Groups & Financial Statements (SOFP)

1. In exam expected to calculate NCI / Goodwill etc.

2. At minimum a group is 2 companies

W1 – Group Structure (P owns 90% of Sub = 10% is NCI)

W2 – Net Assets

W3 – Goodwill

W4 – NCI

W5 – Group Retained Earnings

W1 - Parent controls the sub. If P control 90&% of Sub then 10% is NCI.

We thinking group is a single entity when making group accounts.

W2 – Net Assets @ Cost -minus- Net Assets @ Reporting date

e.g. 300m (reporting date) – 200m (acquisition date) = 100m (post aq retained earnings)

90% P & 10% NCI = P has 90m NCI 10m

[8mins look at table if needed]

W3 – Goodwill (premium arising on CONSOL)

Premium as the value of the business overall (Parent company & NCI purchased) will exceed the
value (Fair Value) of the net assets acquired

The premium is intangible and has an annual impairment review

Can’t revalue goodwill

Impairment loss cannot be reversed` (once lost reputation can’t get back. Can rebuild if need be)

If goodwill negative, then its discount/bargain & is recognised as a profit to the parent company

GOODWILLL

1. FV of the parents’ investment @ Acquisition X

2. NCI (FV or proportion of assets) @ Acquisition X
3. FV of net assets @ Acquisition (X)
 Goodwill @ Acquisition X
 Less impairment loss (X)
 Goodwill @ reporting date X
 i.
 The parents’ investment must be MV @ AQ
 Transaction cost expenses not capitalised
 If parents’ investment revalued, then it must be cancelled out

ii.
 The NCI @ AQ = MV = (NCI% x equity shares x market price = NCI) = Goodwill is full.
Impairment loss is split between retained earnings & NCI in the 90/10 split
 (NCI x net assets = NCI) goodwill & any impairment is for parent only
 This can be review on an AQ by AQ basis

iii.
 Possible to revise FV up to 1 year after the date of AQ.
 FV Adjustment are normally there to PPE upwards. Can also introduce new assets and
liabilities not recognised by the individual company
 FV adjustments = taxable temporary difference =/makes deferred tax liability
 FVA @ AQ, assumed not incorporated the FVA in FS & assets FVA remains and needs to be
adjusted @Reporting Date

W4 – NCI

Interest in subs net assets that parent has no control of

Part of equity/ownership interest = sensitive to Profit & losses

NCI (FV or proportion of net assets)

 Opening Balance (FV or proportion of net assets ) W3 X
 Plus the % of post AQ W2 X
 Less the % of impairment loss on full goodwill (NCI @ FV) W3 (X)
 NCI @ Reporting Date =X

W5 – Retained Earnings (RE)

Parents RE X

+ % of the post -AQ RE of the sub W2 X

- % of impairment loss on full goodwill W3 (X)

- all of the impairment loss on goodwill attributable W3 (X)

to the parent (NCO a proportion of assets)

PREPAREING GROUP SOFP

- Cross cast parent & subs assets on line by line basis

- Single entity concept
 ASSETS

- Basic CONSOL adjustments (e.g. FV adjustments on PPE has to be added on PPE but take
away any additional depreciation)
- Inter-co Is cancelled but replaced with goodwill (net of any impairment losses)
- If parent has investment in any loan notes – this should be eliminated (inter-co)
- Inventory (stock) deduct PURP provision for unrealised profit (wife £10/£12) plus goods in
transit
- Balance on current account eliminated
- Cash at bank has to be increased by anything in transit (for both P + sub) must be included
e.g. pending payment in bank or goods shipped across etc.

Equity

- Equity shares will be of parent only

- Retained Earnings W5
- NCI W4

Liabilities

- Cross cast everything

- Intercompany is eliminated

Q [23:30]

W1 – NCI %

P 80%

Sub 20%
2 YEARS AGO AQ

W2 – Net assets of Sub @ Date of AQ Year end

Share Capital 5,000 5,000

Retained Earnings 34,000 49,000

FV Adjustment 25,000 25,000

Post AQ Dep (5 years) 0 (10,000)

=64,000 =69,000

5,000 post AQ

W3 – Goodwill
FV P Investment 90,000

NCI FV 20,000 This means goodwill in full as NCI is @ FV

FV NA @ AQ W2 (64,000)

(Full) Goodwill @ AQ =46,000

Impairment loss (1,000) (80% £800 RE – 20% £200 NCI) split due to NCI @ FV

Goodwill @ YE =45,000

W4&5 – Net assets of Sub @ W4 W5

NCI RE

Opening balance (W3) 20,000 110,000

Post AQ - Retained Earnings (W2) 1,000 <- 80% 4,000 <-20%

Impairment Loss (200) <- 80% (800) <-20%

=20,800 =113,200

GROUP SOFP – Balance Sheet

Goodwill – W3 45,000

Assets

[35,000 + 55,000 + FVA 25,000 – DEP 10,000] 105,000

=150,000

Shares (P only) 10,000

RE W5 113,200

NCI W4 20,800

Liability (5000 + 1000) 6,000

=150,000