Exercise on Consolidation of financial statements

Alpha has 80 percent-owned subsidiary called Beta. Their income statement and
balance sheet for a given year are as follows:

Income Statement for the year ended on 31/3/2006

Particulars Alpha Beta

Sales 3300* 1000
Cost of goods sold 1800 900**
Other expenses 200 50
Profit before tax 1300 50
Tax @ 30% 390 15
Profit after tax*** 910 35
* includes sale of 500 to Beta, ** includes 500 for purchase from Alpha with no
closing inventory, *** Transfer to Reserves & Surplus

Balance Sheet as at 31st March 2006

Particulars Alpha Beta

Cash 50 120
Receivables 350* 40
Inventories 600 100
Plant & equipment 1000 500
Investments 1000** 40
TOTAL ASSETS 3000 800
Payables 290 130@
Long term debt 800 135
Share Capital 1000 500
Reserves and Surplus 910 35
TOTAL LIABILITIES 3100 800
* includes 30 from Beta, ** includes 400 in Beta, @ includes 30 to Alpha

Prepare consolidated income statement and balance sheet.

 SOLUTION

Consolidated Income Statement

Particulars Alpha Beta Adjustments Consolidated

Sales 3300* 1000 -500 3800
Cost of goods sold 1800 900** -500 2200
Other expenses 200 50 250
Profit before tax 1300 50 1350
Tax @ 30% 390 15 405
Profit after tax 910 35 -35
Minority interest 7 7
Profit after tax of 910 28 938
consolidated entity
* includes sale of 500 to Beta, ** includes payment of 500 to Alpha for purchase

Consolidated Balance Sheet

Particulars Alpha Beta Adjustments Consolidated

Cash 50 120 170
Receivables 350* 40 -30 360
Inventories 600 100 700
Plant & equipment 1000 500 1500
Investments 1000** 40 -400 640
TOTAL ASSETS 3000 800 -430 3370
Payables 290 130@ -30 390
Long term debt 800 135 935
Minority interest 100+7 107
Capital 1000 500 -500# 1000
Reserves & Surplus 910 35 -7 938***
TOTAL LIABILITIES 3000 800 -430 3370
* includes 30 from Beta, ** includes 400 in Beta, @ includes 30 to Alpha
# 400 for parent’s investment and 100 transferred to minority interest
*** includes parent’s share in reserves and surplus of subsidiary