Consolidated Financial statements

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Case 8.2 Data

Books as of Jan 1st Y1 (After acquisition of Son Co) Books as of Dec 31st Y1 Books as of Dec 31st Y2 Books as of Dec 31st Y3
Parent Co Son Co Pa Co Son Co Pa Co Son Co Pa Co Son Co
Assets Dep R Euro (€) 1.3 Dólar ($) Fair Values ($) Euro (€) 1.3 Dólar ($) Fair Values ($) Euro (€) 1.4 Dólar ($) Fair Values ($) Euro (€) 1.34 Dólar ($) Fair Values ($)
Land 800.00 300.00 1,000.00 800.00 300.00 800.00 300.00 800.00 300.00
Building 3% 2,000.00 4% 700.00 600.00 2,000.00 700.00 2,000.00 700.00 2,200.00 800.00
Acc. Amortization Building -600.00 -280.00 (net value)
Equipment 10% 1,200.00 12% 300.00 100.00 1,200.00 300.00 1,200.00 300.00 1,400.00 400.00
Acc. Amortization Equip -400.00 -100.00 (net value)
Investment in Subsidiaries 100.00 100.00 500.00
Good Will
Current Assets 900.00 280.00 200.00 800.00 280.00 800.00 280.00 800.00 280.00
Working Capital variation
4,000.00 1,200.00 1,900.00
Liabilities
Share capital 1,300.00 500.00 500.00 1,300.00 500.00 1,300.00 500.00 1,300.00 500.00
R/E 1,200.00 350.00 350.00 1,200.00 350.00
P/L from Currency variation
P/L
LT Loan 5% 1,000.00 7% 100.00 100.00 800.00 100.00 700.00 150.00 600.00 100.00
ST Liabilities 500.00 250.00 350.00 400.00 300.00 400 550.00 250.00 600.00 300.00
Difference Assets-Liab in Son Co) 600.00
4,000.00 1,200.00 1,900.00
P/L Y1 P/L Y2 P/L Y3
Parent Co Son Co Parent Co Son Co Parent Co Son Co
Euro (€) Dólar ($) Euro (€) Dólar ($) Euro (€) Dólar ($)
Sales to 3rdparties 2,000.00 400.00 2,500.00 600.00 2,600.00 660.00
Of wich Sales to Pa Co 200.00 300.00 340.00
Cost of goods sold 1,000.00 200.00 1,300.00 300.00 1,300.00 330.00
Other cost 50.00 50.00 60.00
Amortization 180.00 64.00
General Expenses 250.00 50.00 300.00 60.00 330.00 62.00
Dividends from Group C
Financial Expenses 45.00 7.00
Income Tax 30% 157.50 25% 7.25
367.50 21.75
Y0 Y1 Y2 Y3
FACTS FACTS FACTS FACTS
PaCo use to be the best client of SonCo The fiscal year has been "normal". SonCo sold part of his The experience has been very satisfactory for both The former owners of SonCo decide to retire
SonCo is interested in to assure this strategic client and production to PaCo companies PaCo accepts to buy the remaining 35% of Sonco by 400
some SonCo' shareholders propose PaCo to acquire a relevant PaCo uses FIFO stocks'valuation method SonCo paid a 300$ divident (to 100% of shares)
interest in SonCo by Jan 1st. Dividents from abroad are tax free in PaCo
PaCo is the parent company of a large group with a number 50% of the stocks bought from SonCo remain in PaCo PaCo accepts to buy an additional 40% of Sonco The purchase was effective Dec 31st Y3
of subs at year end by 400€ 30% of the stocks bought from SonCo in Y3 remain
PaCo acquires the 25% of Son Co as of Jan 1st Y1 by 100Euro The purchase was effective Dec 31st Y2 in PaCoat year end
40% of the stocks bought from SonCo in Y2 remain
in PaCoat year end
CONSIDERATIONS CONSIDERATIONS CONSIDERATIONS CONSIDERATIONS
SonCo Functional Currency is US$ Exchange rate has been very stable all year round (1,3) The $/Euro exchange rate has been declining during The $/Euro exchange rate has recober during
PaCo's and presentation currency is Euro the year uniformely. the year uniformely.
Amortization rates are different in SonCo and Paco Useful life of the PaCo assets should not be "enlarged" Consequently, the value of the investment in SonCo Consequently, the value of the investment in SonCo
The due diligence has fixed different fair values for B/S should be "balanced" Asset=Liabilities decreases. Check in your notes how to manage it increases. Check in your notes how to manage it
SonCo assets¬liabilities Dividend paid is >results since PaCo investment
The cash flow generated during the year (if any) has been Remember:B/S should be "balanced" Asset=Liabilities Remember:B/S should be "balanced" Asset=Liabilities
used for new investments (if any) and the remaining Also, teh investment is at year end: Also, teh investment is at year end:
Income Tax rates for PaCo and SonCo to increase / decrease the working capital - P/L of the year has to be distributed considering - P/L of the year has to be distributed considering
will remain the same for the whole periode of 3 years Cash flow= net profit+amortization 'the initial share owned 'the initial share owned
Amortization Rates will remain fix for the 3 years Cash flow +net variation in LT debt = - But B/S at year end has to consider the new situation - But B/S at year end has to consider the new situation
Net Invest in fixed or financial assets +Working capital variation The excess in ST debt relates to provisions (100$) Check in your notes if good will can increase once
is no longer necessary you already have the control of the subsidiary
TO DO TO DO TO DO TO DO
1.- Calculate Good (or negative Good) Will at the acquisition date 1.- Complete the individual B/S and P/L based on 1.- Complete the individual B/S and P/L based on 1.- Complete the individual B/S and P/L based on
2.- Decide consolidation method and justify it the data provided the data provided the data provided
3.- Prepare the initial Consolidated Balance Sheet 2.- Prepare the consolidated Balance Sheet (B/S) and 2.- Calculate the effect of the exchange rate difference 2.- Calculate the effect of the exchange rate difference
Profit and Loss (P/L) as of Dec 31st Y1 on the initial B/S on the initial B/S
3.- Calculate the effect of the exchange rate difference 3.- Calculate the effect of the exchange rate difference
on the P/L of the year on the P/L of the year
4.- Calculate the additional Good (or negative 4.- Calculate the additional Good (or negative
Good) Will of the new acquisition if applicable Good) Will of the new acquisition if applicable
5.- Prepare the consolidated Balance Sheet (B/S) and 5.- Prepare the consolidated Balance Sheet (B/S) and
Profit and Loss (P/L) as of Dec 31st Y2 Profit and Loss (P/L) as of Dec 31st Y3

S-1 2012/13 CONSOLIDATION OF FINANCIAL STATEMENTS Final case