On December 31, 2010, Perseus Ltd. acquired 64% of the common shares of Miram Ltd. for $576,000. The carrying amount of Miram Ltd.'s identifiable net assets at the acquisition date was $735,000. Miram Ltd.'s common shares and retained earnings were $500,000 and $235,000, respectively. The fair values of Miram Ltd.'s identifiable net assets were equal to their carrying amounts on December 31, 2010, except for the following:
Fair Value Carrying Amount
Land $300,000 $175,000
Buildings 850,000 910,000
The building had 15 years remaining in its useful life. Perseus Ltd. uses the cost method to account for its investment in Miram Ltd.
Following are separate entity financial statements for 2012:
PERSEUS LTD. AND MIRAM LTD.
Statements of Profit or Loss
year ended December 31, 2012
Perseus Ltd. Miram Ltd.
Sales revenue $6,042,000 $1,952,000
Management fee revenue 420,000 0
Investment income 32,000 0
6,494,000 1,952,000
Cost of goods sold 3,440,000 885,000
Depreciation expense 325,000 156,000
Other expenses, gains, and losses 1,529,000 596,000
Income tax expense 480,000 126,000
Total expenses 5,774,000 1,763,000
Net income $ 720,000 $ 189,000
PERSEUS LTD. AND MIRAM LTD.
Statements of Financial Position
December 31, 2012
Perseus Ltd. Miram Ltd.
Assets
Cash and receivables $ 735,000 $ 77,000
Inventory 840,000 235,000
Total current assets 1,575,000 312,000
Investment in Miram Ltd. 576,000 -
Property, plant and equipment (net) 3,384,000 1,645,000
Total assets $5,535,000 $1,957,000
Liabilities and shareholders' equity
Liabilities $1,870,000 $1,050,000
Shareholders' equity
Ordinary shares 2,000,000 500,000
Retained earnings 1,665,000 407,000
Total shareholders' equity 3,665,000 907,000
Total liabilities and shareholders' equity $5,535,000 $1,957,000
Additional information
Goodwill was assessed at $27,000 on December 31, 2012. There had not been any goodwill impairment prior to 2012.
During 2012, Perseus Ltd. had sales of $270,000 to Miram Ltd. At December 31, 2012, $70,000 of this inventory remained unsold. The gross profit on this inventory was $30,000. At the beginning of 2012, Miram Ltd. held $106,000 of inventory that had been purchased from Perseus Ltd. The gross profit relating to this beginning inventory was $50,000.
On January 2, 2012, Miram Ltd. sold some equipment to Perseus Ltd. for $315,000. Miram Ltd.'s carrying amount just prior to the sale was $225,000. The gain is included in Miram Ltd.'s statement of profit or loss under "other expenses, gains, and losses." At the time of the sale, the equipment had 6 years of remaining useful life.
During 2012, Perseus Ltd. earned $420,000 in management fees from Miram Ltd. Miram Ltd. reports management fee expenses as part of "other expenses, gains and losses."
During 2012, Miram Ltd. paid dividends of $50,000 and Perseus Ltd. paid dividends of $100,000.
The tax rate for both companies is 40%.
Perseus Ltd. uses the cost method to account for its investment in Miram Ltd. in its separate entity financial statements.
Perseus Ltd. uses the fair value enterprise method (entity theory) to value non-controlling interest (NCI).
Ignore deferred income taxes when allocating and amortizing the purchase price discrepancy.
Required
Prepare Perseus Ltd.'s consolidated statement of profit or loss for the year ended December 31, 2012. (7 marks)
Calculate the balances in the following consolidated statement of financial position line items as at December 31, 2012:
Property, plant, and equipment (net)
Retained earnings