Ch 14 - Consolidated Bal Sheet Flashcards

Question

What do you refer to the account for intra-group trading?

Answer 1

when companies within a group trade the intra-group debtor and intra-group trade creditor are referred to as the ‘current account’

Answer 2

Profits made by members of a group on transactions with other group members are Recognised in the accounts of the indiv companies But in terms of the group as a whole, such profits are unrealised So must be eliminated from consolidated accounts as a consolidation adjustment

Answer 3

Cancel current accounts Deal with any unrealised profits if goods are still held by a group company at the year end Write down stock value to cost rather than the amount at which it was sold between P and S

Answer 4

Step 1: Calc how much profit is included in closing stock Determine the value of closing stock included in an indiv company’s accounts which has been purchased from another company in the group Use mark-up or gross profit percentage (gross margin) to calc how much of that value represents profit earned by the selling company Step 2: If P is selling to S Remove the profit element This is included in the parent company’s accounts and relates entirely to the group DR Group P&L account reserve (W5) CR Group Stock (on CBS)

Answer 5

Step 1: Calc how much profit is included in closing stock Determine the value of closing stock included in an indiv company’s accounts which has been purchased from another company in the group Use mark-up or gross profit percentage (gross margin) to calc how much of that value represents profit earned by the selling company ``` Step 2: If S selling to P Remove the profit element This is included in the subsidiary company’s accounts and relates partly to the group, partly to NCI’s (if there are any) DR Subsidiary P&L acc reserve (W2) CR Group stock (on CBS) ```

Answer 6

The FV of an asset and a liability is defined in FRS 102 to be the amount for which an asset could be exchanged or a liability settled between knowledgable, willing parties in an arms length transaction

Answer 7

``` Cash consideration Deferred cash consideration (include at PV so discounting of liability is unwound each year) Share consideration Contingent consideration ```

Answer 8

DR Cost of investment (amount included in ‘consideration calc of goodwill) CR Cash

Answer 9

If not all the purchase consideration is paid at the date of the acquisition, some may be deferred until a later date (deferred consideration) DR Cost of investment CR Liabilities Deferred consideration should be included at its Present Value (PV) Subsequently, the discounting of the liability will be unwound each year DR Finance Costs CR Liabilities Won't impact goodwill

Answer 10

This won’t impact the consideration in the goodwill calc, which will remain unchanged

Answer 11

Instead of paying cash, the parent may issue its own shares in exchange for the shares of the subsidiary DR Cost of investment (market value at acquisitions ate) CR Share capital CR Share premium

Answer 12

Deferred share consideration If not all the shares are issued at the acquisition date, some may be issued at a later date Known as deferred shares Always take the market value at the date of acquisition to measure the amount of consideration for deferred shares DR Cost of Investment CR Shares to be issued

Answer 13

Contingent consideration is an amount which may be payable at a future date in respect of the purchase of an investment, dependent upon certain future events E.g. An extra amount may be paid for an investment in a subsidiary if it achieves a certain level of sales growth over 5 years

Answer 14

included as part of the cost of investment assuming Payment is probable It ca be reliably measured Measured at FV at the date of acquisition

Answer 15

DR Cost of investment | CR Provision

Answer 16

DR Cost of investment | CR Shares to be issued

Answer 17

It would be given in the exam

Answer 18

the additional consideration should be treated as an adj to the cost of the business combination

Answer 19

Prof fees and similar incremental costs incurred directly in making the acquisition With the exception of arranging finance, where costs are deducted from the liability/share premium account E.g. loans or share issues

Answer 20

The FV of the contingent consideration at acquisition could be diff to the actual consideration paid

Answer 21

Any diffs are normally treated as a change in acc estimate and adjusted prospectively acc with FRS 102 Section 10 The only time a change would be treated retrospectively with a corresponding adj to goodwill would be if the change related to conditions that existed in acquisition date and occurred within 1 year of the date of acquisition

Answer 22

The only time a change would be treated retrospectively with a corresponding adj to goodwill would be if the change related to conditions that existed in acquisition date and occurred within 1 year of the date of acquisition

Answer 23

To process FV adjustment in consolidation question, you must consider the impact both at the acquisition and reporting date in W2 At acquisition put an adjustment into the net asset working (W2) to bring the net assets to FB This will then affect W3 At the reporting date account for the adjustment on the face of the CBS and in the net assets working (w2) This will affect the NCI working (W4)

Answer 24

Any difference between NBV in S’s books and FV is treated as a FV uplift which is shown on the face of the balance sheet and in W2

Answer 25

Depr should be charged on all FV adjustments from the point of acquisition

Answer 26

Calc of subs NA Along the top Reporting date Date at acquisition ``` Down the side Ordinary share capital P&L acc reserve FB adjustments on fixed assets FV fixed assets depr (cumulative since acquisition) Total ``` note: total post acquisition mvmt of P&L reserve, FV adj on fixed assets and FV fixed assets depr go to W5

Answer 27

Any goodwill in S’s books (e.g. from the purchase of a sole trader) shouldn’t appear on the consolidated BS as it isn’t identifiable So must be removed from net assets in (W2) Must not appear on face of CBS

Answer 28

There may be intangibles in S which aren’t recognised on S’s BS as they don’t meet criteria of FRS 102 Section 18 Upon consolidation, the FV of all identifiable assets should be recognised on the CBS and in W2

Answer 29

In S’s indiv accounts, S may disclose contingent liabilities Contingent liabilities existing at acquisition of S should be included on the face of the CBS and in (W2) at FV This will be given in the exam

Answer 30

Ideally the FV of net assets will be ascertained by the first year end after the acquisition In practice, this might not be possible E.g. if the acquisition is in the last month of the year

Answer 31

Ideally the FV of net assets will be ascertained by the first year end after the acquisition In practice, this might not be possible E.g. if the acquisition is in the last month of the year

Answer 32

Depends on whether they are made in the measurement period or not

Answer 33

i.e. less than 12 months from acquisition date | An adjustment is made retrospectively and goodwill is recalculated

Answer 34

i.e. more than 12 months from the acquisition date They are treated as a change in acc estimate and adjusted for prospectively An impairment review is performed

Answer 35

IFRS 3 Business Combinations allow a choice of how to measure NCI The proportionate (share of NA) method Fair Value (full goodwill) method The choice is made on an acquisition by acquisition basis The choice will affect the goodwill and NCI calc

Answer 36

UK GAAP calcs NCI at proportionate method = acquisition as NCI% x Was at acc IFRS allows a choice between proportionate or FV

Answer 37

you will be told the FV of NCI in the exam | Simply insert this number into the NCI line of the goodwill working