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Economic statements of Pegasus and Sylvester at 1 January 20X1 are… Economic statements of Pegasus and Sylvester at 1 January 20X1 are as follows: Pegasus Sylvester$’000 $’000ASSETS Non-current assets Property, plant and equipment 20,000 900Current assets Inventories 3,200 400Trade receivables 2,500 175Cash 1,800 1257,500 70027,500 1,600EQUITY AND LIABILITIES Equity Share capital 5,000 100Retained earnings 19,450 1,20024,450 1,300Current liabilities Trade payables 2,500 260Income tax payable 550 403,050 30027,500 1,600Pegasus acquires 100% of the share capital of Sylvester on 1 January 20X1 for $1,300,000 in cash. Parent’s balance sheet 2.5 Under IAS 27 Consolidated and Separate Financial Statements the investment can be recorded in the parent’s separate financial statements either: (a) at cost; or (b) as an available-for-sale financial asset in accordance with IAS 39 Financial Instruments: Recognition and Measurement. An available-for-sale financial asset in this case represents an investment in shares in another company held not for short-term profit-making by trading those shares. It should be held at fair value. In this course we will assume that the investment remains in the parent’s separate financial statements at its initial fair value, i.e. at cost. 8: INTRODUCTION TO GROUPS 8.5 Lecture example 1 Preparation Parent’s balance sheet RequiredShow how Pegasus will record this investments.  RequiredPrepare the consolidated balance sheet of the Pegasus Group as at 1 January 20X1. Here is a reminder of what the two balance sheets look like after recording the investment in Sylvester: Pegasus Sylvester$’000 $’000ASSETS Non-current assets Property, plant and equipment 20,000 900Investment in Sylvester 1,300 21,300 Current assets Inventories 3,200 400Trade receivables 2,500 175Cash 500 1256,200 70027,500 1,600EQUITY AND LIABILITIES Equity Share capital 5,000 100Aretained earnings 19,450 1,20024,450 1,300Current liabilities Trade payables 2,500 260Income tax payable 550 403,050 30027,500 1,60 (a) Cancel the investment in Sylvester in Pegasus’ books with the shares and reserves representing the investment (at the date of acquisition) in Sylvester’s books. (b) Aggregate the two balance sheets.  Three years later, 31 December 20X3, the summarised balance sheets of Pegasus and Sylvester are as follows: Pegasus Sylvester$’000 $’000ASSETS Non-current assets Property, plant and equipment 24,000 4,200Investment in Sylvester 1,300 25,300 4,200Current assets 8,500 2,10033,800 6,300EQUITY AND LIABILITIES Equity Share capital 5,000 100Retained earnings 26,800 5,20031,800 5,300Current liabilities 2,000 1,00033,800 6,300RequiredPrepare the consolidated balance sheet of the Pegasus Group as at 31 December 20X3. Business Economics ECONOMICS 100

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