Pablo S.A is a manufacturer of children's shoes, located in Spain. It owns 51% of the voting
Question:
Pablo S.A is a manufacturer of children's shoes, located in Spain. It owns 51% of the voting stock of Stabfoot. A specialty shoe manufacturer located in Belgium Pablo acquired its interest in Stabfoot several years ago, and has consolidated Stabfoot in its financial statements since the date of acquisition. Per IFRS, Stabfoo's identifiable assets and liabilities were revalued to fair value at the date of acquisition. This process led to recognition of customer and distributor relationships valued at 40 million euros, and goodwill at 120 million euros. Pablo uses the IFRS alternative and does not attribute goodwill to the noncontrolling interest. As of the beginning of the current year, the goodwill and identifiable intangibles are not impaired. Goodwill is impaired by 10 million in the current year. Pablo and stabfoot engage in intercompany transfers of merchandise. Below is information on these transactions;
Pablo sells merchandise to Stabfoot at a markup of 20% on price
Stabfoot sells merchandise to Pablo at a markup of 20% on cost
Balance in Pablo's beginning inventory purchased from Stabfoot 24 million euros
Balance in Pablo's ending inventory purchased from Stabfoot 26.4 million euros
Total sales from Stabfoot to Pablo at the price changed to Pablo 125 million euros
Balance in Stabfoot's beginning inventory purchased from Pablo 22.5 million euros
Balance in Stabfoot's ending inventory purchased from Pablo 25 million euros
Total sales from Pablo to Stabfoot at the price charged to Stabfoot 130 million euros
Required:
A) Calculate Pablo's equity in net loss and the noncontrolling interest in net income for the current year.
B) Prepare working paper to consolidate the trial balances of Pablo and Stabfoot. Label you eliminating entries (C) (I) (E) (R) (O) and (N)
Financial Theory and Corporate Policy
ISBN: 978-0321127211
4th edition
Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri