Reference no: EM13701012
During 2012 and 2013, BL had incurred severe losses as a result of the recession, poor marketing efforts and badly situated locations.
Daycon' president felt that with an aggressive marketing campaign, relocation of some of the locations and with a new corporate name, BL should be able to rebound and return to a profitable position by the end of the year.
By the Fall of 2014, BL's fmancial position and results from operations did not show any sign of improvement whatsoever. In November of 2014, Daycon' management decided to shut down BL's operations as of June 1, 2015 and has commenced a huge liquidation sale. At December 31, 2014 30% of the products purchased from Daycon are still in BL's inventory ($60,000,000 recorded sales by Daycon).
Some of BL's inventory will be purchased by Daycon and resold to some of its clients.
On December 31, 2014 Daycon also purchased 15% of the voting common shares of Roberge Inc. (RI), a small public company located in France. 60% of the remaining shares are held by another investor and the remaining balance is widely distributed. RI is one of Daycon' major suppliers of components needed in its manufacturing operations.
Daycon expects to be able to control is supply chain much better. Sales are currently made by RI at a gross profit of 20%. During 2014, sales from RI were 20,000,000 euros. Daycon expects a similar sales volume going forward with the same rate of gross profit.
In addition, Daycon also purchased an 8 year, 1,000,000 euro, convertible bond, 10% coupon rate for 97 from RI. The holder of this bond has the option of converting it into common shares at the rate of five shares per 100 euro at any time. Should Daycon decide to exercise its option, it will end up with 55% of the voting common shares. The market price of these shares has averaged 17 euro/share during the past year.
Mrs. Daycon has asked you to prepare a report discussing the accounting implications of these investments on Daycon' December 31, 2014 financial statements.
Prepare the report requested by Mrs. Daycon.
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