Question

P Co and S Co

The following are the draft statement of Financial Position of P Co and its subsidiary S Co as at 31st December 2019 are given below:                                                           

	P Co	S Co
Assets	‘$’	‘$’
Non –current assets
Tangible assets	350,000	160,000
Investments: in S Co	154,000
Current assets
Inventories	40,000	20,000
Trade receivables	100,000	85,000
Cash and cash equivalents	20,000	15,000
Total Assets	664,000	280,000
Equity and liabilities
Share capital: Ordinary $1 shares	350,000	100,000
Retained earnings	180,000	88,000
Non- current liabilities:
6% Loan	50,000	20,000
Current liabilities
Trade and other payables	84,000	72,000
Total Equity & Liabilities	664,000	280,000

Additional information:

1. P Co acquired 80000 shares in S Co on 1^st Jan 2019 for a cost of $ 154,000 when the retained earnings of S Co were $ 30,000.
2. The fair value of the non-controlling interest in S Co at the date of acquisition was $50,000.
3. At the date of acquisition, the fair value of the net assets of S Co approximated their carrying amounts, except for a plot of land owned by S Co. This land was held in the financial statements of S Co at its cost of $100,000 but was estimated to have a fair value of $150,000. This land is still owned by S Co at 31st December 2019.
4. At 31^st December 2019, S Co sold goods to P Co for $ 40,000 at a mark -up of 25%. 50% of these goods were still unsold by P Co at the end of the year.
5. At 31^st December 2019, P Co owed S Co $ 24,000 for goods bought and this debt is included in the trade payable of P Co and the trade receivable of S Co.

Question 1

You are required to:

1. Prepare consolidate statement of financial position as at 31^st December 2019 of P Co’s.

(Provide Reference to IFRS wherever applicable, relevant workings including journal entry for unrealized profit)

                                                                                                                                                            

• Relevant workings & presentation
• Consolidated statement of financial position

                                                                                                                                     

B. Evaluate the adjustment of provision for unrealized profit if:

At 31st December 2019, P Co sold goods to S Co for $ 40,000 at a Margin of 25%. 50% of these goods were still unsold by S Co at the end of the year.

Answer 1

Ans a)

Working Notes

1) Calculation of Goodwill

Particulars	Amount
Consideration paid for purchase of Shares of S Co.	$154,000
Add : Fair value of Non Controlling Interest at time of acquisition	$50,000
Total	$204,000
Less : Fair value of Net Assets at time of acquisition
Share Capital	($100,000)
Fair Value Adjustment	($50,000)
Retained Earnings	($30,000)
Goodwill	$24,000

2) Intra Group Trading

Unrealised Profit to be eliminated ($40,000 * 50% *25 / 125) = $4,000.

Therefore, Inventory of S Co to be reduced by $4,000 at the time of consolidation.

Unrealised Profit - Dr. $4,000

Inventory $4,000

3) Calculation of Retained Earnings

Retained Earning of P Co. = $180,000

Post Acquisition Retained Earning of S Co. = $22,400 [($88,000 - $30,000 - $20,000) * 80%]

Therefore, Total Retained earnings to be shown in Consolidated Statement = $2,02,400

4) Calculation of Non Controlling Interest

NCI at time of acquisition = $50,000

Add : Post Acquisition NCI = $5,600 [($88,000 - $30,000 - $20,000) * 20%]

Therefore, Total NCI to be shown in Consolidated Statement = $55,600

5) Calculation of Share Premium

Consideration Transferred = $154,000

Less : Share Capital = $80,000 (80,000 shares of $1 each)

Therefore, Share Premium to be shown in Consolidated Statement = $74,000

Ans b)

Eliminate unrealised profit of $5,000 ($40,000 * 50% *25%) and reducing inventory by $5,000,