CASE STUDY
P purchased 85% shares of D for €115,000 on 1 January, 20x4. At the date of acquisition D equity was the following: share capital €70,000 and reserves €50,000.
The balance sheets of P and Das at 31, December, 20x4 are presented in the table below.
The following transactions took place between companies P and Dduringyear 20x4
1. On 1 July, 20x4 P sold the car to D for € 20, 000. The acquisition cost of this car in P was €90 000, accumulated depreciation€80 000. The useful life of the car in P was 10 years. The car was sold after P used it for 8 years. D intends to use this car for the 2 years.
2. On 20 December, 20x4 P sold to D goods for €140 000 the acquisition cost of these goods in P was €110 000. At 31 December, 20x4 goods were not sold and all were still at the warehouse of D.
3. On 15 January, 20x4 for € 40 000 P acquired 25 % shares of recently established companyA. On 31 December,20x4, company's A net profit was €16 000
4. On 31, December, 20x4 from transactions between D and P, company D has liability to P of €35 000.
Balances for P and D as at 31 December, 20x4 were the following:
|
|
|
Company P 31 December, 20X4
|
Company D 31 December, 20X4
|
|
|
Non - current assets
|
|
|
-
|
Intangible assets
|
25, 0000
|
|
-
|
Tangible assets
|
230, 000
|
240, 000
|
-
|
Investment in D
|
115, 000
|
|
-
|
Investment in A
|
40, 000
|
|
|
|
Current assets
|
|
|
-
|
Inventory
|
140, 000
|
120, 000
|
-
|
Current accounts receivable
|
260, 000
|
80, 000
|
|
|
|
|
|
|
|
Total assets
|
810, 000
|
440, 000
|
|
|
|
|
|
-
|
Equity
|
|
|
-
|
Common Stock
|
250, 000
|
70, 000
|
-
|
Reserves
|
230, 000
|
60, 000
|
-
|
Retained earnings
|
30, 000
|
40, 000
|
|
|
|
|
|
|
|
Liabilities
|
|
|
-
|
Long term liabilities
|
100, 000
|
140, 000
|
-
|
Current liabilities
|
200, 000
|
130, 000
|
|
|
Total liabilities and shareholder's equity
|
810, 000
|
440, 000
|
Profit and loss accounts for P and D as at 31 December, 20x4 were the following:
|
|
|
Company P 31 December, 20X4
|
Company D 31 December, 20X4
|
|
I
|
Sales revenue
|
1, 500 000
|
800, 000
|
|
II
|
Cost of sales
|
700, 000
|
600, 000
|
|
III
|
Gross profit
|
800, 000
|
200, 000
|
|
IV
|
Operating expense
|
770, 500
|
174, 000
|
|
V
|
Operating profit
|
29, 500
|
26,000
|
|
VI
|
Other activities
|
18, 000
|
4 ,000
|
|
VII
|
Financing and investing activities
|
(10,000)
|
3,000
|
|
VIII
|
Profit (loss) for ordinary activities
|
37, 500
|
43, 000
|
|
IX
|
Income tax
|
7,500
|
3, 000
|
|
X
|
Net profit
|
30, 000
|
40, 000
|
Required:
1. Prepare the eliminations necessary,consolidated balance sheet and profit and loss statement for P and D as at31, December 20x4.