Consolidation: basic structure Impressed by the research and production skills of Fleurant Corporation, Argan SA decides at the end of x1 to buy a controlling interest in the pharmaceutical company for cash. The book value of Fleurant’s net assets is 50 then. Argan’s net assets prior to the acquisition are 350. (All amounts are in millions.)

In x2, Argan reports operating profit of 30 (i.e. before including income from Fleurant) and pays dividends of 14. That same year, Fleurant’s profit is 6 and the dividend it pays is 4. (In its own accounts, Argan uses the cost method to account for its investment in Fleurant.) Any goodwill arising on consolidation is amortised on a SL basis over 10 years.

Required Prepare (i) a summary consolidated balance sheet at end-x1 and (ii) summary x2 accounts (income statement and end-year balance sheet) for the Argan Group (Argan + Fleurant) under each of the following assumptions:

(a) Argan purchases 100% of Fleurant’s shares for 50;

(b) Argan purchases 100% of Fleurant’s shares for 80;

(c)* Argan purchases 80% of Fleurant’s shares for 40.

Check figure:

(a) Argan Group:

Shareholders’ equity, end-x2 372

* Assignment draws on material in section 2 of this chapter.

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