Consolidation Questions and Solutions
Question 1: Partial Acquisition (80%) - Goodwill
H Ltd acquired 80% of the shares in S Ltd on 1st January 2022. The balance sheets of H Ltd
and S Ltd as at 31st December 2022 were as follows:
Balance Sheets as at 31/12/2022:
| Particulars | H Ltd | S Ltd |
|----------------------|-----------|----------|
| Fixed Assets | 180,000 | 100,000 |
| Investment in S Ltd | 96,000 | - |
| Current Assets | 50,000 | 60,000 |
| Current Liabilities | (20,000) | (30,000) |
| Share Capital | 150,000 | 80,000 |
| Reserves | 60,000 | 30,000 |
| Profit & Loss | 50,000 | 20,000 |
Required: Prepare the consolidated balance sheet of H Ltd and its subsidiary as at
31/12/2022.
Solution 1
Pre-acquisition Reserves of S Ltd (at 1/1/2022):
Reserves: 30,000
P&L: 20,000
Total: 50,000
H Ltd’s Share (80%): 40,000
Net Assets Acquired = Share Capital (80,000) + Pre-acquisition Reserves (50,000) = 130,000
H Ltd’s Share = 80% of 130,000 = 104,000
Investment = 96,000
Goodwill = 104,000 - 96,000 = 8,000
Consolidated Balance Sheet:
Fixed Assets: 180,000 + 100,000 = 280,000
Goodwill: 8,000
Current Assets: 50,000 + 60,000 = 110,000
Current Liabilities: (20,000 + 30,000) = (50,000)
Minority Interest = 20% of Net Assets = 0.2 × 130,000 = 26,000
Capital & Reserves:
Share Capital: 150,000
Reserves: 60,000
P&L: 50,000
Total = 280,000 + 8,000 + 110,000 - 50,000 = 348,000
348,000 = 150,000 + 60,000 + 50,000 + 26,000 (Minority Interest) + 62,000 (Goodwill
balancing)
Question 2: Pre-Acquisition Loss - Capital Reserve
X Ltd acquired 100% of Y Ltd on 1st July 2023. On that date, the reserve and P&L of Y Ltd
were (4,000) and (6,000) respectively. The balance sheets of X Ltd and Y Ltd as at 31st
December 2023 were:
| Particulars | X Ltd | Y Ltd |
|----------------------|-----------|----------|
| Fixed Assets | 200,000 | 90,000 |
| Investment in Y Ltd | 80,000 | - |
| Current Assets | 70,000 | 50,000 |
| Current Liabilities | (30,000) | (20,000) |
| Share Capital | 200,000 | 70,000 |
| Reserves | 60,000 | 10,000 |
| Profit & Loss | 60,000 | 40,000 |
Required: Prepare the consolidated balance sheet of X Ltd and Y Ltd.
Solution 2
Pre-acquisition Reserves of Y Ltd (1/7/2023):
Reserve: (4,000)
P&L: (6,000)
Total: (10,000) loss
Net Assets at acquisition = Share Capital (70,000) - Loss (10,000) = 60,000
Investment = 80,000
Capital Reserve = 80,000 - 60,000 = 20,000
Consolidated Balance Sheet:
Fixed Assets: 200,000 + 90,000 = 290,000
Capital Reserve: 20,000
Current Assets: 70,000 + 50,000 = 120,000
Current Liabilities: (30,000 + 20,000) = (50,000)
Share Capital: 200,000
Reserves: 60,000
P&L: 60,000
Question 3: Pre-Acquisition Profit - Goodwill
P Ltd acquired 90% of Q Ltd on 1st January 2023. At that date, Q Ltd had reserves of 12,000
and P&L of 8,000. The balance sheets as at 31st December 2023 were:
| Particulars | P Ltd | Q Ltd |
|----------------------|-----------|----------|
| Fixed Assets | 220,000 | 110,000 |
| Investment in Q Ltd | 108,000 | - |
| Current Assets | 60,000 | 70,000 |
| Current Liabilities | (40,000) | (50,000) |
| Share Capital | 180,000 | 100,000 |
| Reserves | 80,000 | 20,000 |
| Profit & Loss | 90,000 | 10,000 |
Required: Prepare the consolidated balance sheet of P Ltd and Q Ltd.
Solution 3
Pre-acquisition reserves and P&L of Q Ltd = 12,000 + 8,000 = 20,000
Net Assets at Acquisition = 100,000 + 20,000 = 120,000
P Ltd's share = 90% of 120,000 = 108,000
Investment = 108,000
Goodwill = 108,000 - 108,000 = 0
Consolidated Balance Sheet:
Fixed Assets: 220,000 + 110,000 = 330,000
Current Assets: 60,000 + 70,000 = 130,000
Current Liabilities: (40,000 + 50,000) = (90,000)
Minority Interest = 10% of 130,000 = 13,000
Capital & Reserves:
Share Capital: 180,000
Reserves: 80,000
P&L: 90,000
