1649674253basic Groups - Part 2 (CL2) - SOFP (Sub)

Group Accounting - Part 2
Preparation of Consolidated Statement of Financial Position
SLFRS 10, SLFRS 11 AND LKAS 28 LEARNING OBJECTIVES
 Prepare consolidated financial statements (consolidated statement of financial
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position, consolidated statement of profit or loss and other comprehensive
income).
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 Apply and discuss the criteria used to identify a subsidiary and an associate.
 Apply appropriate procedures to be used in preparing group financial
statements.
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 Describe an associate entity and a joint venture arrangement.
 Explain different types of joint arrangement.
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 Recognise joint control and significant influence.
 Apply equity method of accounting for investment in associate and joint
ventures.
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 Describe when to discontinue equity method of accounting.
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PREPARATION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Consolidation Process
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The statement of financial position of a parent and its subsidiaries are combined on a
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line-by-line basis by adding together like items of assets, liabilities and equity.
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A number of consolidation adjustments are then made, in order that the consolidated
financial statements should show financial information about the group as if it was a
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single entity.
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Consolidation Adjustments
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1 Calculation of goodwill and NCI

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2 Impairment of goodwill (Partial and full goodwill method)

3 Gain on bargain purchase
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4 Adjustments to purchase consideration

5 Fair Value Adjustment on the date of acquisition
6 Under depreciation adjustment
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7 Inter-company balances and cash in transits

8 Inter-company sales and unrealized profit adjustment
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9 Sale of fixed assets and Brand amortization

10 Preference Share Capital and Inter Company Loans
11 Dividend
12 Equity accounted investees
1
1. CALCULATION OF GOODWILL
Goodwill is the excess that an acquiring company pays for a subsidiary over the fair
value of its net assets. Goodwill is calculated as:
Purchase Consideration transferred X
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Non-controlling interest X
Fair value of Net assets acquired:
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Stated capital of subsidiary at acquisition date (X)
Reserves of subsidiary at acquisition date (X)
Goodwill X
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IN
Non-controlling interest
Where the parent company acquires less than 100% of a subsidiary, there is a non-
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controlling interest. The non-controlling interest features in the calculation of goodwill.
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Question 1 – Goodwill Computation and Non-Controlling Interest
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P Limited acquired 75% of the shares of S Limited on 31st December 2020 for Rs.
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70,000. As at that date the retained earnings of S Limited Rs. 10,000. Statement of
Financial Position as at 31st December 2021 are as follows.
C
P S
C
Rs.’000 Rs.’000
Non-current assets 120 60
A
Investment in S 70 -
Current assets 60 20
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Total assets 250 80

N
Stated capital 100 20

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Retained earnings 80 30
Liabilities 70 30
Total equity and liabilities 250 80
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Prepare
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1. Goodwill calculation
2. Consolidated Retained earnings
3. Non-Controlling interest
4. Consolidated Statement of Financial Position for P Limited Group.
2
2. IMPAIRMENT OF GOODWILL
Where goodwill has been impaired since acquisition, the original acquisition journal is
still recorded, but this is followed by an impairment journal, which reduces the value of
goodwill to recoverable amount
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Question 2 – Goodwill Impairment (Partial goodwill method)
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G
P S
IN
Rs.’000 Rs.’000
T
Total assets 250
N 80
U
O
Liabilities 70 30
C
Good will of the S impaired by Rs. 7,500 as at the reporting date

C
Prepare
A
E
N
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Question 3 – Goodwill Impairment (Full goodwill method)
P Limited acquired 70% of the shares of S limited on 31st December 2020 for Rs. 70,000.
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As at that the retained earnings of S Limited were Rs. 15,000. The fair value of non-
controlling interest was determined to be Rs. 16,000. Statement of Financial Positions
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as at 31st December 2021 are as follows.
P S
Rs.’000 Rs.’000
3
Total assets 250 80

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Liabilities 70 30
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Good will of the S impaired by Rs. 7,000 at the reporting date
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Prepare
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4. Consolidated Statement of Financial Position for P Ltd group.
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1. GAIN ON A BARGAIN PURCHASE
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In some cases, the calculation of goodwill may result in a negative amount. SLFRS 3
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refers to this as a gain on a bargain purchase, although it is more commonly known as
'negative goodwill'. Negative goodwill is reviewed for accuracy and then debited to
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profit or loss immediately.

