CASE STUDY 10
P purchased 85% shares of D for €115,000 on 1 January, 20×4. At the date of acquisition D equity
was the following: share capital € 70,000 and reserves €50,000.
The balance sheets of P and D as at 31, December, 20×4 are presented in the table below.
The following transactions took place between companies P and D during year 20×4
1.
On 1 July, 20×4 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, 20×4 P sold to D goods for €140 000 the acquisition cost of these goods in
P was €110 000. At 31 December, 20×4 goods were not sold and all were still at the
warehouse of D.
3.
On 15 January, 20×4 for € 40 000 P acquired 25 % shares of recently established company
A. On 31 December,20×4, company’s A net profit was €16 000
4.
On 31, December, 20×4 from transactions between D and P, company D has liability to P of
€ 35 000.
Balances for P and D as at 31 December, 20×4 were the following:
Company P
31 December,
20X4
Company D
31 December,
20X4
1.
Non – current assets
Intangible assets
25, 0000
2.
Tangible assets
230, 000
3.
Investment in D
115, 000
4.
Investment in A
40, 000
5.
Current assets
Inventory
140, 000
120, 000
6.
Current accounts receivable
260, 000
80, 000
Total assets
810, 000
440, 000
240, 000
1.
Equity
2.
Common Stock
250, 000
70, 000
3.
Reserves
230, 000
60, 000
4.
Retained earnings
30, 000
40, 000
5.
Liabilities
Long term liabilities
100, 000
140, 000
6.
Current liabilities
200, 000
130, 000
Total liabilities and shareholder’s equity
810, 000
440, 000
1
Profit and loss accounts for P and D as at 31 December, 20×4 were the following:
Company P
31 December,
20X4
I
II
III
IV
V
VI
VII
VIII
IX
X
Sales revenue
Cost of sales
Gross profit
Operating expense
Operating profit
Other activities
Financing and investing activities
Profit (loss) for ordinary activities
Income tax
Net profit
1, 500 000
700, 000
800, 000
770, 500
29, 500
18, 000
(10,000)
37, 500
7,500
30, 000
Company D
31 December,
20X4
800, 000
600, 000
200, 000
174, 000
26,000
4 ,000
3,000
43, 000
3, 000
40, 000
Required:
1. Prepare the eliminations necessary, consolidated balance sheet and profit and loss statement
for P and D as at 31, December 20×4.
2
