Question 9
The following are the financial statements of White and its subsidiary Brown as at 30 September 20X9
Statement of income for the year ended
30 September 20X9
White Brown
£000 £000
Sales revenue 245,000 95,000
Cost of sales (140,000) (52,000)
Gross profit 105,000 43,000
Distribution costs (12,000) (10,000)
Admin expenses (55,000) (13,000)
Profit from operations 38,000 20,000
Dividend from Brown 7,000 —
Profit before tax 45,000 20,000
Tax (13,250) (5,000)
Net profit for the year 31,750 15,000
Statements of financial position as at
30 September 20X9
White Brown
£000 £000
Non-current assets:
Property, plant & equipment 110,000 40,000
Investments – 21 million
shares in Brown 24,000 —
Current assets:
Inventory 13,360 3,890
Trade receivables & dividend
receivable 14,640 6,280
Bank 3,500 2,570
165,500 52,740
Equity and reserves:
Ordinary shares of £1 each 100,000 30,000
Reserves 9,200 1,000
Retained earnings 27,300 9,280
136,500 40,280
Current liabilities:
Trade Payables 9,000 2,460
Dividend declared 20,000 10,000
165,500 52,740
The following information is also available:
(i) White purchased its ordinary shares in Brown on 1 September 20X4 when Brown had credit balances on reserves of £0.5 million and on retained earnings of £1.5 million.
(ii) At 1 September 20X8 goodwill on the acquisition of Brown was £960,000. The impairment review at 30 September 20X9 reduced this to £800,000.
(iii) During the year ended 30 September 20X9 White sold goods which originally cost £12 million to Brown and were invoiced to Brown at cost plus 40%. Brown still had 30% of these goods in inventory as at 30 September 20X9.
(iv) Brown owed White £1.5 million at 30 September 20X9 for goods supplied during the year.
Required:
(a) Calculate the goodwill arising at the date of acquisition.
(b) Prepare the Consolidated Statement of Income for the year ended 30 September 20X9.
(c) Prepare the Consolidated Statement of Financial Position at 30 September 20X9.
