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Consolidated Balance Sheet: adjustments query

Sushant Lohani (CHARTERED ACCOUNTANT) (1051 Points)

16 July 2010

In the balance sheet given in the question (as on 31.3.2006)
Particulars H Co S Co
Sundry Debtors 12000 30000
Bills Receivable 8000 32000
Bills payable 4000 10000
S.Creditors 8000 15000

Additional Info:
a)Bills Receivable of Golden Ltd include Rs 4000 bills accepted by S Co. Bills discounted by H Co but not yet matured include Rs 3000 accepted by S Co.

b) S. Creditors of H Co include Rs 4000 due to S Co. S.Debtors of S Co include Rs 8000 due from H Co.

c) It is found that H Co has remitted a cheque of Rs 4000 , which has not yet been received by S Co.

PLZ DEDUCE THE BALANCES THAT WILL BE SHOWN AT CONSOLIDATED BALANCE SHEET OF HOLDING CO ALONG WITH WORKING NOTES.

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3 Replies

Rajiv (Finance) (200 Points)
Replied 16 July 2010

Cash and Bank Balances too are very imprtant.

You have missed this item which might not help to give correct answer.

Sushant Lohani (CHARTERED ACCOUNTANT) (1051 Points)
Replied 16 July 2010

Cash and Bank (given in b.s. ) H Co=8000 S Co=16000

(Guest)

Dear Sushant, the answer is as follows:

1) Bills Receivable

a) Aggregate Balance (Holding + Subsidiary) 40,000

b) Less: Mutual Owings (Bills Receivable in the books of Golden Ltd) (4,000)

c) Balance for Consolidated Balance Sheet 36,000

2) Bills Payable

a) Aggregate Balance (Holding + Subsidiary) 14,000

b) Less: Mutual Owings (Bills Payable by Subsidiary to Holding ) (4,000)

c) Balance for Consolidated Balance Sheet 10,000

3) Bills discounted by H ltd but not yet matured

It is a contingent liability, because if the acceptor of the bill dishonours the bill, H Ltd has to repay the bank which has discounted the bill. There are two types of contingent liability for consolidation purposes: Internal and External. Internal contingent liability arises on account of transaction between parent and subsidiary. It is similar to Inter-company transactions and hence should be eliminated. In the given problem Rs 3,000 should be eliminated from the total contingent liability.

4) Sundry Debtors and Creditors:

Sundry Debtors of Subsidiary include Rs 8000 due from Holding, but the Holding company has remitted a cheque for Rs 4000 which is in transit. Hence the Subsidiary's balance in the Sundry Creditors of Holding Company is only Rs 4000 (Total owings less remittance in transit).

The remittance in transit is unaccounted in the books of subsidiary, hence the Holding Company's Balance in Subsidiary is Rs 8000. First we should account the remittance in transit in the books of Subsidiary.

Remittance in Transit A/c Dr 4000

To Sundry Debtors 4000

Note

1) Remittance in transit should be shown in Consolidated Balance Sheet as Current Assets

2) Revised balance of Subsidiary's Sundry Debtors = Rs 30000 - Rs 4000 = Rs 26000

The balance of Sundry Debtors and Creditors for Consolidated Balance Sheet after elimination of Mutual owings of Rs 4000 will be as follows

a) Sundry Debtors = 12000 + 26000 - 4000 = Rs 34,000.

b) Sundry Creditors = 8000 + 15000 - 4000 = Rs 19,000.

I hope this would have cleared your doubts