Wester Ross plc has acquired holdings in the following companies:
|
Ullapool Ltd |
– |
75% of the ordinary share capital acquired on 1 February 2000 financed by the issue of 2 million £1 ordinary shares of Wester Ross plc at £7 per share and £6 million in cash. |
|
Wester Ross plc also acquired 30% of the preference share capital at the same date for £1 million cash. |
||
|
Glenelg Ltd |
– |
30% of the ordinary share capital acquired on 10 March 1998 for £2 million cash. |
The draft balance sheets of the companies at 31 October 2000 were:
|
Wester Ross |
Ullapool |
Glenelg |
|
|
plc |
Ltd |
Ltd |
|
|
£000 |
£000 |
£000 |
|
|
Fixed assets |
|||
|
Freehold property |
15000 |
8000 |
2000 |
|
Fixtures and fittings |
27000 |
10000 |
1000 |
|
Investments |
9000 |
– |
– |
|
Current assets |
|||
|
Stocks |
4000 |
2500 |
500 |
|
Debtors |
8500 |
1700 |
400 |
|
Cash |
– |
700 |
– |
|
Current liabilities |
(5000) |
(1300) |
(200) |
|
Long term liabilities |
(5500) |
(1000) |
(300) |
|
53000 |
20600 |
3400 |
|
|
Wester Ross |
Ullapool |
Glenelg |
|
|
plc |
Ltd |
Ltd |
|
|
£000 |
£000 |
£000 |
|
|
Capital and Reserves |
|||
|
Ordinary shares of £1 each |
35000 |
12000 |
1500 |
|
Preference shares of £1 each |
5000 |
3000 |
300 |
|
Revaluation reserve |
10000 |
2000 |
– |
|
Other reserves |
– |
1000 |
– |
|
Profit and loss account |
3000 |
2600 |
1600 |
|
53000 |
20600 |
3400 |
Additional information
(1) Wester Ross plc’s investments were acquired when the reserves of the companies were:
|
Ullapool |
Glenelg |
|
|
Ltd |
Ltd |
|
|
£000 |
£000 |
|
|
Revaluation reserve |
1 500 |
– |
|
Other reserves |
500 |
– |
|
Profit and loss account |
2 000 |
600 |
There have been no changes to the share capital of the above companies since their acquisition.
(2) The fair value of the freehold property in Glenelg Ltd was £1.5 million above book value at the date of acquisition; all of this related to the land element of the property.
(3) Wester Ross plc has not yet accounted for the shares issued in acquiring Ullapool Ltd but has fully accounted for the cash element of the consideration for both Ullapool Ltd and Glenelg Ltd.
(4) Glenelg Ltd sold various items of fixtures and fittings to Wester Ross plc for £750 000 on 31 March 2000. The assets originally cost £1 million in the year ended 31 October 1995 and are being depreciated over 10 years on a straight line basis. Wester Ross plc is depreciating the assets over their remaining useful economic life.
(5) It is group policy to:
– amortise goodwill over 10 years with a full year’s charge in the year of acquisition
– charge a full year’s depreciation on fixed assets in the year of acquisition and none in the year of disposal.
Requirements
(a) From the above data, calculate the following amounts for the consolidated balance sheet of Wester Ross plc as at 31 October 2000:
(i) Goodwill arising on the acquisitions of Ullapool Ltd and Glenelg Ltd;
(ii) Investment in associate;
(iii) Profit and loss account balance.
(b) Explain the purpose of group accounts and the concepts underlying their preparation.