Consolidation after the date of acquisition Examy Step Determine goodwill as at 31 Dec 2010: £ Investment in XYZ 240,000 Note: Deduct: The calculation of the — ABC's share of S's capital initial GW_at the date of ‘acquisition is unchanged (80% x £200,000) 60,000 fines acaiuetiag pared — ABC’s share of S's RE@ 1.1.2010 a ee . te (80% x £80,000) 64,000 impairment loss. — ABC's share of RA (LGW is not_amortized (80% of revaluation of PPE for £12,000) 9,600 under IFRS) (233,600) Goodwill at 1 Jan. 2010 6,400 Impairment loss in 2010 (1,280) Goodwill at 31 Dec. 2010 5,1 wee Lvepartment or Account Example: Consolidation after the date of acquisition Step (2): Determine NCI as at 31 Dec 2010: (amounts in £) (20% x £200,000) 40,000 (20% x £120,000)* 24,000 Non-controlling interest’s share of FY. adjustment (20% x £12,000) 2,400 NCI at 31 Dec. 2010 66,400 20%x6:120,000 = 20%*£80,000 (retained earnings of S at 20%*£40,000 (retained earnings generatedExample: Consolidation after the date of acquisition Step (3) Determine the consolidated share capital and retained earnings £ ABC Issued capital 320,000 ABC Retained earnings 700,000 ABC's share of the post-acquisition profit of XYZ 80% x (£120,000 — £80,000) 32,000 Impairment loss for goodwill (1,280) Total retained earnings 730,720 wee eee tee eee Deparment or Ac 5. Intercompany balances (IB) e.g. trade payables, receivables loans etc. IB should be eliminated Amounts in thousands of £ Adjustments Consolidated P Vv Dr cr balance sheet CURRENT ASSETS: ‘Trade and other receivables 5,000 | 3,000 1,000 Bank Total current assets CURRENT LIABILITIES: “Trade and other payables Leos ‘Short-term borrowings: 2,700 | 1,600 Total current liabilities 2,700 | 2,600 | 1,000 | 1,0005. Intercompany balances (IB) e.g. trade payables, receivables loans etc. s Special case: What if the balances do not cancel out? This may happen when transactions have been recorded by one company, but not the other one: e.g. V has sent £500 to P which P has not yet received Step 1: Need to adjust P accounts 4 Cashin transit £500 \U V-trade receivables £500 Step 2: Cancel out the inter-company balances ga Unrealized profit on inter-company sales (PUP) When sales are made by one company to another within the group, the profit is not realised by the group if the goods have not been sold toa third party. Profits are accounted only for transactions with third Parties. It is necessary to adjust the group income for any unrealized profit from inter-company sales PUP provision for unrealized profit _ eeeparumenit OF MC 6. Unrealized profit on inter-company sales (PUP) NCI bears its share of the adjustment for the unrealized profit only when S sells to P, i.e. when S makes the profit. Example: Balance sheet of P at 31/12/2010 includes goods bought for £5,000 which cost £3,000. P owns 60% of shares in S. UP = £2,000 — profit made by subsidiary where is it posted? \ CBS: Inventory £2,000 s) CBS RE (for the group) £1,200 (60%*£2,000) sL CBS NCI £800 (40%*£2,000)