Economic statements of Pegasus and Sylvester at 1 January 20X1 are as follows: Pegasus Sylvester $'000 $'000 ASSETS Non-current assets Property, plant and equipment 20,000 900 Current assets Inventories 3,200 400 Trade receivables 2,500 175 Cash 1,800 125 7,500 700 27,500 1,600 EQUITY AND LIABILITIES Equity Share capital 5,000 100 Retained earnings 19,450 1,200 24,450 1,300 Current liabilities Trade payables 2,500 260 Income tax payable 550 40 3,050 300 27,500 1,600 Pegasus acquires 100% of the share capital of Sylvester on 1 January 20X1 for $1,300,000 in cash. Parent's balance sheet 2.5 Under IAS 27 Consolidated and Separate Financial Statements the investment can be recorded in the parent's separate financial statements either: (a) at cost; or (b) as an available-for-sale financial asset in accordance with IAS 39 Financial Instruments: Recognition and Measurement. An available-for-sale financial asset in this case represents an investment in shares in another company held not for short-term profit-making by trading those shares. It should be held at fair value. In this course we will assume that the investment remains in the parent's separate financial statements at its initial fair value, i.e. at cost. 8: INTRODUCTION TO GROUPS 8.5 Lecture example 1 Preparation Parent's balance sheet Required Show how Pegasus will record this investments.

Required Prepare the consolidated balance sheet of the Pegasus Group as at 1 January 20X1. Here is a reminder of what the two balance sheets look like after recording the investment in Sylvester: Pegasus Sylvester $'000 $'000 ASSETS Non-current assets Property, plant and equipment 20,000 900 Investment in Sylvester 1,300 21,300 Current assets Inventories 3,200 400 Trade receivables 2,500 175 Cash 500 125 6,200 700 27,500 1,600 EQUITY AND LIABILITIES Equity Share capital 5,000 100 Aretained earnings 19,450 1,200 24,450 1,300 Current liabilities Trade payables 2,500 260 Income tax payable 550 40 3,050 300 27,500 1,60

(a) Cancel the investment in Sylvester in Pegasus' books with the shares and reserves representing the investment (at the date of acquisition) in Sylvester's books. (b) Aggregate the two balance sheets.

Three years later, 31 December 20X3, the summarised balance sheets of Pegasus and Sylvester are as follows: Pegasus Sylvester $'000 $'000 ASSETS Non-current assets Property, plant and equipment 24,000 4,200 Investment in Sylvester 1,300 25,300 4,200 Current assets 8,500 2,100 33,800 6,300 EQUITY AND LIABILITIES Equity Share capital 5,000 100 Retained earnings 26,800 5,200 31,800 5,300 Current liabilities 2,000 1,000 33,800 6,300 Required Prepare the consolidated balance sheet of the Pegasus Group as at 31 December 20X3.