On 1 January X company Alpha acquires 80% of the share capital of company Beta. The cost of the investment is 5,000. On the date of de acquisition, company Beta’s owners equity is 5,400. The income statements and the balance sheet of the two companies are reported at the end of the exercise. On the same date the fair value of the assets and liabilities of Beta equals their book value , except for Plant, whose fair value is higher than the carrying amount for 1,000. The expected remaining useful life of the plant is 10 years. The difference between the cost of the investment and the fair value of the subsidiary’s owners equity is allocated to goodwill. Consider that the company recognises goodwill only for the share acquired by the parent company and that, on the date of consolidation, there is no impairment loss on goodwill.
During the accounting period X, the two companies carry out the following intra-group transactions:
A.Alpha sells Beta services for a total amount of 300; at the end of the accounting period the transaction has not been settle yet:
B.Beta sells good to Alpha for a total amount of 600. All goods are still in Alpha’s inventory. The intragroup profit included in these goods is 250, i.e. the cost of goods sold for Beta is 350. The transaction has already been settled at the end of the accounting period.
C.Alpha sells a building to Beta. The carrying amount of the building sold was 500 (historical cost=900). The selling price, collected cash, is 800. Alpha applied a yearly depreciation rate of 10%, while Beta applies 20%.
D.The tax rate is 50%.
Prepare the consolidated financial statements of the Alpha Beta group as a 31 de December X.