Summarized Consolidation notes (2014-15)

Group Accounting. BASIC GROUPS.

BACKGROUND TO GROUP ACCOUNTS

GOODWILL & FAIR VALUE ADJUSTMENTS

CONSOLIDATION TECHNIQUES

ASSOCIATES & JOINT VENTURES

IMPAIRMENT OF GOODWILL

CURRENT ISSUE IN GROUP

ACCOUNTING

STANDARD WORKINGS
STATEMENT OF FINANCIAL POSITION

STATEMENT OF COMPREHENSIVE INCOME

GROUP
GROUP

STRUCTUR

STRUCTUR

NET ASSETS OF
SUBSIDIARY @
NET ASSETS OF

ACQUISITION

SUBSIDIARY @
ACQUISITION

GOODWILL
GOODWILL

CONSOL,N
SCHEDULE
NON
CONTROLING
INTEREST

NON
CONTROLING
INTEREST

GROUP RETAINED
EARNINGS

RETAINED EARNINGS
BROUGHT FORWARD

ACCOUTING FOR ASSOCIATES

WORKINGS.

1. GROUP STRUCTURE
3. GOODWILL.

2. NET ASSETS OF ASSOCIATE @ ACQUISITION

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

JOINTLY CONTROLLED
ASSTES

ENTITIES

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 arms 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.

COMPLEX GROUPS

PIECE-MEAL
ACQUISITION

VERTICLE GROUPS

MIXED D-SHAPE
GROUPS

VERTICLE GROUPS.

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

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

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

(***)

PARENT ENTITY

CHANGE IN GROUP

ACCOUNTS

STRUCTURE

GROUP ACCOUNTS

ACQUISITION OF A
SUBSIDIARY

STEP

TRANSACTIONS WITHIN EQUITY-

ACQUISITION

CONTROL. NEITHER LOST NOR GAINED.

CONTROL ALREADY EXISTS.

DECREASE THE NCI.

DISPOSAL OF A
SUBSIDIARY

CONTROL IS LOST

ENTIRE DISPOSAL

ASSOCIATE SHAREHOLDING
RETAINED

IFRS 5 DISCLOSURE,
DISCONTINUED OPERATIONS.

TRADE INVESTMENT
SHAREHOLDING RETAINED

BASIC CONSOLIDATION WORKINGS AND ADJUSTMENTS:

WORKING#1: PARENT INVESTMENT IN SUBSIDIARY IN PERCENTAGE.

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

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 %

****

LESS IMPAIRMENT FULL

(****)
----------------------------------------------------TOTAL
***/ (***)