ECON 121-P purchased 85% shares of D for €115,000

CASE STUDY 10

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 D as at 31, December, 20x4 are presented in the table below.
The following transactions took place between companies P and D during year 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 company
A. 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

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, 20x4 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 20x4.

2