illustration holding company with direct share

Question

Illustration: Holding company with direct share holding

Rain Ltd., Storm Ltd. and Thunder Ltd. are in the business of manufacturing tents. Their balance sheets as at 30 September 2003 were as below:

	Rain Ltd.			Storm Ltd.				Thunder Ltd.
	Sh. “000”	Sh. “000”		Sh. “000”		Sh. “000”		Sh. “000”		Sh. “000”
Non-current assets:
Non-current assets
(net of depreciation)		14,000				6,300				1,700
Shares in subsidiaries		5,000				1,900				-
		19,000				8,200				1,700
Current assets:
Inventory	2,000			1,200				1,600
Trade payables	4,800			2,000				800
Cash	2,700			1,400				1,100
	9,500			4,600				3,500
Current liabilities:
Trade payables	( 5,000 )			( 2,600 )				( 1,800 )
Net current assets		4,500				2,000				1,700
		23,500				10,200				3,400
Financed by:
Authorised and issued
Share capital:
Ordinary shares of Sh.100		15,000			5,000				2,000

 

10% preference shares of Sh. 100 each fully paid		-		3,000		-
General reserve		6,000		3,000		1,000
Retained Profits		2,500		( 800 )		400
		23,500		10,200		3,400

 

 

 

 

 

 

 

 

 

 

 

 

Additional information:

 

1.       Rain Ltd. purchased 30,000 ordinary shares in Storm Ltd. on 1 October 2001 for Sh. 3,400,000 and 5,000 preference shares on 1 October 2002 for Sh. 600,000. On 1 October 2002, Rain Ltd. purchased 5,000 ordinary shares in Thunder Ltd. for Sh. 1,000,000. Storm Ltd. purchased 11,000 ordinary shares in Thunder Ltd. for Sh. 1,900,000 on the same date.

 

2.    Balances are as given below:

 

Profit and loss account
Storm Ltd.	1 October 2001	Sh. 500,000 (debit).
	1 October 2002	Sh. 600,000 (debit).
Thunder Ltd.	1 October 2002	Sh. 300,000 (debit).

 

 

 

 

 

 

General reserve
Storm Ltd.	1 October 2001	Sh. 1,000,000
	1 October 2002	Sh. 2,000,000
Thunder Ltd.	1 October 2002	-

 

 

 

 

 

3.    The following inter-company balance are included in the balances of trade debtors and trade creditors:

 

Receivables	Rain Ltd.	Sh. 600,000 due from Thunder Ltd.
	Thunder Ltd.	Sh. 300,000 due from Rain Ltd.
		Sh. 200,000 due from Thunder Ltd.

 

 

 

 

4.    On 30 September 2003, thunder Ltd. remitted Sh.200,00 to Rain Ltd. which was not received until 3 October. There were no other inter-company balances.

5.    Rain Ltd. sold goods to Storm Ltd. for Sh.800,000. The goods had originally cost Rain Ltd. Sh.600,000. Storm Ltd. still had Sh.200,000 worth of these goods (at invoiced price) in stock as at 30 September, 2003.

 

Required:

Prepare the consolidated balance sheet of Rain Ltd. and its subsidiaries as at 30 September 2003. 

 

 

Solution:

Rain Ltd and its subsidiaries

Consolidated Balance sheet as at 30 September 2003

	Sh.’000’	Sh.’000’
Non Current Assets PPE Goodwill (W2)   Current Assets Inventory (2 + 1.2 + 1.6 – 0.05) Receivables(W6) Cash (2.7 + 1.4 + 1.14 + 0.2)     EQUITY AND LIABILITIES Share capital Sh.100 ordinary shares fully paid General reserve (W5) Retained Profits (W4) (300 + 2,028)   Minority interest (W3)	4,750 6,500   5,400	22,000   1,006 23,006         16650 39656   15,000 7,780   2,328 25,108   6,048 31,156
Current liabilities:   Payables		8500
TOTAL EQUITY AND LIABILITIES		39,656

 

 

Workings

 

1.                                              Determination of group ownership structure

	Storm Ltd			Thunder Ltd
	Ordinary	Preference		Ordinary
Rain Ltd:      Direct      Indirect   Minority Interest	60%     40%	1/6       5/6	(60% x 55%)	25% 33% 58%   42%

 

 

2.                                                                      Cost of Control

	Sh.’000’		Sh.’000’
Investment in Storm:      Ordinary      Preference Share of retained losses      (60% x 500)   Investment in Thunder      (60% x 1,900) by Storm Rain spent in Thunder	3,400 600     300 4,300   1,140 1,000 ____	Share of Storm equity Ordinary share capital  (60% x 5000) General reserves (60% x 1000) Preference share capital (i/6x3,000) Goodwill I   Share of Thunder equity Ordinary share capital (58%x2,000) Profit b/f (58% x 300) Goodwill II	3,400 600 500   200 4,300   1,160 174    806
	6,440		6,440

 

            Total goodwill on consolidation = 806 + 200 = 1,006

 

3.                                                                      Minority Interest

	Sh.’000’		Sh.’000’
Cost of shares in Thunder     (40% x 1900) Storm Ltd Profit & Loss      40% x 800) Consolidated balance sheet	760   320 6,048         _____	Storm Ltd: Equity Ordinary share capital (40% x 5000) Preference share capital (5/6 x 3000) General reserve (40% x 3000) Thunder Ltd: Equity Ordinary share capital (42% x 2000) Preference share capital General reserve (42% x 1000) Thunder Ltd Profit & Loss      (42% x 400)	2,000 2,500 1,200   840 - 420       158
	7,128		7,128

 

 

4.                                              Group retained Earnings A/c

	Sh.’000’		Sh.’000’
Rain Ltd UPCs (200/800 x 200) Bal b/f Thunder ltd: Cost of control a/c 25% x 300               75 33% x 300               99 Minority interest (42% x 400) Consolidated balance sheet	50 800       174   168 2,328	Bal b/d: Rain Cost of control a/c      (60% x 500) Minority Interest A/c      (40% x 800) Bal b/d: Thunder	2,500   300   320 400       ____
	3,520		3,520

 

5.                                                          Consolidated General reserve

	Sh.’000’		Sh.’000’
Storm Ltd: COC (60% x 1000)                   MI (40% x 3000) Thunder: MI (42% x 1,000) Consolidated balance sheet	600 1,200 420   7,780	Bal b/f      Rain      Storm      Thunder	6,000 3,000   1,000
	10,000		10,000

 

 

6.                                                                      Group Receivables A/c

	Sh.’000’		Sh.’000’
Rain Ltd Storm Ltd Thunder Ltd	4,800 2,000 800   ____	Cash in transit (Thunder) Group creditors: T – R                            R – S                             T – S To consolidated balance sheet	200 400 300 200 6,500
	7,600		7,600

7.                                                          Group Payables A/c

	Sh.’000’		Sh.’000’
Group debtors To consolidated balance sheet	900 8,500 ____	Rain Ltd Storm Ltd Thunder Ltd	5,000 2,600 1,800
	9,400		9,400