C
Question 4 – Gaian on bargain purchase

C
A
E
P S
N
Rs.’000 Rs.’000
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Total assets 250 80
N

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Liabilities 70 30
4
Prepare
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4. ADJUSTMENT FOR PURCHASE CONSIDERATION
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Question 5 – Adjustment for purchase consideration
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100,000. This includes a legal fees paid for acquisition amounting to Rs. 5,000.
 P transferred a land to S which has a book value of Rs. 8,000 and this had a fair value
IN
of Rs. 12,000 as a part of purchase consideration. This was not recorded in P’s books.
 Present value of deferred payments amounting to Rs. 10,000 and P agreed to pay
this after two years’ time.
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 P transferred 3 shares for each 5 shares acquired from S Limited. As at the date of
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acquisition S had 1000 shares. Market price of P’s share was Rs. 40/= at this date.
 Fair value of contingent consideration agreed at the date of acquisition was Rs.
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7,000. As at the reporting date (31/12/2020) fair value of the contingent
consideration is Rs. 11,000.
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 The fair value of non-controlling interest was Rs. 30,000 and S Limited made a profit
of Rs. 10,000 during the year 2020.
C
The Statement of Financial Positions of each Company as at 31st December 2021 is given
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below.
A
P S
Rs.’000 Rs.’000
E

N
Total assets 250 90
LI

N
Liabilities 30 30
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Required:
Prepare Consolidated Statement of Financial Position for P Limited.
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5. FAIR VALUE ADJUSTMENT ON THE DATE OF ACQUISITION
Where a depreciable asset is subject to a fair value adjustment on acquisition for the
purposes of consolidation, but this is not reflected in the subsidiary's individual
accounts, then subsequent adjustments are required at each reporting date to account
for the increase or decrease in depreciation:
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a) Where an asset is fair valued upwards, then extra depreciation must be
recognized in the consolidated financial statements than in the subsidiary's
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individual financial statements.
b) Where an asset is fair valued downwards, then less depreciation must be
recognized in the consolidated financial statements than in the subsidiary's
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individual financial statements.
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After the acquisition date, an asset (or liability) that has been subject to an acquisition
date fair value adjustment may be realised (eg sold). As a result, the fair value
adjustment must be transferred to profit or loss.
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Question 6 – Fair Value Adjustment on the date of acquisition
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100,000.
 As at that date of acquisition the fair value of a land held by S Limited was Rs. 25,000
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and the book value was Rs. 15,000.

C
of Rs. 6,000 during the year 2020 and Rs. 4000 in 2021.
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below.
A
P S
E
Rs.’000 Rs.’000
N
LI
Total assets 250 90

N
Liabilities 30 30
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Required:
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Question 7 – Fair value adjustments subsequently realized
100,000.
 As at that date of acquisition the fair value of a inventory held by S Limited was Rs.
5,000 and the book value was Rs. 3,000.
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of Rs. 6,000 during the year 2020and Rs. 4,000 in 2021.
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below.
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P S
IN
Rs.’000 Rs.’000
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Total assets
N
250 90
U
O
Liabilities 30 30
C
31st December 2021 the inventory which has been fair valued at the acquisition has sold
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to an outside party.
A
Required:
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6. UNDER DEPRECIATION ADJUSTMENT

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Question 8 – Under depreciation adjustment

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P Limited acquired 75% of the shares of S Limited on 1st January 2020 for Rs. 100,000.
N
As at that date the fair value of a building was Rs. 60, 000 and the book value was Rs.
50,000. The remaining useful life of the building was estimated to be 10 years. The
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retained earnings of S Limited was Rs. 30,000. The NCI was valued at Rs. 30,000.
below.
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P S
Rs.’000 Rs.’000
Total assets 250 90
K
.L
Liabilities 30 30
G
IN
Required:
Prepare the consolidated Statement of Financial Position
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7. INTER-COMPANY BALANCES AND CASH IN TRANSIT
Question 9 – Inter-company balances N

