The following are the condensed financial statements of Makwebo Lad and subsidiary ZungulilaLad, which is partly owned:Balance sheets as at 30 June, 2006.Makwebo Ltd Zungulila LtdKKAssetsInvestment in S Ltd: 64, 000 ondinary shares at cost priceDebtorsInventories70, 000130, 00010, 000k10, 000106, 00030, 000136, 000Equity and LiabilitiesAuthorised and issued share capital: KI,000 per ordinary100, 00080, 000shareRetained profitCreditors26, 00084, 00020, 00036, 000136, 000k10, 000Income statement for the year ended 30" June, 2006.Mukwebo LtdKZungulila LadK80, 000(40, 000)40, 000(29.500)10, 500(5, 000)5. soRevenue100, 000(50, 000)50, 000Cost of salesGross profitOther operating expensesProfit before tax133.000)17, 000(7,000)10, 000ТахаtionNet profit for the yearStatement of Changes in equity for the year ended 30- June, 2006.Makwebo Ltd Zungulila LtdKKBalance at 30" June, 2005Net profit for the year21,00010, 000(5,000)6, 00014, 5003. 500Ordinary dividendsBalance at 30 June 200620, 000Makwebo Ltd purchased all its inventories from Zungulila Lad at a profit mark-up of 25% on thecost of the goods. These goods are inventories in the records of Zungulila Ltd. Total sakes fromZungulila Lad during the current financial year amounted to K50, 000. On 1" July, 2004 the date on which Makwebo Ltd acquired the interest in Zungulila, the retainedprofit of the latter amounted to K7, 500.Requireda) Prepare the consolidated income statement of Makwebo Lid and its subsidiaries for theyear ended 30" June, 2006.b) Prepare the consolidated Balance sheet of Makwebo Lid and its subsidiaries as at 30*June, 2006.

Answered: Required a) Prepare the consolidated…

FINANCIAL ACCOUNTING

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Author:Libby

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Chapter1: Financial Statements And Business Decisions

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Consolidated income statement of Makwebo Ltd for the year ended 30th June 2006

Particulars	Amount in K
Revenue	130,000	a
Cost of sales	50,000	b

Gross profit	80,000	a-b=c
Other operating expenses	62,500	d
Profit before tax	17,500	c-d=e
Tax expense	12,000	f
Net profit for the year	5,500	e-f

Note : separate working done for inventory
For other items, addition of figures of both entities on line by line basis to be done

Working : 1
Elimination of intra group profits
25% on cost implies 20% on sales
Unrealized profit	10,000
(50000*20%)

Entry
Consolidated revenue Dr	50,000
To Cost of sales		40,000
To Inventory		10,000

Working : 2	K
Share capital in subsidiary	80000	(K 1000*80)
Held by parent in subsidiary	70000	(given)
% held	87.5	%
Non controlling interest	12.5	%

Other Equity
Particulars	Total	Cost of control/goodwill	Capital reserve	Consolidated profit & loss	Non controlling interest
		87.50%			12.50%
Zungulila Ltd
Share capital	80000	70000			10000
Profit & loss	20000			17500	2500
Unrealized profit on inventory	10,000			-8750	(1,250)
Retained profit	7500	6563			938	split as investment made in 2004 itself
Consolidated profit	5500	-4812.5			-687.5

Makewabo Ltd
Investment in Zungulia	70000	-70000
Profit & loss	26000			26000

Total		1750	0	34750	11500

Required a) Prepare the consolidated income statement of Makwebo Ltd and its subsidiaries for the year ended 30* June, 2006. b) Prepare the consolidated Balance sheet of Makwebo Lid and its subsidiaries as at 30* June, 2006.