The following Balance Sheets are presented: Balance Sheet as on 31st March, 2023 Liabilities H. Co. S. Co. Assets H. Co. S. Co. : : : : : : Equity Shares of Rs.100 each 600,000 300,000 Fixed Assets…

Working Notes

1. Calculation of Cost of Investment in S. Co.

H. Co. acquired 2,400 shares of S. Co. at Rs. 100 each on 1st August 2022 (mid-year acquisition). Total investment = 2,400 × Rs. 100 = Rs. 240,000

However, the balance sheet shows Rs. 200,000 under "Shares in S. Co." This discrepancy arises because the investment was made at par value (Rs. 100 per share), but the book value of S. Co. shares at acquisition date was different.

2. Determination of Book Value of S. Co. Shares at Acquisition Date (1st August 2022)

The balance sheet of S. Co. as of 31st March 2023 shows:

• Equity Shares (Rs. 100 each): Rs. 300,000 (3,000 shares)
• General Reserve: Rs. 30,000
• Profit & Loss A/c: Rs. 40,000
• Total Shareholders' Equity (31/03/2023): Rs. 370,000

But on 1st August 2022, the reserves and P&L were:

• General Reserve: Rs. 12,000
• Profit & Loss A/c: Rs. 25,000
• Total Shareholders' Equity (01/08/2022): \text{Equity Shares} + \text{General Reserve} + \text{P&L} = 300,000 + 12,000 + 25,000 = \textbf{Rs. 337,000}

Since H. Co. acquired 2,400 shares out of 3,000, the book value per share on acquisition date was: $$\frac{337,000}{3,000}=\text{Rs. 112.33 per share}$$

But H. Co. acquired shares at par (Rs. 100 per share), which is less than book value (Rs. 112.33). This indicates a discount of: $$112.33-100=\text{Rs. 12.33 per share}$$

3. Adjustment for Goodwill (if any)

Since H. Co. acquired shares at a discount, no goodwill arises. However, we must adjust the investment account to reflect the book value at acquisition date.

4. Calculation of Pre-Acquisition and Post-Acquisition Profits of S. Co.

The profit earned by S. Co. from 1st August 2022 to 31st March 2023 is: \text{Post-Acquisition Profit} = \text{Final P&L (31/03/2023)} - \text{P&L at Acquisition (01/08/2022)} = 40,000 - 25,000 = \textbf{Rs. 15,000}

Similarly, the general reserve increase is: $$30,000-12,000=\text{Rs. 18,000}$$

5. Adjustment for Unrealised Profit in Inventory

Assuming H. Co. holds some inventory of S. Co., we must check for unrealised profit. However, the given data does not provide details on intercompany sales, so we assume no unrealised profit exists.

6. Elimination of Intercompany Debenture

H. Co. holds 10% debentures of S. Co. worth Rs. 96,000 (acquired at par). Since these are intercompany liabilities, they must be eliminated in consolidation.

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Consolidated Balance Sheet as on 31st March 2023

Step 1: Combine Individual Balance Sheets

Step 2: Adjustments for Consolidation

1. Eliminate Investment in S. Co. Shares (Rs. 200,000) and Corresponding Equity (Rs. 240,000)

   • Since H. Co. acquired shares at Rs. 100 per share (Rs. 240,000 total), but the book value was Rs. 273,992 (2,400 × 112.33), we adjust:
     • Debit: Investment in S. Co. (Rs. 200,000)
     • Credit: Goodwill (if any) / Retained Earnings (Rs. 73,992)

   However, since the investment was recorded at cost (Rs. 200,000), we must revalue it to book value (Rs. 273,992) and recognize goodwill of Rs. 73,992.

2. Eliminate Intercompany Debenture (Rs. 96,000)

   • Debit: 10% Debenture in S. Co. (Rs. 96,000)
   • Credit: 10% Debenture of S. Co. (Rs. 96,000)

3. Adjust for Post-Acquisition Profits (Rs. 15,000 P&L + Rs. 18,000 Reserve)

   • Debit: Retained Earnings (Rs. 33,000)
   • Credit: Profit & Loss A/c (Rs. 15,000) & General Reserve (Rs. 18,000)

Step 3: Final Consolidated Balance Sheet

After adjustments, the consolidated balance sheet is prepared as follows:

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Final Consolidated Balance Sheet (Simplified)

Since goodwill is an intangible asset, it is included under assets, and adjustments are made to retained earnings.

(Note: Minor rounding differences may occur due to intermediate calculations.)

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Final Consolidated Total = Rs. 1,157,000 (after all adjustments)