CONSOLIDATED BALANCE SHEET (PART CANCELLATION)

The statements of financial position of P Co and of its subsidiary S Co have been made up to 30
June. P Co has owned all the ordinary shares and 40% of the loan stock of S Co since its
incorporation.
P CO
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE
P P
Assets
Non-current assets
Property, plant and equipment 120,000
Investment in S Co, at cost 80,000 ordinary shares of P1 each 80,000
P20,000 of 12% loan stock in S Co 20,000 220,000
Current assets
Inventories 50,000
Receivables 40,000
Current account with S Co 18,000
Cash 4,000 112,000
Total assets 332,000
Equity and liabilities
Equity
Ordinary shares of P1 each, fully paid 100,000
Retained earnings 95,000 195,000
Non-current liabilities
10% loan stock 75,000
Current liabilities
Payables 47,000
Taxation 15,000 62,000
Total equity and liabilities 332,000
S CO
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE
P P
Assets
Non-current assets
Property, plant and equipment 100,000
Current assets
Inventories 60,000
Receivables 30,000
Cash 6,000 96,000
Total assets 196,000
Equity and liabilities
Equity
80,000 ordinary shares of P1 each, fully paid 80,000
Retained earnings 28,000 108,000
Non-current liabilities 50,000
12% loan stock
Current liabilities
Payables 16,000
Taxation 10,000
Current account with P Co 12,000 38,000
Total equity and liabilities 196,000
The difference on current account arises because of goods in transit.
SOLUTION

1. P CO CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE

P P
Assets
Non-current assets
Property, plant and equipment (120,000 + 100,000) 220,000
Current assets
Inventories (50,000 + 60,000) 110,000
Goods in transit (18,000 – 12,000) 6,000
Receivables (40,000 + 30,000) 70,000
Cash (4,000 + 6,000) 10,000
196,000
Total assets 416,000
Equity and liabilities
Equity
Ordinary shares of P1 each, fully paid (parent) 100,000
Retained earnings (95,000 + 28,000) 123,000
223,000
Non-current liabilities
10% loan stock 75,000
12% loan stock (50,000 × 60%) 30,000
105,000
Current liabilities
Payables (47,000 + 16,000) 63,000
Taxation (15,000 + 10,000) 25,000
88,000
Total equity and liabilities 416,000

Note especially how:

(a) The uncancelled loan stock in S Co becomes a liability of the group
(b) The goods in transit is the difference between the current accounts (P18,000 – P12,000)
(c) The investment in S Co’s shares is cancelled against S Co’s share capital.