(consolidation )

8/16/2019 (Consolidation )

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Summarized Consolidation notes (2014-15)


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Group Accounting. BASIC GROUPS.

CONSOLIDATION TECHNIQUES

ASSOCIATES & JOINT VENTURES

IMPAIRMENT OF GOODWILL

CURRENT ISSUE IN GROUP

ACCOUNTING

BACKGROUND TO GROUP ACCOUNTS

GOODWILL & FAIR VALUE ADJUSTMENTS


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STANDARD WORKINGS

STATEMENT OF FINANCIAL POSITION STATEMENT OF COMPREHENSIVE INCOME

GOODWILL

GROUPSTRUCTUR

E

GROUP RETAINED

EARNINGS

NON

CONTROLING

INTEREST

NET ASSETS OF

SUBSIDIARY @

ACQUISITION

GROUP

STRUCTURE

NET ASSETS OF

SUBSIDIARY @

ACQUISITION

GOODWILL

CONSOL,N

SCHEDULE

NON

CONTROLING

INTEREST

RETAINED EARNINGS

BROUGHT FORWARD


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ACCOUTING FOR ASSOCIATES

WORKINGS.

1. GROUP STRUCTURE 2. NET ASSETS OF ASSOCIATE @ ACQUISITION

3. GOODWILL. 4. SHARE OF NET ASSETS @ SOFP DATE

5. SHARE OF PROFIT FOR THE YEAR OF SOCI

6. SHARE OF RETAINED AT EACH SOFP DATE

ACCOUTING FOR JOINT-VENTURES

JOINTLY CONTROLLED

OPERATIONS

JOINTLY CONTROLLED

ASSTES

JOINTLY CONTROLLED

ENTITIES


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FAIR VALUE ADJUSTMENTS

IFRS 3 BUSINESS COMBINATION

IFRS 3 requires that on acquisition both the cost of investment and the net assets acquired

are recorded at their fair value. Assets and liabilities must be recognized if they are

separately identifiable and can be reliably measured. The future intentions of the acquirer

must not be taken into account when calculating fair values.

Definition

Fair value is the amount for which an asset could be exchanged, or a liability settled,

between knowledgeable willing parties in an arm’s length transaction

Fair value of the cost of acquisition is:

(a) The amount of cash paid; plus

(b) The fair value of other purchase consideration given by the acquirer; plus

(c) Include contingent consideration even if it is not deemed to be probable of payment at

the date of acquisition.

NOTE.

* If payment of cash is deferred it should be discounted to present value using a rate at

which the acquirer could obtain similar borrowing,

* If the acquirer issues shares, fair value is normally the market price at the date of

acquisition.


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COMPLEX GROUPS

VERTICLE GROUPS.

In this example the effective interest of A IN C IS 45%.

VERTICLE GROUPS MIXED D-SHAPE

GROUPS

PIECE-MEAL

ACQUISITION


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In vertical or D-SHAPE Group Structure you need to consider whether the

effective control of Parent in sub-subsidiary is greater than 50% or not. If it is

greater than 50% then you need to

1. do all like working 2, but here instead of SUBSIDIARY balances you must

put SUB-SUBSIDIARY balances.

2. Do working also for sub-subsidiary for calculating GOODWILL, but here

take the share of COST OF INVESTMENT up to the parent share holding in

subsidiary. (SUB-SUSIDIARY GOODWILL WOULD THEN BE ADDED TO

SUBSIDIARY GOODWILL FOR THE TOTAL BALANCE).

3

.

NON-CONTOLLING INTEREST. First calculate for parent to subsidiary NCI, THEN

PARENT TO sub-subsidiary NCI according to effective percentage of nci.

SUBSIDIARY- NON CONTROLING INTEREST. (NCI)

NCI AT ACQUISITION WORKING3 ***

Add/less post-acq reserves x nci% ***

LESS IMPAIRMENT (IF FAIR VALUE METHOD) (***)

---------------------------------------------------

NCI ***

SUB-SUBSIDIARY- NON CONTROLING INTEREST. (NCI)


Add/less post-acq reserves x nci effective % ***LESS IMPAIRMENT (IF FAIR VALUE METHOD) (***)

-------------------------------------------------------

NCI ***

LESS

Nci share of cost of investment (***)

-------------------------------------------------------


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CHANGE IN GROUP

STRUCTURE

ARENT ENTITY

CCOUNTS

GROUP ACCOUNTS

ACQUISITION OF A

SUBSIDIARY

STEP

ACQUISITION

TRANSACTIONS WITHIN EQUITY-

CONTROL. NEITHER LOST NOR GAINED.

CONTROL ALREADY EXISTS.

DECREASE THE NCI.

