Answered: ired 90% of the Equity Shares of Star.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

On April 1, 20x8 Phar acquired 90% of the Equity Shares of Star. Star retained profits at the date of acquisition were $ 2, 640,000.

Balance Sheet as at 31 March 20x9.

	Phar		Star
	$000	$000	$000	$000
Non-Current Assets
PPE	2,544		2,388
Intangible Software	-		2,520
Investments-Equity in Star	5, 036		-
Others	214		252
		7,794		5,160
Current Assets
Inventories	863		672
Receivables	629		394
Stars Current Account	90		-
Cash	24		-
		1,606		1,066
		9,400		6,226
Capital and Reserves
Equity shares of $1 each		2,400		1,800
Share Premium	2,400
Retained Earnings	3,360	5,760	600	3,306
		8,160	2,706	5,106
Non-Current Liabilities
Government Grants		276		240
Current Liabilities
Trade Payables	690		566
Phar current account	-		72
Income Tax Payable	274		210
Operating Overdraft	-		32
		964		880
		9,400		6,226

The following information is relevant:

a) Software of Star represents the depreciated cost of development of an integrated business accounting package. It was completed at a capitalized cost of $ 2, 880, 000 and went on sale on April 1, 20x8. Star directors are depreciating the software on a straight-line basis over an eight-year life i.e., $ 360, 000 per annum. However, the directors of Phar are of the opinion that a six-year life would be more appropriate as sale of business software rarely exceed this period.

b) The inventory of Phar on March 31 20x9 contains goods at a transfer price of 30,000 that were supplied during the year by Star who had marked them up with a profit of 25% on cost.

c) On March 31, 20x9 Star remitted to Phar a cash payment of $18,000. This was not received by Phar until early April.

Required

Prepare the consolidated Balance Sheet of Phar as at March 31, 20x9.

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