Comprehensive Financial Management Consolidation Project Report

This financial management project presents a detailed consolidation analysis of two companies, Peace Ltd and Sublime Ltd. The project begins with journal entries for both companies, detailing transactions such as the closing of liabilities, asset closures, depreciation, and business purchases. A comprehensive consolidation worksheet is provided, followed by the creation of consolidated financial statements. These include a consolidated income statement, a statement of equity, and a balance sheet. The income statement shows sales, cost of sales, expenses, and revenue to arrive at a net loss after tax. The statement of equity details share capital, general reserve, and retained earnings. Finally, the balance sheet presents the consolidated assets and liabilities. The project demonstrates the process of consolidating financial information to present a unified financial picture of the combined entities.

FINANCIAL MANAGEMENT

Table of Contents
Answer.............................................................................................................................................1
(I) Journal entries for Peace Ltd and Sublime Ltd......................................................................1
(ii) Detailed consolidation Worksheet........................................................................................2
(iii)(a) Statement of profit and Loss............................................................................................3
(iii)(b) Statement of equity..........................................................................................................4
(iii)(c) Statement of financial position........................................................................................4

Index of Tables
Table 1: Journal entries in the books of Sublime Ltd......................................................................1
Table 2: Journal entries in the books of Peace ltd...........................................................................1
Table 3: Consolidated worksheet for the companies.......................................................................2
Table 4: Consolidated income statement.........................................................................................3
Table 5: Consolidated statement of equity.......................................................................................4
Table 6: Consolidated Balance Sheet..............................................................................................4

Answer
(I) Journal entries for Peace Ltd and Sublime Ltd
Table 1: Journal entries in the books of Sublime Ltd
Journal Entries
In the books of Sublime Ltd
Particulars Amount
Debit Credit
Payables a/c Dr 17400
Advance from Peace Ltd. 5000
To Realisation a/c. 22400
(Being liabilities account closed)
Realisation a/c Dr 53740
To Inventory a/c 25000
To Equipment a/c 12000
To Machinery a/c 7500
To Land a/c 9240
(Being assets account closed)
Machinery a/c Dr 600
To Depreciation a/c 600
(Machinery depreciated by 10%)
Table 2: Journal entries in the books of Peace ltd
Journal entries
In the books of Peace Ltd
Particulars Amount
Debit Credit
Business purchase a/c Dr 68600
1

To Sublime Ltd 68600
(Being business purchased)
Retained earnings a/c Dr 68600
To Business purchase a/c 68600
(Amount transferred to General reserve)
Other current assets 1550
Inventory a/c Dr 25000
Equipment a/c Dr 12000
Machinery a/c Dr 7500
Land a/c Dr 9240 55290
To payables a/c 17400
To Advance from Peace Ltd 5000
To goodwill a/c 32890
(Being Goodwill amount calculated)
Retained earnings a/c Dr 3210
To Purchase consideration a/c 3210
Share capital a/c Dr 3210
To retained earnings a/c 3210
Reserves a/c Dr 5850
To Bonus shares a/c 5850
(ii) Detailed consolidation Worksheet
Table 3: Consolidated worksheet for the companies
Consolidation worksheet
Items Peace Ltd Sublime Ltd Adjustments Consolidated
2

Debit Credit Debit Credit Debit Credit Debit Credit
Inventory 85790 35160 16000 136950
Other current assets 4310 1550 5860
Deferred tax assets 8100 3700 11800
Machinery 14000 11000 25000
Land — 12240 12240
Equipment 17000 18650 35650
Cost of sales 32500 26750 6000 65250
Other expenses 11000 13500 24500
Income tax expense 3600 1000 7460 12060
Interim dividend paid 2000 1000 3000
Final dividend declared 5000 1500 6500
Advance to Sublime Ltd 5000 0 5000
256 900
126
050
Share capital 85000 33000 5850 112150
General reserve 20500 15000 32890 2610
Retained earnings
(1/7/16) 8000 17750 25750
Debentures 60000 0 60000
Final dividend payable 5000 1500 6500
Current tax liabilities 4000 1250 5250
Other payable 17400 5050 22450
Advance from Peace Ltd 0 5000 5000
Sales 42500 32500 75000
Other revenue 9500 10500 20000
Gains/(losses) on sale of
non-current assets 2000 500 2500
Accumulated
Depreciation –
2000 1000 3000
3

machinery
Accumulated
Depreciation –
Equipment 1000 3000 400 3600
256900 126050 343810 343810
Bonus shares = (28500/30)*3 = 5850
Depreciation @ 10%
(iii)(a) Statement of profit and Loss
Table 4: Consolidated income statement
Consolidated Income statement
Particulars Amount
Sales 75000
Less: Cost of sales 65250
Gross profits 9750
Less: Expenses
Other 24500
Interim dividend paid 3000
Final dividend declared 6500
Depreciation (Machinery) 3000
Depreciation (Equipments) 3600
Advance to sublime 5000 45600
Add: Revenues
Advance from peace Ltd 5000
Gains on sale of non current assets 2500
Other revenue 20000
Final dividend payable 6500 34000
Net Profit/ (Loss) -1850
Less: Income tax expense 12060
Net profit after tax -13910
4