Ltd (asset) R55,000
Cr Retained earnings (equity) R55,000
2) Record sale of goods to Brooklyn Ltd:
Dr Trade receivable - Brooklyn Ltd (asset) R2,000
Cr Sales (income) R2,000
Brooklyn Ltd:
1) Record purchase of goods from Albert Ltd:
Dr Inventory (asset) R27,000
Cr Trade payable - Albert Ltd (liability) R27,000
2) Remove trade receivable from Albert Ltd:
Dr Trade receivable - Albert Ltd (asset) R2,000
Cr Retained earnings (equity) R2,000
The accounting standards that influence the preparation of consolidated accounts for the group include International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP).
Consolidated account for the group ending 28th February 2023:
Consolidated Statement of Financial Position:
Assets:
Non-current assets:
PPE R95,000 (R35,000 + R60,000)
Investment in Brooklyn Ltd R55,000
Current assets:
Inventory R43,000 (R16,000 + R27,000)
Trade receivable R2,000
Other current assets R45,000 (R21,000 + R24,000)
Bank R16,000
Total assets: R256,000 (R95,000 + R55,000 + R43,000 + R2,000 + R45,000 + R16,000)
Equity and liabilities:
Equity:
Ordinary shares R140,000 (R55,000 + R85,000)
Retained earnings R45,000 (R31,000 + R14,000)
Non-current liabilities:
None
Current liabilities:
Bank overdraft R8,000
Trade payable R31,000 (R2,000 + R29,000)
Other current liabilities R32,000
Total liabilities: R71,000 (R8,000 + R31,000 + R32,000)
Total equity and liabilities: R256,000 (R140,000 + R45,000 + R71,000)