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 1st 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 31st 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 31st 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:

A. Prepare consolidate statement of financial position as at 31st December 2019 of P Cos.

(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.