P bought 80% of the ordinary share capital in S on the 1st October 2015 for £648
ID: 2541374 • Letter: P
Question
P bought 80% of the ordinary share capital in S on the 1st October 2015 for £648,000 At the date of purchase the profit and loss reserve of S Ltd was £360,000. The summarised financial statements of both companies as at 30th September 2017 are as follows: P plc plc f 'se 540,000+ Fixed Assets Cost of investment in S Current assets Current liabilities 720,000 648,000 740,000 (200,000200,000 1,908,000 1,080,000 740,000 Share capital (Ordinary Shares of £1) Retained Earnings 1,080,000 360,000 828,000 720,000 1908,000 1080,000, Profit before tax 252,000+ 306,000 90,000 72,000 216,000 ax Profit for the year 180,000 Assume that profits accrue evenly through the year, and that no dividends have been paid Prepare the consolidated profit and loss statement forthe P group as at 30th September 2017, assuming that P sells its entire holdings in S for £1,300,000 on the 30th September 2017, Assume no impairment for goodwill or other assets,dExplanation / Answer
Profit after tax of P Ltd.
216000
Add: Share of profit of S Ltd.
(180000 X 80%)
144000
Consolidated profit and loss balance of P Group
360000
Profit after tax of P Ltd.
216000
Add: Share of profit of S Ltd.
(180000 X 80%)
144000
Consolidated profit and loss statement
360000
Add: Profit of sale of holding in S Ltd.
Sale proceed from disposal of 80% holding in S Ltd
1300000
Less: Cost of investment
648000
652000
Less: Tax @25%
(652000 X 25%)
163000
489000
Consolidated profit and loss balance after the sale of the holding
849000
Profit after tax of P Ltd.
216000
Add: Share of profit of S Ltd.
(180000 X 80%)
144000
Consolidated profit and loss balance of P Group
360000
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