Post on 05-Jul-2018
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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)
NCI AT ACQUISITION WORKING3 ***
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)
NCI AT ACQUISITION WORKING3 ***
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 ***/ (***)