Pumpkin Group – Consolidated financial statements


Pumpkin Ltd is a large successful agricultural company based in Morrinsville. You are the assistant accountant with the company and have been asked to draft the company’s group accounts. Tom Ato, head of group accounting briefed you as follows and followed up with emailed information for you to work with.


Tom has stressed that the company has a staff code of conduct, which requires staff to treat all company information as strictly confidential. The code permits reviewing reference material, conducting research, and discussing and seeking advice about accounting procedures with others but does not allow sharing any financial information with anyone including unauthorised staff. He suggests that similar ethics apply, to those you would have experienced with regard to your university assignments. The emailed information should not be shared with your ex-classmates, the press or on social media. He warned that breaches of this code lead to disciplinary action and immediate dismissal.





Tom Ato emailed the following information:


From: Tom Ato

Subject: Company financial information for group accounts

Date: 4 March 2019

Kia ora,

I hope you enjoy this new challenge of drafting the group accounts, Here is all the information you need.

Consolidation accounting policies

The consolidated financial statements incorporate the financial statements of the subsidiary (Squash Limited) of Pumpkin Limited (“Parent”) as at the reporting date. Pumpkin Limited and its subsidiary together are referred to in these financial statements as the “Group” or the consolidated entity.

The subsidiary is an entity over which the Parent has control. The Parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The subsidiary is included in the consolidated financial statements using the acquisition method of consolidation. It is fully consolidated from the date on which control is transferred to the Parent.

The Group recognises non-controlling interest at its proportionate share of subsidiary net identifiable assets.



The Subsidiary, Squash

On 31 December 2014, Pumpkin Limited acquired 80% of the shares in Squash Limited.

On that date, the equity of Squash Limited comprised:


Share capital 640,000
Retained earnings 300,000
Equity $940,000


At acquisition, the book value of the assets and liabilities of Squash Limited were considered to be at fair value, except that there were brand names (considered to be part of net identifiable assets) that had a book value of zero and where Pumpkin assessed the fair value to be $120,000. There has been no change to assessed value of these brand names since acquisition.


Goodwill impairment

At the most recent balance date (31 December 2018), the returns from Squash were not as high as expected. The directors of Pumpkin considered that acquired goodwill had been impaired by $72,000.


Tax and Deferred Tax

Assume a tax rate of 30% wherever relevant (i.e., for both Phase 1 and Phase 2).


Financial statements

Income statement for year end 31 December & Balance sheet as at 31 December 2018



Sales (3,200,000) (1,040,000)

Cost of goods sold

1,600,000 480,000
Operating expenses (incl. Interest & Impairment) 320,000 160,000
Operating profit (1,280,000) (400,000)
Other income (incl. Dividends and Interest) (232,000) (16,000)
Income Tax 480,000 160,000
Net Income (1,032,000) (256,000)
Opening Retained earnings (1,440,000) (320,000)
(2,472,000) (576,000)
Dividends paid 800,000 144,000
Closing retained earnings (1,672,000) (432,000)
Share capital (1,600,000) (640,000)
Total equity (3,272,000) (1,072,000)
Accounts Payable (800,000) (360,000)
Non-current liabilities (800,000) (650,000)
Deferred tax (760,000) (30,000)
Total liabilities (2,360,000) (1,040,000)
Total liabilities and equity (5,632,000) (2,112,000)
Cash 80,000 96,000
Accounts Receivable 160,000 240,000
Inventory 160,000 240,000
Other investments 640,000
Investment in Squash (at Cost) 1400,000
Plant (net) 3,192,000 1,536,000
Total assets 5,632,000 2,112,000

Kind regards,



Phase 1 Required:

Prepare the consolidated group financial statements for Pumpkin and Squash as at 31 December 2018, using the “Phase 1” tab on the Excel template provided.



The auditors questioned why there were no consolidation adjustments for intra-group transactions. Tom Ato suggested that all such transactions between group companies are at normal market prices and therefore he thought that no adjustments were necessary. However, the auditors have pointed out that this overstates profits and affected accounts, including consolidated sales (and therefore revenue growth). Normal profit on merchandise sales was 60% for Pumpkin and 50% for Squash. Tom wants to visualise the impact of these adjustments on the consolidated financial statements. He has therefore asked you to provide him with a spreadsheet showing the consolidation adjustments (in journal form) for the following intra-group transactions during 2018:

  1. Pumpkin sold Squash merchandise at a price of $200,000
  2. Squash sold Pumpkin merchandise at a price of $100,000
  3. $20,000 remained owing by Pumpkin at 31 December 2018 for the merchandise sold to it by Squash.
  4. Pumpkin’s inventories of merchandise (bought from Squash) were:
    1. $40,000 at the beginning of 2018, and
    2. $20,000 at the end of 2018.
  5. Squash’s beginning and closing inventories (of merchandise bought from Pumpkin) for 2018 were:
    1. Beginning: $30,000, and
    2. Closing: $10,000.
  6. The ‘other investment’ on Pumpkin’s balance sheet is actually a 10-year loan to Squash.
  7. The terms of the 10-year loan to Squash require 5% annual interest payments. The loan was made on 1 January 2018 and interest was paid on 31 December 2018.


Phase 2 Required:

Prepare the consolidation journal entries only for the above intragroup transactions for the year ended 31 December 2018. Please use the “Phase 2” tab on the Excel template provided and adhere strictly to the following instructions:

  1. You will need to choose the most appropriate accounts to which to post each journal adjustment.
  2. Post a separate numbered journal entry for each numbered piece of information above i.e., your journal entries should be posted to the corresponding columns for the above numbers 1 – 7. For example you will need to post a separate journal entry (Dr and Cr) for #3 and a separate journal entry (Dr and Cr) for #4a.
  3. You are only required to prepare journal entries for Phase 2 i.e., Tom does not want you to adjust the Phase 1 figures until he has reviewed and authorised the journal entries.




  1. Assume a tax rate of 30% wherever relevant.
  2. Round to the nearest dollar value.
  3. Use of template:
    1. You MUST complete the assignment on this template.
    2. Only the highlighted cells in the original template will be marked.
    3. You must NOT delete ANY cell names, as that will result in a loss of marks. Note: If you cut from any cell and paste into a ‘named cell’ the name will be overwritten and lost.
    4. You may add / insert rows or columns.
    5. You should NOT delete / remove rows or columns or cells as this may result in the deletion of cell names, which would mean a loss of marks.
    6. You must not use negative numbers, numbers in brackets, commas or decimal points.
    7. You may use formulae or numbers in these cells, as long as it results in an absolute number i.e., no negative numbers in the spreadsheet please.
    8. Where there is a line item in the template, you must input a value even if this value is 0. If you leave a line item blank (i.e., leave a cell blank), this will not be marked, whereas inputting a value of 0 will be marked.


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