On January 5, 2008, Grace Co. purchased 70% of the outstanding shares of Leo Co. at...

On January 5, 2008, Grace Co. purchased 70% of the outstanding shares of Leo Co. at a cost of P500,000. On that date, the outstanding ordinary shares of Leo had a P700,000 balance, while accumulated profits had a P100,000 balance. All the book values of assets and liabilities of Leo approximated their fair values except for an equipment which was understated by P50,000

For the year 2008, Grace sold an equipment to Leo reporting a gain on sale of P25,000 on July 1, 2008 and Leo on the other hand sold a machine to Grace reporting a loss of P10,000 on October 1, 2008. Grace reported net income of P250,000 and declared dividends of P40,000 and reported an accumulated profits balance as of December 31, 2008 of P350,000. Leo reported net income for the year of P150,000 and declared dividends of P20,000. The remaining useful lives of the plant assets as of January 1, 2008 for both companies are 4 years for machinery and 5 years for equipment.

Required:

From the above data, determine:

The net income attributable to equity holders of the parent for 2008.
The non-controlling interest net income in Leo Co. for 2008.
The consolidated net income of Grace Co. for 2008.
The consolidated accumulated profits as of December 31, 2008.

Solutions

Expert Solution

1	The net income attributable to equity holders of the parent for 2008.	7,19,000
2	The non-controlling interest net income in Leo Co. for 2008.	63,000
3	The consolidated net income of Grace Co. for 2008.	7,01,500
4	consolidated accumulated profits as of December 31, 2008	8,94,500

Calculation of capital reserve of Grace ltd
Particulars	Amount	Amount
value paid by grace		5,00,000.00
share of grace in leo
Equity capital (700000*70%)	4,90,000.00
reserves and surplus (100000*70%)	70,000.00
undervaluation of equipment of leo (50000*70%)	35,000.00	-5,95,000.00
Depreciation on eqipment (35000/5)	7,000.00	-7,000.00
capital reserve		88,000.00

Minority share
Particulars	Amount	Amount
equity capital	7,00,000.00
reserves	1,00,000.00
30% of 800000	8,00,000.00	2,40,000.00
net income	1,50,000.00
dividend	20,000.00
Undervaluted of equipment	50,000.00
Depreciation	10,000.00
Total	2,10,000.00
Net income of Minority share holders 30% of 210000		63,000.00
Total		3,03,000.00

Consolidated reserves and surplus
Particulars	income	dividend
Grace value	2,50,000.00	350000
share in leo by Grace @70%	1,05,000.00	14000
Total	3,55,000.00	3,64,000.00
unrealised profit recored while selling to leo(25000*70%)	-17500
Unrelaized loss on sale by leo to grace (10000*70)	7000
Depreciation on equipment	-7000
Total	3,37,500.00	3,64,000.00
The consolidated net income of Grace Co. for 2008.		701500
Capital reseve	88000
Share of grace in reserves and surplus of leo (70000+35000)	105000
consolidated accumulated profits as of December 31, 2008		894500

ekkarill92 answered 1 year ago

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