Reference no: EM13500705
Petunia Ltd purchased 75% of the shares of Lavender Ltd for a cash payment a number of years ago, when the retained earnings of Lavender Ltd were €200,000, and the share capital of Lavender Ltd was €100,000.
The summarised balance sheets of both companies as at 31 December 2009 are shown in the table below:
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Petunia
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Lavender
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31 December 2009
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31 December 2009
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€'000
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€'000
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PPE
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1,000
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200
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Investment in Lavender
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275
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-
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Current assets
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800
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440
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Liabilities
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(30)
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(16)
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2,045
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624
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Share Capital
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1,000
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100
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Retained Earnings
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1,045
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524
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2,045
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624
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Included in the year-end balance sheet at 31 December 2009 are inventories of €50,000 which Lavender sold to Petunia during the year at a profit to Lavender of €8,000. Also, Lavender owes Petunia €2,000 as at 31 December 2009.
Requirement:
a) Prepare the consolidated balance sheet of Petunia Ltd and its subsidiary Lavender Ltd as at 31 December 2009.
b) What is meant by the term 'substance over form'? Explain how this concept applies to consolidated financial statements under the provisions of IFRS.
c) In June 2010, Petunia Ltd purchases 30% of another company, Fuschia Ltd. Describe the appropriate accounting treatment for this investment in the consolidated financial statements of Petunia in 2010 and subsequent years. You should discuss both the consolidated balance sheet and consolidated income statement.
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: Petunia Ltd purchased 75% of the shares of Lavender Ltd for a cash payment a number of years ago, when the retained earnings of Lavender Ltd were €200,000, and the share capital of Lavender Ltd was €100,000.
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