Further issues in basic consolidation

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 BASIC CONSOLIDATION
ISSUES (CONT)

1 Combination of accounts
2 Fair value adjustments
3 Goodwill on consolidation
4 Non-controlling interests
5 Pre-acq and post-acq reserves
6 Inter-company transactions
7 Other adjustments

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 Learning Outcomes

1. Account for the effect of inter-group

transactions and balances
2. Prepare the Consolidated Statement of Profit
or Loss and Other Comprehensive Income,
and the Consolidated Statement of Changes in
Equity
 Consolidated statement of
comprehensive income

 Add across

 “Profit after tax” attributable to:

(i) group, (ii) NCI

 “Total comprehensive income” attributable to

(i) group, (ii) NCI

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Consolidated statement of comprehensive
income - cont

 Non-controlling interest (cont.)

Definition
• That part of the net operation results of the
subsidiary that is attributable to interests which
are not owned by the parent
Quantum
• NCI% x subsidiary’s income
Presentation
• As an “attributable to”

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6
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100 + 80
30 + 20

20 + 30

15 + 10

10 + 10
50 + 20

40% X 20

8 + (40% X (10 + 20))

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 6. Pre-acq and Post-acq reserves
 Subsidiary’s reserves can be categorised into 2
parts:
1. Pre-acq reserves (before sub was acquired)
Reserve of subsidiary as at the date of
acquisition
To be eliminated

2. Post-acq reserves (after sub was acquired)

Reserve of subsidiary after the date of
acquisition
Part of group reserve

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10
(400+150)

(92+30)

[500 + {90% X (100 – 100)}]

[200 + {90% X (30 – 20)}]
[10% X (100 + 30)]

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 Inter-company transactions

1. Inter-co account balances

2. Unrealised inter-co profits and losses
3. Inter-co dividends

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 1. Inter-company account balances

 Examples:
Inter-company loans
Inter-company sales

 To be eliminated in full
 No effect on group profit and group net assets

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(800 + 500 - 100)
(500 + 300 – 100)

(66 + 59)
(35+20)

(60+30)

(230-18)

(90 X 20%)

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(200 + 200)
(200 + 100)

(140 + 70 – 10 – 20) *10 cash in transit (for the 80k)

*20 eliminate intragroup balance
(44 + 30 + 10) *10 cash in transit

[160 + {80%X(230-100)}]
[20%X(100 + 230)]

(90 + 60 – 20) *20 eliminate intragroup balance

(10 – 6) must be shown as a liability – seller (B) has
discounted some of this bills for financing

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2. Unrealised inter-co profits and losses

 Why unrealised? – sale of assets between

entities in a group – selling entity has recorded
a profit/loss and the assets remain with the
purchasing entity
 Both “income effect” and “asset valuation
effect” must be eliminated
 Net effects
No profits/losses in CPL
Asset stated at “original cost” in CBS

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Unrealised inter-co profits and losses

 Downstream transaction
 Parent selling to subsidiary – profit recorded by parent
 Unrealized intragroup profits/losses will be adjusted in
parent’s book
 NCI – No adjustment for unrealized intragroup
profits/losses
 Upstream transaction
 Subsidiary selling to parent – profit recorded by
subsidiary
 Unrealized intragroup profits/losses will be adjusted in
subsidiary’s book
 NCI – there is an adjustment for unrealized intragroup
profits/losses
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Intragroup sale of non depreciable assets

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2800+500
1500+300

400+80

300+40

(80 X 20%) – downstream transaction

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300 – 100* (eliminate 100 for unrealized Profit)

340 + 100

(800 – 100**) + [80%X (230 – 100)]

[20% X (100 + 230)]
(200 + 70)

** adjust unrealized Profit at parent

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 Intragroup sale of stock

 Stock
Intragroup profit in goods held as ending
stock is unrealised
Stock sold – realised
FIFO – ending stock is assumed to be sold to
outside parties in the following accounting
period (the intragroup profit would be
realised)