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100,000. The retained earnings of S Limited was Rs. 30,000.
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below.
C
P S
Rs.’000 Rs.’000
C

A
Receivable from S 30 -
E
Total assets 250 90

N

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Payable to P - 20
Liabilities 30 10
N

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S has paid 10,000 to P during the financial year but the payment has not reached and
accounted in the P as at the reporting date 31st December 2021.
Required:
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Question 10 – Inter-company balances and goods in transit
100,000.
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below.
P S
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Rs.’000 Rs.’000
G
Receivable from S 30 -
IN
Total assets 250 90
T
Payable to P
Liabilities
N-
30
20
10
U
O
P had dispatched goods to S with a value of Rs. 10,000. But S had not received them by
31st December 2015 and as a result not recorded in the books of S.
C
Required:
C

A
8. INTER-COMPANY SALES AND UNREALIZED PROFIT ADJUSTMENT

E
Question 11 – Inter-company sales

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P Limited acquired 32,000 shares in S Limited on 1 January 2020.The fair value of the
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identifiable net assets was Rs. 100,000. Any excess of fair value can be attributed to
increase in Land. NCI on this date was valued at Rs. 15,000
N
P S
Rs.’000 Rs.’000
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Inventories 12 5
9
Total assets 270 150
Stated capital (Rs. 1 each) 50 40

Liabilities 100 50
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During the year 2020, S made a profit of Rs. 10,000.
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
 During the year S sold goods to P for Rs. 80,000 making a standard markup of 25%
on cost. As at 31st December 2020, Inventory of P included Rs. 5,000 being the price
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paid to purchase from S.
 During the year P sold goods to S for Rs. 50,000 making a standard markup of 25%
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on sales price. As at 31st December 2020, Inventory of S consist with 20% of the
goods purchased from P.
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Required:
N
U
9. SALE OF FIXED ASSETS AND BRAND AMORTIZATION
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Question 12 – Sale of fixed assets and brand amortization (Sale by parent)

C
P Limited acquired 80% S Limited on 1st January 2020 at a cost of Rs. 100,000. The fair
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value of the net assets were determined to be 120,000.

 This includes a brand possessed by S not recorded in S limited books valued at Rs.
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12,000. This brand was estimated to be useful over a 6 year period. Any further
excess in the fair value should be attributed to increase in building value which is to
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be depreciated over 10 years.

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 NCI on the acquisition date was decided to be measured at the proportion of the net
assets attributable to them.
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 During the year 2020 and 2021, S made a profit of Rs. 8,000 and 7,000 respectively.
 On 1st January 2021 P Limited sold a motor vehicle to S Limited at a price of Rs.
15,000. The book value at the date of sale was Rs. 10,000. The group companies
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depreciate its motor vehicles over a 5-year period.

 At the year-end 2021 the goodwill was impaired by Rs. 1000
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The Statement of Financial Positions as at 31st December 2021 are given below.
10
P S
Rs.’000 Rs.’000
K
.L
Liabilities 25 5
G
IN
Required:
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Question 13 – Sale of fixed assets (Sale by Subsidiary)
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P Limited acquired 80% S Limited on 1st January 2020 at a cost of Rs. 100,000. The fair
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value of the net assets were determined to be 85,000.
 NCI on the acquisition date was decided to be measured at the proportion of the net
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assets attributable to them.

 During the year 2020 and 2021, S made a profit of Rs. 8,000 and 7,000 respectively.
C
 On 1st January 2020 S Limited sold a motor vehicle to P Limited at a price of Rs.
12,000. The book value at the date of sale was Rs. 8,000. The group companies
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depreciate its motor vehicles over a 5-year period.

