Financial Accounting questions - Essay Example

----- 36 Consolidated Balance Sheet on 1.1.2001 (after acquisition) Blue Verta Group Note Assets: Property, plant & Eq. 150 120 270 Current assets 108 105 213 Goodwill 66 - 66 1 Investment in Verta 210 - - Total 549 Capital and Liabilities Equity Capital of Blue 300 120 300 Retained earnings of Blue 78 60 78 Current Liabilities (90 +45) 90 45 135 Minority interests - 36 2 Total 549 Solutions to problems of Consolidation of Accounts Question 5 1.

Computation of goodwill: Note 1: Blue's investments in Verta Co 90 Less: 60%. Scenario 3:H owes 60% of voting rights of S which, in turn owns 20% of voting shares of S1. Hence, effectively, H owns 60% of 20% ie 12 % of the voting rights in S1 through indirect holdings. He also owns 20% directly. In Toto, his voting shares are 12 + 20 = 32 % of the total voting shares in S1. It may be said that, barring other circumstances, H cannot exercise majority holdings in S1 in none of the three scenarios mentioned above, since his holdings are not above 50% of the total voting shares.

The consolidation of accounts arises in the context of holding companies and its subsidiary companies, including acquired holdings and acquisitions of companies by the parent or holding company. The acquired subsidiaries may be independent units having separate product lines and profit centers for the purpose of management accounting and presentation of company accounts. However, since aspects like inter company sales, dividends and profit allocations become necessary, it becomes necessary for the accounts of the subsidiaries to be merged, or consolidated with that of the holding companies in order to present a true and fair view of the state of affairs of the Group on the Balance Sheet date.

The reason for consolidation arises because non routine transactions between the holding Company and its acquired subsidiaries need to be smoothened out for stock transfer implications, dividen