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(2800 + 5000 – 300*) (*300 intragroup sales)
(1500 + 3000 – 300* + 10**) (**10 intragroup profit)

(300 + 800)

(400 + 300)

[(800 – 10) X 10%] – 10 upstream transaction

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(1000 + 500)
(2000 + 3000 – 10*) * unrealized profit

((1300 + 1500)

[1800 + (3300 – 2000 – 10*) X 90%] adjust at Sub

[(1000 + 3300 – 10*) X 10%)

(200 + 700)

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 Intragroup sale of depreciable assets

 Machinery
Issue: subsequent depreciation charges –
seen as sale of portion of the depreciable
assets to outside parties.
Treated as gradual realisation of the initial
unrealised profit on intragroup sale of dep.
Assets
CJE – to eliminate unrealised intragroup profit
& to record gradual realisation of the
unrealised profit.

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(800 + 500)
(500 + 150)

(200 + 100 – 20*) – *20 realisation of the

unrealised intragroup profit

(30 + 70)

[(180 + 20*) X 40%] upstream

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(300 + 500)

(400 + 200) return machine to the original costs

(240 + 300 – 60) realised for 3 years (20K X 3) 2005-2008

(160 + 200)

[200 + {(530 – 200 – 40*) X 60%}] *upstream – bal of unralised

[(530 + 100 – 40*) X 40%] upstream

(100 + 70)

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 3. Inter-co dividend
 Recorded dividend under Single tier system:
1. In subsidiary’s book
 Appropriation of dividend
Dr Dividend appropriation/retained profit
Cr Dividend payable
 Payment of dividend
Dr Dividend payable
Cr Cash
2. In parent’s book
 Record dividend income
Dr Cash
Cr dividend income

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 Inter-co dividend

 CJE
1. To eliminate dividend income against dividend
appropriation
2. To eliminate dividend receivable against
dividend payable

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(1000 + 600)
(300 + 200)

(300 + 200)

(120 + 60)

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(700 + 200)
(100 + 40)

(500 + 140*)

*PAT of R – eliminate 70 dividend

paid by R
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 7. Other Consolidation Adjustment

1. Goodwill
Impairment of goodwill
Transition from FRS 122 to MFRS 3
• To be accounted for prospectively – goodwill
armotization (prior to adoption of MFRS3
should be carry forward at its unarmotized
amount at the date of adoption of MFRS3)

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(800 + 500)

(400 + 300)

(150 + 100)

(80 + 30)

(70 X 20%)
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[(200 – {80% X (100 + 50 + 50)}) -16]

(400 +150)

(240 + 220)

(60 + 30)

[100+ (50-50 X 80%)]

[(260 -16) + {(220-50) X 80%)}

[20% X (100 + 50 + 220)

(40 + 30)

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 2. Adjustments in relation to FV
ajustment

 Adjustment in relation to fair value adjustments

Treated according to MFRS 116
Non-Depreciable Assets
Depreciable Assets
Unrecognized assets & liabilities

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(800 + 500)
(400 + 300)

(60 + 70)
(50 + 20 + 5*)
(40 + 10)

(80 + 30)

(70 – 5) X 20%
*Additional depreciation of RM5K – the current depreciation is
RM10K (100,000/10 years). For consol purpose, the annual
depreciation should be RM15K (10K + (25,000/5) years.
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 (100 + 150)

(400 + 100 + 50*)

(100 + 80 + 40**)
(320 + 230)

*50 to increased the value to revaluation value RM150K

** 25+15=40 (25 – increased the AD to revaluation value of AD RM75K
and 15 add dep exp - 5 X 3years (2006-2008)

[260 – (80% X {220 – 100 – 15*}] add dep charges for 3years
(20% X {100 + 220 + 25** – 15*})
(140 + 80)

**25K – the revaluation amount

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Thank you

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