FRA – Class Exercise: Inter Corporate Investments

1. Apply the Equity Method to the following events

a. On December 31, 2000, Company P invests $300 in Company S and receives 30%
of the shares of Company S in return. We assume that Company S’s equity (book
value) at the time of the purchase was $1,000 (i.e. P paid book value: 30% of
$1,000).
b. During the year ended December 31, 2001, Company S earns $100 and pays cash
dividends of $20
c. Company S earns $150 and pays dividends of $60 in 2002.

Question 2:
Standalone Balance Sheet as on 31-3-2020
P Ltd S Ltd P Ltd S Ltd
Capital (Face Value
Rs 10 per share) 75,000 50,000 Land 30,000 20,000
Retained Earnings 50,000 30,000 PPE 8,000 37,000
Accounts Payables 24,000 16,000 Furniture 20,000 25,000
Miscellaneous
Tangible assets 21,000 14,000
Investments
(3,000 equity shares of
S Ltd) 70,000
1,49,00
1,49,000 96,000 0 96,000

P Ltd acquired S Ltd on 1st April 2019 when the balance in retained earnings waw Rs 20,000.
Prepare balance sheet under equity method and consolidated method of P Ltd as on 31 Marc
h 2020.