FNST Inter co adjust - stuck on question

anniebabeanniebabe Experienced MentorPosts: 595Registered
Ian acquires 75% of the issued share capital of Jenny Ltd on 1 jan x1 for £6000,000.
Jenny Ltd is a major customer of Ian plc, which was one of the main reasons for the acquisition.
At 1 Jan x1 Jenny Ltd had issued SC of £2500,000, share premium of £3000,000 and retained earnings of £1150,000.

additonal info
On 27 Dec x2 Jenny Ltd sent £500,000 to Ian as a payment on account. Ian Plc had not yet received this money by y/e.

The directors of Ian have concluded that goodwill has been impaired by £25,000 during the year.

Ian has decided that nci will be value at their proportionate share of net assets.

Assets
Nca Ian Jenny
ppe 2400 6700
Investment 6000 0

Ca
Inventory 2000 1400
Receivables 1650 2900
Cash 700 550

Total 12750 11550

Equity
SC 6250 2500
SP 2550 3000
RE 1450 4500

CL
payables 1900 1050
Tax 600 500

Total E&L 12750 11550

Draft the consolidated SOFP



I am ok with everything but the interco adjustment.

I understand that even though they have not received the money we still need to adjust.

I had adjusted the cash to 1250, payables to 2450
but in the answer the have got cash at 1750 and payables at 2950


Is anyone able to explain why, I am ok with everything else.

Many thanks

Comments

  • NpsNps Experienced Mentor Posts: 782Registered
    Morning,

    If the cash is in transit, Jenny will have already accounted for the money leaving them, hence their accounts are right and need no adjustment. However, Ian has £500,000 coming in which isn't accounted for so needs to be added on.
  • anniebabeanniebabe Experienced Mentor Posts: 595Registered
    Morning Nps

    Thanks, that bit was getting me a bit confused - think i understand know, will work through it again later.
  • kewkokewko New Member Posts: 11Registered
    Hi,
    On 27 Dec x2 Jenny Ltd sent £500,000 to Ian as a payment on account. Ian Plc had not yet received this money by y/e.

    This says that they have payed on account which would imply it would be as an account payable on Jenny Ltd and an account receivable on Ian PLC. The adjustment would be to adjust those accounts by that amount on the consolidated accounts.

    Hope this helps.

    Jason
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