ExpertACCA · Question 45 · Preparing simple consolidated financial statements
Section B - Case 1: Group Consolidations
Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.
Suppose Apex had sent a cheque for $10,000 to Zenith on 30 December 20X5 to clear part of its debt, but Zenith did not receive it until 3 January 20X6.
How should this 'cash in transit' be treated in the consolidated financial statements at 31 December 20X5?
Section B - Case 1: Group Consolidations
Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.
Suppose Apex had sent a cheque for $10,000 to Zenith on 30 December 20X5 to clear part of its debt, but Zenith did not receive it until 3 January 20X6.
How should this 'cash in transit' be treated in the consolidated financial statements at 31 December 20X5?
Answer options:
Ignore it, as the cash was not received by year-end
Increase consolidated cash by $10,000 and decrease Zenith's receivables by $10,000 before eliminating the remaining intra-group balance
Increase Apex's payables by $10,000 to match Zenith's receivables
Deduct $10,000 from consolidated retained earnings
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