DISPOSAL OF A

SUBSIDIARY

CONTROL IS LOST

ASSOCIATE SHAREHOLDING

RETAINEDTRADE INVESTMENT

SHAREHOLDING RETAINED

ENTIRE DISPOSAL

RS 5 DISCLOSURE,

SCONTINUED OPERATIONS.


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BASIC CONSOLIDATION WORKINGS AND ADJUSTMENTS:

WORKING 1: PARENT INVESTM ENT IN SUBSIDIARY IN PERCENTA GE.


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WORKING 2: SUBSIDIARY NET ASSETS SCHEDULE/

PRE-ACQUISITION DATE REPORTING DATE

SHARE CAPITAL *** ***

SHARE PREMIUM *** ***

RETAINED EARNING *** *** PRE+POST

REVALUATION RESERVE NOTE 1

DEPRACIATION NO/ADJ (***)

UN-REALISED PROFIT (***)

FURTHER ADJUSTMENT REQUIRED -----------------------------------------------

TOTAL ***** *****

REPORTING DATE TOTAL LESS PRE-ACQ DATE TOTAL= POST-ACQ RESERVES. If negative

then minus in working 4 & 5 if positive then add

NOTE 1" REVALUATION RESERVE MAY BE CONTAINED IN BOTH TITLES (PRE+POST). BUT IT

DEPEND ON EXAMINER IF IT IS ADJUSTED IN PRE-ACQ DATE NOT IN REPORTING THEN ADD

R.R AMOUNT IN JUST REPORTING AND VICE VERSA/.

DEPRECIATION EFFECT IS ONLY ENTERS IN REPORTING DATE NO ADJUSTMENT IN PRE-ACQ

DATE.

WORKING 3. GOODWILL

COST OF INVESTMENT ****

ADD SEE BELOW NCI AT ACQUISITION ****

---------------------------------------------------------

TOTAL ****

LESS FAIR VALUE OF NET ASSETS AT PRE-ACQ DATE (****) WORKING2

LESS IMPAIRMENT IF FAIR VALUE METHOD (****)

----------------------------------------------------------

GOODWILL *****

CALCULATION OF NCI AT ACQUISITION: 2 METHODS

1: PROPORTIONATE METHOD 2: FAIRVALUE METHOD

PROPROTIONATE METHOD

NCI= NET ASSETS OF SUBSIDIARY AT ACQ X NCI %

FAIR VALUE METHOD

NCI= SUBSIDIARY SHARE AT ACQ X SUBSIDIARY SHARE PRICE

COST OF INVESTMENT= CASH PAID+DEFERRED CONSIDERATION+CONVERTIBLE LOAN

INTO SHARE ETC


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WORKING 4 NON CONTROLING INTEREST. (NCI)


Add/less post-acq reserves x nci% ***

LESS IMPAIRMENT (IF FAIR VALUE METHOD) ***

---------------------------------------------------

NCI ***

WORKING 5 GROUP RETAINED-EARNING (R.E)

KEY P=PARENT S=SUBSIDIARY A=ASSOCIATE

PARENT RETAINED EARNING FULL

ADD POST R.E X PARENT % *****

ADD GAIN ON INVESTMENT *****

ADD/LESS POST RESERVES OF ASSOCIATE X PARENT % *****

LESS IMPAIRMENT OF SUBSIDIARY X PARENT % *****

LESS IMPAIRMENT OF ASSOCIATE FULL *****

LESS UN-REALISED PROFIT IF SOLD P-S FULL *****

LESS UN-REALISED PROFIT IF P-A X PARENT % IN A *****

LESS UN-REALISED PROFIT IF A-P X PARENT % IN A *****

LESS UNWINDING OF DISCOUNT

LESS NEGATIVE GOODWILL *****

-------------------------------------------------------------------------

TOTAL GROUP RETAINED EARNING ******

UN-REALISED PROFIT IF PARENT SOLD TO SUBSIDIARY THEN GOES TO balance sheet and

working 5. If SUBSIDIARY IS A SELLER THEN GOES TO WORKING 2 AND BALANCE SHEET.

POST SHARE WOULD COME WHEN (REPORTING DATE RESERVES LESS PRE ACQ

RESERVES= POST ACQ RESERVES).

WORKING#6 INVESTMENT IN ASSOCIATE

PART OF BALANCE SHEET

COST OF INVESTMENT IN ASSOCIATE ****

ADD POST RESERVERS OF ASSOCIATE X P % IN A ****

LESS IMPAIRMENT FULL OF ASSOCIATE ****

LESS UN-REALISED PROFIT IF (P-A) ****

---------------------------------------------------------

****

SHARE OF PROFIT OF ASSOCIATE

Part of income statement

SHARE OF PROFIT OF CURRENT YEAR X % ****


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LESS IMPAIRMENT FULL (****)

-----------------------------------------------------

TOTAL ***/ (***)

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