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Cotton Limited purchased 60% of the ordinary shares of Textile Limited on 1 January 2020. On 30 September 2020, the trial balances of the two companies were as follows.

Cotton Ltd. Textile ltd.

Sh. 000 Sh. 000

Profit and loss account 64,950 31,800

Sales 642,500 372,000

Share capital 100,000 40,000

Trade and other payables 31,800 18,100

Dividend receivable 12,000 -

20% debenture stock 50,000 -

901,250 461,900

Administrative expenses 94,550 36,400

Cash at bank 6,830 8,200

Distribution cost 112,350 64,600

Dividends paid 20,000 20,000

Installment tax paid 28,100 22,900

Interest paid 10,000 -

Investment in subsidiary (at cost) 62,080 -

Land and buildings (net book value) 60,200 38,100

Inventories 51,250 28,240

Motor vehicles (net book value) 11,270 4,400

Purchases 320,650 187,500

Plant and machinery (net book value) 70,450 20,300

Trade and other receivables 53,520 31,260

901,250 461,900

Additional information:

The authorized share capital of both companies had been fully issued and paid up in Sh.10 ordinary shares. The turnover and the expenses in Textile Limited accrued evenly over the year, and the mar-up on the cost of goods sold was constant throughout the year at 100%. Between 1 January 2020 and 30 September 2020. Textile limited made sales to Cotton Limited of Sh.68 million, earning the usual gross profit. Cotton limited did not have any of these goods in hand at 30 September 2020, but owed Textile Limited Sh.6 million. According to Textiles books, Cotton Limited owed Sh.9 million but a cheque for Sh.3 million, posted on 28 September 2020 by Cotton Limited was not received by Textile Limited until 8 October 2020. Both companies paid their interim dividends on 15 April 2020. The directors of Cotton Limited have proposed a final dividend of 40% and have required Textile Limited to propose a final dividend of 50%. These have not yet been accounted for but the directors have instructed you to debit these into profit and loss account (not in the statement of changes in equity and carry the proposed dividends as current liabilities. Dividends proposed payable to minority interests should also be carried as current liabilities. The current tax charge for the year was Sh. 31 million and Sh.25 million for Cotton Limited and Textile Limited respectively. Deferred tax is to be ignored. Closing inventories at cost to each company was Sh.51,300,000 for Cotton and Sh.29,740,000 for Textile Limited. Goodwill on consolidation should be carried as an asset and amortized on the straight line basis over 5 years, with the appropriate proportion being amortized for a period of less than one year. The results of operations of the subsidiary should be incorporated into the consolidated profit and loss account with effect from the date of acquisition. Any unrealized profit on intra-group sales of assets is removed from the group assets and from the company which made the profit, in the latter case adjusting the minority interest, if appropriate. The goodwill amortization charge should appear as a separate expense in the profit and loss account. Required:

The consolidated statement of profit or loss for the year ended 30 September 2020 (12 marks) The consolidated statement of financial position as at that date (8 marks)

