Consolidated Financial Position Analysis: Potter Co. and Sand Co.

This report presents an analysis of the consolidated financial statements for Potter Co. and its subsidiary, Sand Co. It includes a detailed breakdown of the consolidated statement of financial position, including assets, liabilities, and equity. The report calculates goodwill, non-controlling interest, and retained earnings, providing insights into the financial impact of the acquisition. It also examines the liquidity position of the group, highlighting potential short-term insolvency concerns. The analysis covers key aspects of financial reporting, offering a comprehensive overview of the companies' combined financial performance and position, including working notes for calculations and adjustments. The report shows the acquisition of 80% of Sand Co. by Potter Co., detailing the valuation of assets and liabilities and the impact on equity. The report evaluates the financial health of both companies post-consolidation, addressing profitability and liquidity concerns. The report utilizes the provided data to derive insights into the consolidated financial performance.

Question: 1
a) Consolidated statement of financial position as at 30th September 2020 for Potter Co.
Particulars Amounts
Assets
Non – current assets 392000+84000 476000
Investments 120000 – 92000 – 28000 0
Goodwill 32396
Current Assets 94700 + 44650 + 60 fair value of inventory adjusted
– 250 unrecognized profit
139160
Total assets 647556
Equity and liabilities
Equity
Share capital 190000
Retained earnings 209398
Revaluation surplus 41400
Non – controlling interest 15392
Total equity 456190
Non – current liabilities
Deferred consideration 23996 + 1920 25916
Current liabilities 137300 + 28150 165450
Total equity and liabilities 647556
Working note: 1
Potter Co. has acquired 80% share in Sand Co.
Working note: 2
Calculation of net assets of subsidiary (Sand Co.)
Particulars At acquisition At reporting date Post Acquisition
Share Capital 60000 60000 0
Retained earnings 34000 36500 2500
Revaluation surplus 4000 4000 0
Fair value adjustment
made on inventory
600 60 (540)
Net assets 98600 100560 1960
Working note: 3
Calculation of Goodwill to be shown in the Parent book (Potter Co.)
Particulars Amount
Cash paid on acquisition 92000
Deferred amount of cash to be paid on later date
(28 * 0.857)
23996
Non – controlling interest at acquisition 15000
Less: net assets of subsidiary (Sand Co.) at
acquisition
(98600)

Goodwill at acquisition 32396
Working note: 4
Calculation of Non – controlling interest
Particulars Amount
Non - controlling interest at acquisition 15000
Non – controlling interest’s 20% share of post -
acquisition profit ( 1960 * 20% )
392
Non – controlling interest 15392
Working note: 5
Calculation of retained earnings to be shown in consolidated statement of financial position
Particulars Amount
Potter co. ‘s retained earning 210000
Parent’s 80% share of post - acquisition profit
(1960 * 80%)
1568
Unwinding discount on deferred consideration
(23,996 x 8%)
(1920)
Unrealized profit (1000 * 25%) (250)
Retained earnings on the date of reporting 209398
b) As said Sand Co. is quite less profit making as compared to Potter. But its liquidity position seems to
be much better which has got worsened after the transaction of consolidation where current assets are less
as compared to current liability indicating short term insolvency of the group.