“Finical accounting and Reporting: Consolidated Income Statement
The directors of Paint plc, a company in the specialist printing Industry, have recently adopted a policy of growing the company by acquiring shares in other allied companies.
Paint plc acquired 25% shareholding in Art
Ltd for 2,000,000 on 1 April 2011. Paint plc also has a number of small
investments in other printing and promotional companies but none of the
shareholding exceed 5%
On 1 January 2011 Paint plc acquired 80,000
equity shares in Smooth Ltd and immediately appointed its representatives to be
in a majority on the Board of Directors. This acquisition was finances by an
immediate cash payment to the former shareholders of Smooth Ltd of 852,000.
A fair value exercise has been conducted on
the non-current assets of Smooth Ltd during 2011 and the directors of Paint plc
have agreed two variations, although these have not been recorded by Smooth Ltd
(and the assets has not been disposed of by 31 December 2011):

Land to decrease in value by
70,000

Manufacturing plant to increase
in value by 120,000. This plant is estimated to have a remaining useful life
of four years from 1 January 2011, no residual value and depreciated using the
straight line method

The equity section of Smooth Ltds
Statement of Financial position at 31 December 2010( there was no issue of
shares during 2011) was as follows:

000

Equity
shares of 2.00 each , fully paid

200

Share
premium

80

Retained
earnings

360

640

Additional information:
1.
During 2011 Paint plc sold raw
materials to Smooth Ltd at an invoice value of 1.5 million. At 31 December
2011 on third of the amount had not been paid by Smooth Ltd and 240,000
remained in Smooth Ltds inventories. The raw materials had been transferred by
Paint plc at mark-up on cost of 20%
2.
The directors of Paint plc are
concerned a the low profitability of Smooth Ltd as sales and profits fell
significantly during 2011. They therefore wish to make an impairment charge of
30% of the goodwill on acquisition.
3.
The value of the goodwill
attributable to the NCI was 20,000.
4.
Parent company has accounted
for 160,000 interest received on 31/12/2011 from the subsidiary under
Investment Income

The income statements for
the year ended 31 December 2011 for the three companies are as follows

Paint plc
000

Smooth Ltd
000

Art Ltd
000

Revenue
Cost of sales

Gross profit
Administrative
expenses
Distribution costs
Investment income
Fianc costs

Profit before tax
Income tax

Profit(loss) for the
period

10,500
(7,400)
——–
3100
(900)
(500)
360
(300)
——–
1760
(700)
——–
1,060
———

6,300
(4,100)
———-
2,200
(870)
NIL
NIL
(600)
———
730
(400)
———
330
———

9,000
(3,500)
——–
5,500
(800)
(400)
NIL
(200)
——–
4,100
(900)
——-
3,200
——–

Required:
1.
Calculate the goodwill arising
on the acquisition of Smooth Ltd. (5 marks)
2.
Calculate the carrying amount
of the investment in Art Ltd at 31 December 2011. (2 mark)
3.
Prepare the consolidated income
statement for Paint plc for the year ended 31 December 2011 . (18 mark)

Finical accounting and Reporting:
Consolidated Income StatementThe directors of Paint plc, a company in
the specialist printing Industry, have recently adopted a policy of growing the
company by acquiring shares in other allied companies.Paint plc acquired 25% shareholding in Art
Ltd for 2,000,000 on 1 April 2011. Paint plc also has a number of small
investments in other printing and promotional companies but none of the
shareholding exceed 5%On 1 January 2011 Paint plc acquired 80,000
equity shares in Smooth Ltd and immediately appointed its representatives to be
in a majority on the Board of Directors. This acquisition was finances by an
immediate cash payment to the former shareholders of Smooth Ltd of 852,000.A fair value exercise has been conducted on
the non-current assets of Smooth Ltd during 2011 and the directors of Paint plc
have agreed two variations, although these have not been recorded by Smooth Ltd
(and the assets has not been disposed of by 31 December 2011):
Land to decrease in value by
70,000
Manufacturing plant to increase
in value by 120,000. This plant is estimated to have a remaining useful life
of four years from 1 January 2011, no residual value and depreciated using the
straight line method
The equity section of Smooth Ltds
Statement of Financial position at 31 December 2010( there was no issue of
shares during 2011) was as follows:000Equity
shares of 2.00 each , fully paid200Share
premium80Retained
earnings360640Additional information:1.
During 2011 Paint plc sold raw
materials to Smooth Ltd at an invoice value of 1.5 million. At 31 December
2011 on third of the amount had not been paid by Smooth Ltd and 240,000
remained in Smooth Ltds inventories. The raw materials had been transferred by
Paint plc at mark-up on cost of 20%2.
The directors of Paint plc are
concerned a the low profitability of Smooth Ltd as sales and profits fell
significantly during 2011. They therefore wish to make an impairment charge of
30% of the goodwill on acquisition.3.
The value of the goodwill
attributable to the NCI was 20,000.4.
Parent company has accounted
for 160,000 interest received on 31/12/2011 from the subsidiary under
Investment IncomeThe income statements for
the year ended 31 December 2011 for the three companies are as followsPaint plc000Smooth Ltd000Art Ltd000RevenueCost of salesGross profitAdministrative
expensesDistribution costsInvestment incomeFianc costsProfit before taxIncome taxProfit(loss) for the
period10,500(7,400)——–3100(900)(500)360(300)——–1760(700)——–1,060———6,300(4,100)———-2,200(870)NILNIL(600)———730(400)———330———9,000(3,500)——–5,500(800)(400)NIL(200)——–4,100(900)——-3,200——–Required:1.
Calculate the goodwill arising
on the acquisition of Smooth Ltd. (5 marks)2.
Calculate the carrying amount
of the investment in Art Ltd at 31 December 2011. (2 mark)3.
Prepare the consolidated income
statement for Paint plc for the year ended 31 December 2011 . (18 mark)”