Sales Share capital Trade and other payables Dividend receivable 20% debenture stock 572,000 40.000 18.100 642500 100,000 31,800 12,000 50.000 901.250 461.900 91.550 6,830 112,350 20,000 28.100 36,400 8,200 64.600 20.000 22,900 10,000 Sidministrative expenses Cash at bank Distribution cost Dividends paid Installment tax paid Interest paid Investment in subsidiary (at cost) Land and buildings (net book value) Inventories Motor vehicles (net book value) Purchases Plant and machinery (net book value) Trade and other receivables 62.080 60.200 51,250 11.270 520,650 70,450 53,520 901,250 58.100 28,240 4,400 187,500 20,300 31,260 461.900 Aditional information: The authorized share capital of both companies had been fully issued and paid in Sh.10 shares. The turnover and the expenses in Textile Limited accrued evenly over the year, and the mar-up on the cost of goods sold was constant throughout the year at 100%. Between 1 January 2020 and 30 September 2020. Textile limited made sales to Cotton Limited of Sh.68 million, earning the usual gross profit. Cotton limited did not have any of these goods in hand at 30 September 2020, but owed Textile Limited Sh6 million. According to Textile's books, Cotton Limited owed Sh.9 million but a cheque for Sh.3 million, posted on 28 September 2020 by Cotton Limited was not received by Textile Limited until 8 October 2020. Both companies paid their interim dividends on 15 April 2020. The directors of Cotton Limited have proposed a final dividend of 40% and have required Textile Limited to propose a final dividend of 50% These have not yet been accounted for but the directors have instructed you to debit these into profit and loss account (not in the statement of changes in equity and carry the proposed dividends as current liabilities. Dividends proposed payable to minority interests should also be carried as current liabilities. The current tax charge for the year was Sh. 31 million and Sh.25 million for Cotton Limited and Textile Limited respectively. Deferred tax is to be ignored. Closing inventories at cost to each company was Sh.51,500,000 for Cotton and Sh29,740,000 for Textile Limited. Goodwill on consolidation should be carried as an asset and amortized on the straight line basis over 5 years, with the appropriate proportion being amortized for a period of less than one year. The results of operations of the subsidiary should be incorporated into the consolidated profit and loss account with effect from the date of acquisition . Any unrealized profit on intra-group sales of assets is removed from the group assets and from the company which made the profit, in the latter case adjusting the minority interest, if appropriate. The goodwill amortization charge should appear as a separate expense in the profit and loss account. equired: The consolidated statement of profit or loss for the year ended 30 September 2020 (12 marks) The consolidated statement of financial position as at that date (8 marks) IESTION THREE 6.830 112,350 20,000 28,100 10.000 8,200 64,600 20,000 22,900 Cash at bank Distribution cost Dividends paid Installment tax paid Interest paid Investment in subsidiary (at cost) Land and buildings (net book value) Inventories Motor vehicles (net book value) Purchases Plant and machinery (net book value) Trade and other receivables 62,080 60,200 51.250 11,270 320,650 70,450 53,520 38,100 28.240 4.400 187,500 20,300 31,260 461,900 901,250 Additional information: 4. The authorized share capital of both companies had been fully issued and paid up in Sh.10 ordinary shares. 5. The turnover and the expenses in Textile Limited accrued evenly over the year, and the mar-up on the cost of goods sold was constant throughout the year at 100%. Between 1 January 2020 and 30 September 2020. Textile limited made sales to Cotton Limited of Sh.68 million, earning the usual gross profit. Cotton limited did not have any of these goods in hand at 30 September 2020, but owed Textile Limited Sh.6 million. According to Textile's books, Cotton Limited owed Sh.9 million but a cheque for Sh.5 million, posted on 28 September 2020 by Cotton Limited was not received by Textile Limited until 8 October 2020. 6. Both companies paid their interim dividends on 15 April 2020. The directors of Cotton Limited have proposed a final dividend of 40% and have required Textile Limited to propose a final dividend of 50%. These have not yet been accounted for but the directors have instructed you to debit these into profit and loss account (not in the statement of changes in equity and carry the proposed dividends as current liabilities. Dividends proposed payable to minority interests should also be carried as current liabilities. 7. The current tax charge for the year was Sh. 31 million and Sh.25 million for Cotton Limited and Textile Limited respectively. Deferred tax is to be ignored. 8. Closing inventories at cost to each company was Sh.51,300,000 for Cotton and Sh.29,740,000 for Textile Limited. 9. Goodwill on consolidation should be carried as an asset and amortized on the straight line basis over 5 years, with the appropriate proportion being amortized for a period of less than one year. The results of operations of the subsidiary should be incorporated into the consolidated profit and loss account with effect from the date of acquisition. 