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Yosef Corporation acquired 90% of the outstanding voting stock of Randeep Inc. on January 1, Year...

Yosef Corporation acquired 90% of the outstanding voting stock of Randeep Inc. on January 1, Year 6. During Year 6, intercompany sales of inventory of $45,000 (original cost of $27,000) were made. Only 20% of this inventory was still held within the consolidated entity at the end of Year 6 and was sold in Year 7. Intercompany sales of inventory of $60,000 (original cost of $33,000) occurred in Year 7. Of this merchandise, 30% had not been resold to outside parties by the end of the year.

At the end of Year 7, selected figures from the two companies’ financial statements were as follows:   

Yosef Randeep
Inventory $70,000 $45,000
Retained Earning, beg. of year 500,000 300,000
Net Income 150,000 55,000
Dividends Declared 50,000 20,000
Retained Earnings, End of Year 600,000 335,000

Required:

(a) Assume that all intercompany sales were upstream. Calculate the amount to be reported on the Year 7 consolidated financial statements for the following accounts/items:

(i) Consolidated net income

ii) Consolidated net income attributable to the controlling and non­controlling interest

(iii) Deferred income tax asset

(iv) Inventory

(v) Assume Randeep's retained earnings at acquisition date January 1, Year 6 was $140,000. Calculate the Parent's (Yosef's) consolidated retained earnings balance at January 1, year 7 AND December 31, year 7

Solutions

Expert Solution

Question 1 and 2 Consolidated Net income and attribution betweeen controlling and non contolling interest
Particular Yosef Randeep
Income for the year              1,50,000                55,000
Less- Intercompany Upstream adjustment for inventory
ie. (60000-33000)*30%		                 -8,100
             1,50,000                46,900
1 Consolidated net Income              1,96,900
2 Attributable to the controlling interest              1,92,210
Attributable to the non­controlling interest                    4,690 (10% of Randeep Net income)
Question 3 Deferred tax Asset
Deferred tax Asset would be created on the unrelaised profit for the year 7 of Rs. 8100
Deferred Tax Asset to be recognised in the books- 8100 * 21% (Assumed tax rates in US tax laws)
ie. 1701
Question 4 Inventory
Particular Yosef Randeep Total
Inventory                 70,000                45,000 1,15,000
Less - Intercompany Adjustment for Upstream transaction                  -8,100        -8,100
Total                 61,900                45,000 1,06,900
i.e.- Inventory is $ 106,900
Question 5 Retained earning as on 1 Jan Year 7
Particular Yosef Randeep
Given Retained earning as on 1 Jan year 7         5,00,000         3,00,000
Less- Retained earning as on acquisition date        -1,40,000
        5,00,000         1,60,000
Less - Adjustment for upstream inventory (45000-27000) *20%             -3,600
Adjusted retained earning         5,00,000         1,56,400
Less - Minority Interest           -15,640
Retained earning without minority interest         5,00,000         1,40,760
Consolidated retained earning         6,40,760
Retained earning as on 31 Dec Year 7
Particular Yosef Randeep
Opening Retained earning         5,00,000         1,56,400
Add- Unrealised Inventory gain (Intercompany Sales) for Year 6               3,600
Add - Adj profits during the year (Refer Question 1 and 2)         1,50,000            46,900
        6,50,000         2,06,900
Less- Dividend declared to be shown seperately           -50,000           -20,000
Adjusted retained earning         6,00,000         1,86,900
Less - Minority Interest           -18,690
Retained earning without minority interest         6,00,000         1,68,210
Consolidated retained earning         7,68,210

ekkarill92 answered 6 months ago
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