A
E
P S
Rs.’000 Rs.’000
N

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Payable to S 15
N

O

Receivable from P 10
Liabilities 25 10
11
Required:
10. PREFERENCE SHARE CAPITAL AND INTER COMPANY LOANS
Question 14 – Preference Share Capital and Inter Company Loans
K
On 1st January 2020 P Limited acquires 70% of the ordinary shares of S Limitedat a cost
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of Rs. 90,000 and 40% Preference share capital of S for Rs. 22,000. The retained
earnings of S as at the acquisition date were Rs. 10,000. The preference shares are
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classified as equity. On the acquisition date the fair value of NCI (excluding the value of
preference shares) was Rs. 30,000
IN
T
P S
Rs.’000 Rs.’000
Non-current assets
Investment in S
N
250 125
U
Ordinary Shares 90 -
Preference shares 22 -
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Loan given to S 10 -
C

C
Stated capital
Ordinary Shares 200 100
A
Preference shares - 55
E
Loan from P 10
Liabilities 46 5
N

LI
Required:
Prepare consolidated Statement of Financial Position as at 31st December 2021.
N
O
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11. DIVIDEND
Question 15 – Dividend
P Limited acquired 80% of the ordinary share capital of S Limited several years ago
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when the accumulated profits of S was Rs. 12,000. P also acquired 30% of Preference
share capital of S for Rs. 3,000 subsequently. The Statement of Financial Positions of the
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companies as at 31st December 2021 are given below.
P S
G
Rs.’000 Rs.’000
IN
T
Stated capital
Ordinary Shares
N
100 50
U
Preference shares - 10
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Proposed Dividends - 10
Liabilities 20 11
C

C
Even though S has posted for divided P has not made any entry for the dividends
receivable from S for the year. A proposed preference dividend of Rs. 2,000 by S (also
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declared at the year-end) has not been accounted for by either company.
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Required:
Prepare consolidated Statement of Financial Position as at 31st December 2021.
N
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Question 16 – Loss making subsidiary
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70,000. As at that date the retained earnings of S Limited Rs. 20,000. As at that date the
revaluation reserve of S Limited Rs. 25,000. Statement of Financial Position as at 31st
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December 2021 are as follows.
P S
Rs.’000 Rs.’000
13
Total assets 250 80

K
Revaluation reserve 20 20
Liabilities 70 30
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G
Prepare
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T
N
U
O
C
C
A
E
N
LI
N
O
14

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Group Accounting - Part 2

Preparation of Consolidated Statement of Financial Position

SLFRS 10, SLFRS 11 AND LKAS 28 LEARNING OBJECTIVES

 Prepare consolidated financial statements (consolidated statement of financial

1 Calculation of goodwill and NCI

2 Impairment of goodwill (Partial and full goodwill method)

4 Adjustments to purchase consideration

7 Inter-company balances and cash in transits

9 Sale of fixed assets and Brand amortization

Purchase Consideration transferred X

Total assets 250 80

Stated capital 100 20

Good will of the S impaired by Rs. 7,500 as at the reporting date

Question 3 – Goodwill Impairment (Full goodwill method)

as at 31st December 2021 are as follows.

Stated capital 100 20

profit or loss immediately.

Question 4 – Gaian on bargain purchase

Stated capital 100 20

Non-current assets 100 60

Stated capital 140 20

Total equity and liabilities 250 90

and the book value was Rs. 15,000.

Total assets 250 90

Stated capital 140 20

Total equity and liabilities 250 90

6. UNDER DEPRECIATION ADJUSTMENT

Question 8 – Under depreciation adjustment

Question 9 – Inter-company balances N

Non-current assets 100 60

Total assets 250 90

Stated capital 140 20

Total equity and liabilities 250 90

Stated capital 140 20

Prepare Consolidated Statement of Financial Position for P Limited.

8. INTER-COMPANY SALES AND UNREALIZED PROFIT ADJUSTMENT

Question 11 – Inter-company sales

Non-current assets 100 50

Stated capital (Rs. 1 each) 50 40

Question 12 – Sale of fixed assets and brand amortization (Sale by parent)

value of the net assets were determined to be 120,000.

be depreciated over 10 years.

depreciate its motor vehicles over a 5-year period.

assets attributable to them.

depreciate its motor vehicles over a 5-year period.

Non-current assets 100 75

Total assets 245 120

Stated capital 140 65

10. PREFERENCE SHARE CAPITAL AND INTER COMPANY LOANS

Question 14 – Preference Share Capital and Inter Company Loans

Total assets 386 200

Total equity and liabilities 386 200

Total equity and liabilities 200 123

Question 16 – Loss making subsidiary

December 2021 are as follows.

Stated capital 100 20

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