The summarized balances extracted from accounting records of Abena Ltd, Opoku Ltd and APPIAH Ltd at 30 November 2018 are given below. Abena Ltd Opoku Ltd APPIAH Ltd Non-current Assets GH¢ GH¢ GH¢ Freehold Property 335,625 173,212.50 39,000 Equipment 450,375 46,312.50 Furniture 40,875 30,750 6,600 Investments at cost 420,000 shares in Opoku Ltd 275,625 70,000 shares in APPIAH Ltd 36,750 35,000 shares in APPIAH Ltd 18,375 Inventory& work in progress 192,457.50 122,467.50 64,275 Receivables 181,440 97,260 22,312.50 Cash and bank balances 66,150 3,543.75 6,078.75 Trade Payables (71,610) (64,983.75) (66,453.75) 1,710,187.50 380,625 118,125 Capital and Reserves Stated capital 1,312,500 315,000 131,250 Capital reserves 262,500 39,375 Profit and loss 135,187.50 13,125 (13,125) 1,710,187.50 380,625 118,125 Further Information 1. On 30 November 2018 Abena Ltd dispatched and invoiced good for GH¢9,375 to Opoku Ltd which were not recorded by the later until 3 December 2018. A mark-up of 25% is added by Abena Ltd to arrive at selling price. Opoku Ltd already had goods in stock which had been invoiced to them by Abena Ltd at GH¢7,800.
The Correct Answer and Explanation is :
To calculate the correct balances for the companies involved, we need to address several key points in the problem: intercompany transactions, markup on goods, and elimination of the intercompany profits in consolidation.
Step-by-Step Calculation:
- Intercompany Sale and Purchase:
- Abena Ltd sold goods worth GH¢9,375 to Opoku Ltd, with a 25% markup. The cost of these goods to Abena Ltd would be:
[
\text{Cost to Abena Ltd} = \frac{\text{Sale Price}}{1 + \text{Markup Percentage}} = \frac{9,375}{1.25} = 7,500
] - This means that the profit included in the GH¢9,375 sale price is GH¢9,375 – GH¢7,500 = GH¢1,875.
- Inventory Adjustment:
- Opoku Ltd’s inventory would include these goods valued at GH¢9,375, but for consolidation purposes, we must eliminate the GH¢1,875 profit because it hasn’t been realized outside the group.
- The adjusted inventory for Opoku Ltd would then be:
[
\text{Adjusted Inventory} = 122,467.50 + 9,375 – 1,875 = 129,967.50
]
- Elimination of Intercompany Profit:
- The GH¢1,875 profit needs to be eliminated in the consolidated profit and loss account, and we must ensure that the final consolidated figures reflect the true values. The total inventory for Opoku Ltd will be adjusted accordingly.
- Consolidation of Balances:
- After eliminating the intercompany profits, the consolidated balance sheet will reflect only the external value of assets, liabilities, and equity.
Now, I’ll generate an image of the corrected balances after making adjustments for the intercompany transaction.
I have updated the financial records for the companies after considering the intercompany sale and its impact on the inventory and profit. The adjusted inventory for Opoku Ltd now reflects the elimination of the intercompany profit. You can see the updated financial statements in the table I generated for you. Let me know if you need further clarification or additional information!