Accouting consolidation questions- advanced
Hi,
I need to answer these questions for an interview. I would really appeciate if someone could help me with them.
1. As a result of the expansion of its business into new regions, Holland Merchant
Services (HMS) has established a new subsidiary in the Far East.
The new subsidiary will have a number of employees and will provide services to
Customers on behalf of FMS.
The new subsidiary will also rely on the Holland Group to provide it with certain
Services.
Please outline what you consider to be the key considerations from a Finance
Perspective in the establishment and on-going running of this subsidiary.
2. HMS Head Office (the parent company) wants to re-charge a percentage of
General Legal Staff Costs to its subsidiary, Subsidiary 1.
The costs to be allocated to Subsidiary 1 are to be based on a percentage of
Overall Income in FMS.
Total HMS Income 10,000,000
Subsidiary 1 Income 2,500,000
General Legal Staff Costs 50,000
Please set out the accounting for these costs in Subsidiary 1,HMS Head Office
And the consolidated HMS financial statements.
3. Subsidiary 2 must invoice HMS Head Office.
The agreement is to invoice Head Office for Direct Costs plus a margin of 10% on
A monthly basis.
Direct Costs in Subsidiary 2 are:
Local Staff Costs 20,000
Rent 10,000
Stationary 2,000
Total Subsidiary 2 Costs 32,000
Please set out the accounting for these costs in Subsidiary 2, HMS Head Office
And the consolidated FMS financial statements.
4. HMS enters into a contract with an International Bank (Acquirer) to provide DCC
Services to their Merchants. HMS has no control of the relationship with the
Merchant and the pricing of the service to the Merchant is at the discretion of the
Acquirer.
The gross margin applied to converted transactions is 3%. The commission paid
To the Acquirer and Merchants is 2%. Converted transactions for 2010 are
€100,000.
Please confirm the figure to be included as Income in the 2010 Financial
Statements of HMS, taking into consideration the principles of FRS 5 - Application
Note G.