10. Any unrealized profit on intra-group sales of assets is removed from the group assets and from the company which made the profit, in the latter case adjusting the minority interest, if appropriate. The goodwill amortization charge should appear as a separate expense in the profit and loss account. Required: c) The consolidated statement of profit or loss for the year ended 30 September 2020 (12 marks) d) The consolidated statement of financial position as at that date (8 marks) Sales Share capital Trade and other payables Dividend receivable 20% debenture stock 572,000 40.000 18.100 642500 100,000 31,800 12,000 50.000 901.250 461.900 91.550 6,830 112,350 20,000 28.100 36,400 8,200 64.600 20.000 22,900 10,000 Sidministrative expenses Cash at bank Distribution cost Dividends paid Installment tax paid Interest paid Investment in subsidiary (at cost) Land and buildings (net book value) Inventories Motor vehicles (net book value) Purchases Plant and machinery (net book value) Trade and other receivables 62.080 60.200 51,250 11.270 520,650 70,450 53,520 901,250 58.100 28,240 4,400 187,500 20,300 31,260 461.900 Aditional information: The authorized share capital of both companies had been fully issued and paid in Sh.10 shares. The turnover and the expenses in Textile Limited accrued evenly over the year, and the mar-up on the cost of goods sold was constant throughout the year at 100%. Between 1 January 2020 and 30 September 2020. Textile limited made sales to Cotton Limited of Sh.68 million, earning the usual gross profit. Cotton limited did not have any of these goods in hand at 30 September 2020, but owed Textile Limited Sh6 million. According to Textile's books, Cotton Limited owed Sh.9 million but a cheque for Sh.3 million, posted on 28 September 2020 by Cotton Limited was not received by Textile Limited until 8 October 2020. Both companies paid their interim dividends on 15 April 2020. The directors of Cotton Limited have proposed a final dividend of 40% and have required Textile Limited to propose a final dividend of 50% These have not yet been accounted for but the directors have instructed you to debit these into profit and loss account (not in the statement of changes in equity and carry the proposed dividends as current liabilities. Dividends proposed payable to minority interests should also be carried as current liabilities. The current tax charge for the year was Sh. 31 million and Sh.25 million for Cotton Limited and Textile Limited respectively. Deferred tax is to be ignored. Closing inventories at cost to each company was Sh.51,500,000 for Cotton and Sh29,740,000 for Textile Limited. Goodwill on consolidation should be carried as an asset and amortized on the straight line basis over 5 years, with the appropriate proportion being amortized for a period of less than one year. The results of operations of the subsidiary should be incorporated into the consolidated profit and loss account with effect from the date of acquisition . Any unrealized profit on intra-group sales of assets is removed from the group assets and from the company which made the profit, in the latter case adjusting the minority interest, if appropriate. The goodwill amortization charge should appear as a separate expense in the profit and loss account. equired: The consolidated statement of profit or loss for the year ended 30 September 2020 (12 marks) The consolidated statement of financial position as at that date (8 marks) IESTION THREE 6.830 112,350 20,000 28,100 10.000 8,200 64,600 20,000 22,900 Cash at bank Distribution cost Dividends paid Installment tax paid Interest paid Investment in subsidiary (at cost) Land and buildings (net book value) Inventories Motor vehicles (net book value) Purchases Plant and machinery (net book value) Trade and other receivables 62,080 60,200 51.250 11,270 320,650 70,450 53,520 38,100 28.240 4.400 187,500 20,300 31,260 461,900 901,250 Additional information: 4. The authorized share capital of both companies had been fully issued and paid up in Sh.10 ordinary shares. 5. The turnover and the expenses in Textile Limited accrued evenly over the year, and the mar-up on the cost of goods sold was constant throughout the year at 100%. Between 1 January 2020 and 30 September 2020. Textile limited made sales to Cotton Limited of Sh.68 million, earning the usual gross profit. Cotton limited did not have any of these goods in hand at 30 September 2020, but owed Textile Limited Sh.6 million. According to Textile's books, Cotton Limited owed Sh.9 million but a cheque for Sh.5 million, posted on 28 September 2020 by Cotton Limited was not received by Textile Limited until 8 October 2020. 6. Both companies paid their interim dividends on 15 April 2020. The directors of Cotton Limited have proposed a final dividend of 40% and have required Textile Limited to propose a final dividend of 50%. These have not yet been accounted for but the directors have instructed you to debit these into profit and loss account (not in the statement of changes in equity and carry the proposed dividends as current liabilities. Dividends proposed payable to minority interests should also be carried as current liabilities. 7. The current tax charge for the year was Sh. 31 million and Sh.25 million for Cotton Limited and Textile Limited respectively. Deferred tax is to be ignored. 8. Closing inventories at cost to each company was Sh.51,300,000 for Cotton and Sh.29,740,000 for Textile Limited. 9. Goodwill on consolidation should be carried as an asset and amortized on the straight line basis over 5 years, with the appropriate proportion being amortized for a period of less than one year. The results of operations of the subsidiary should be incorporated into the consolidated profit and loss account with effect from the date of acquisition. 10. Any unrealized profit on intra-group sales of assets is removed from the group assets and from the company which made the profit, in the latter case adjusting the minority interest, if appropriate. The goodwill amortization charge should appear as a separate expense in the profit and loss account. Required: c) The consolidated statement of profit or loss for the year ended 30 September 2020 (12 marks) d) The consolidated statement of financial position as at that date (8 marks)