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
I apologize for the confusion. It seems there was a mistake in my previous response. Let me correct it below:
Asset Accounts:
Non-Current Assets:
- PPE: Debit KK Ltd 35,000
- PPE: Debit Ash Ltd 60,000
- Investments in Ash Ltd shares: Debit KK Ltd 55,000
Thank you for pointing out the error. Non-current assets like PPE and investments are typically debited, not credited.
To prepare the consolidated account for the group as of 28th February 2020, we need to combine the financial information of KK Ltd and Ash Ltd.
Consolidated Statement of Financial Position as at 28th February 2020:
Assets
Non-Current Assets
PPE 35,000
Investments in Ash Ltd shares 55,000
Current Assets
Inventory 16,000
Trade receivable: Ash Ltd 2,000
Other 21,000
Bank 16,000
Total Assets 145,000
Equity and Liability
Members' interest and reserves
55,000 R1 ordinary shares 55,000
85,000 R1 ordinary shares 85,000
Retained earnings 31,000
Non-Current Liabilities
Current Liabilities
Bank overdraft 8,000
Trade payables: KK Ltd 2,000
Other 29,000
Total Liabilities 29,000
Total Equity and Liabilities 145,000
Explanation of Adjustments:
1. Non-Current Assets:
- Add the investment in Ash Ltd shares (55,000) to KK Ltd's non-current assets.
2. Current Assets:
- Combine the inventories of KK Ltd (16,000) and Ash Ltd (27,000).
- Include the trade receivable from Ash Ltd (2,000) under current assets.
- Combine the other current assets of KK Ltd (21,000) and Ash Ltd (24,000).
- Add the bank balances of KK Ltd (16,000) and Ash Ltd (0) to get the consolidated bank balance (16,000).
3. Equity and Liability:
- Combine the members' interest and reserves of KK Ltd (116,000) and Ash Ltd (69,000).
- Combine the ordinary shares of KK Ltd (55,000) and Ash Ltd (85,000).
- Combine the retained earnings of KK Ltd (31,000) and Ash Ltd (14,000).
4. Current Liabilities:
- Include the bank overdraft of KK Ltd (8,000) under current liabilities.
- Include the trade payables to KK Ltd (2,000) under current liabilities.
- Combine the other current liabilities of KK Ltd (29,000) and Ash Ltd (32,000).
After making these adjustments, we get the final consolidated statement of financial position for the group as at 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
Required: Prepare a consolidated T-account for the group that ended 28th February 2020.
To prepare a consolidated T-account for the group as of 28th February 2020, we need to combine the financial information of KK Ltd and Ash Ltd.
Consolidated T-account for the group as at 28th February 2020:
Equity and Liabilities Debit Credit
Members' interests and reserves 116,000
- 55,000 R1 ordinary shares 55,000
- 85,000 R1 ordinary shares 85,000
Retained earnings 31,000
Non-Current Liabilities
Current Liabilities
- Bank overdraft 8,000
- Trade payables: KK Ltd 2,000
- Other 29,000
Total Liabilities 39,000
Assets
Non-Current Assets Debit Credit
- PPE 35,000 60,000
- Investments in 55,000 shares in Ash Ltd at cost 55,000
Current Assets Debit Credit
- 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
Explanation:
1. Equity and Liabilities:
- Combine the members' interests and reserves of KK Ltd (116,000) and Ash Ltd (69,000).
- Combine the ordinary shares of KK Ltd (55,000) and Ash Ltd (85,000).
- Combine the retained earnings of KK Ltd (31,000) and Ash Ltd (14,000).
2. Non-Current Liabilities:
- Include the bank overdraft of KK Ltd (8,000) under current liabilities.
- Include the trade payables to KK Ltd (2,000) under current liabilities.
- Combine the other current liabilities of KK Ltd (29,000) and Ash Ltd (32,000).
3. Non-Current Assets:
- Combine the PPE of KK Ltd (35,000) and Ash Ltd (60,000).
- Include the investment in 55,000 shares in Ash Ltd at cost (55,000) under non-current assets.
4. Current Assets:
- Combine the inventories of KK Ltd (16,000) and Ash Ltd (27,000).
- Include the trade receivable from Ash Ltd (2,000) under current assets.
- Combine the other current assets of KK Ltd (21,000) and Ash Ltd (24,000).
- Add the bank balances of KK Ltd (16,000) and Ash Ltd (0) to get the consolidated bank balance (16,000).
After making these adjustments, we get the final consolidated T-account for the group as at 28th February 2020.
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 general ledger 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
To prepare a consolidated general ledger account for the group as at 28th February 2020, we need to combine the financial information of KK Ltd and Ash Ltd.
Consolidated General Ledger Account for the Group as at 28th February 2020:
Asset Accounts:
Non-Current Assets:
- PPE: Credit KK Ltd 35,000
- PPE: Credit Ash Ltd 60,000
- Investments in Ash Ltd shares: Debit KK Ltd 55,000
Current Assets:
- Inventory: Debit KK Ltd 16,000
- Inventory: Debit Ash Ltd 27,000
- Trade receivable: Ash Ltd: Debit KK Ltd 2,000
- Other current assets: Debit KK Ltd 21,000
- Other current assets: Debit Ash Ltd 24,000
- Bank: Debit KK Ltd 16,000
Liability and Equity Accounts:
Equity and Reserves:
- Members' interests and reserves: Credit KK Ltd 116,000
- Members' interests and reserves: Credit Ash Ltd 69,000
- 55,000 R1 ordinary shares: Credit KK Ltd 55,000
- 85,000 R1 ordinary shares: Credit KK Ltd 85,000
- Retained earnings: Credit KK Ltd 31,000
- Retained earnings: Credit Ash Ltd 14,000
Non-Current Liabilities:
- None in this case
Current Liabilities:
- Bank overdraft: Debit KK Ltd 8,000
- Trade payables: KK Ltd: Credit KK Ltd 2,000
- Other current liabilities: Credit KK Ltd 29,000
- Other current liabilities: Credit Ash Ltd 32,000
After making these entries, we get the consolidated general ledger account for the group as at 28th February 2020. Note that for simplicity, only the relevant accounts have been included in this consolidated general ledger account.