Ch 15 - Group Accounts: Consolidated SFP Flashcards
What complications can arise with a consolidated P&L?
Mid-year acquisitions Intra-group transactions that lead to issues to deal with including - Sale and purchases - Stock PURPs - Tangible fixed asset PURPs - Intra-group interest and management charges Goodwill impairments and amortisation FV depreciation/amortisation FV depreciation/amortisation Intra-group dividends
What are the 2 forms that the CP&L shows?
From turnover to profit after tax include 100% of P’s figures and 100% of S’s figures = control
After profit after tax deduct share of profits due to non-controlling interest = ownership
Make adjustments for intra-group items such as sales of goods and dividends
What are the basic consolidated P&L workings?
!. Establish group structure (same for as CBS)
- Consolidation Schedule
- NCI (same as BSC)
How do you calc W2 ?
Add adj column and total column onto P&L and total column = what appears on consolidated P&L
What does the top and bottom half of P&L show?
Top = control Ownership = ownership
When must stock be adjusted?
If any goods sold intra-group are included in closing stock, their value must be adjusted to the lower of cost and NRV to the group
Need to eliminate profit element
What is the adjustment required for stock PURPs?
DR CoS of the seller (unrealised profit figure)
CR Closing stock in consolidated balance sheet (unrealised profit figure)
In practice the debit entry should be shown as an increase in CoS in sellers column in the consolidation schedule (W2)
Note: if S is the seller, then S’s PAT will be affected which impacts NCI
But this is a one-sided adjustment and therefore can’t go in the adjustments column
What difference does it make if S is the seller on intra-traded stock?
Note: if S is the seller, then S’s PAT will be affected which impacts NCI
But this is a one-sided adjustment and therefore can’t go in the adjustments column
How do you calc stock when sale is mark-up of 20%?
Sale = 120% CoS = 100% Profit = 20%
How do you calc PURP when sale is 20% profit margin
Sales = 100% CoS = 80% Profit = 20%
What adjustment is required when one group company sells a tangible fixed asset to another in the group?
Any profit/loss arising on the transfer must be deducted from the appropriate category within the seller’s column in the consolidation schedule (W2)
This adjustment will increase the seller’s expenses
The depreciation charge must be adjusted
Again, in the seller’s column of the schedule
So this means it is based on the cost of the asset to the group
In most cases, the profit on disposal and the depreciation charge are included in the same expense line in the P&L
Therefore, only one adjustment is needed
What is a PURP made up for a tangible asset?
PURP is made up of
Profit on disposal
Extra depreciation charged since transfer
However, if the transfer of the tangible fixed asset took place in the previous year, then only the depreciation charge is adjusted for this year
How should intra-group interest and management charges be dealt with?
Interest or management charges payable in the P&L of the subsidiary should be cancelled against the interest or management charges receivable in the parent company
Make this adjustment in the ‘adjustments’ column of (W2)
Same as the elimination of intra-group sales and purch
When dealing with interest, what must be careful of in P&L?
The income line might be referred to as ‘interest income’ or ‘other income’
But you won’t see this adj educing turnover as it isn’t related to trading activities
The expense line may be finance cost for interest, or within operating expenses
Where does goodwill appear in FS?
Usually operating expenses of P, unless told otherwise
Where do you adjust for goodwill?
W2 in operating expenses unless told otherwise (P)
When there is FV uplift, what must be done?
When a FV uplift on tangible mixed assets or an internally generated intangible in S is recognised on consolidation, this will give rise to FV depreciation/amortisation
The charge for the year will go through S’s column of (W2)
How are intra-group dividends dealt with?
A payment of a dividend by S to P will need to be cancelled out
The effect of this on the consolidated P&L is to reduce the Investment Income in P’s column of (W2) by the amount of the dividend paid to P
Note: S’s investment income can be left as this related to outside the group
How should S’s investment income be dealt with?
S’s investment income can be left as this related to outside the group
Describe the proforma for consolidated SoCIE
Along the top Attributable to equity SH of parent - Share cap - P&L reserve - Total
NCI
Total
Down side At start of yr Total comprehensive income for year Dividends At y/e
What is the BF figure for Equity in SoCIE?
Share capital bf is only that of the parent
What is NCI bf in SoCIE?
NCI% x S’s NA at the beginning of the year
same as would do at the y/e but just base it on net assets at start rather than end
How would you calc NCI interest b/f in SoCIE?
May need to calc opening net assets
Same as closing net assets, but would need to
- Strip out any profits generated during the year
- Add back any dividends that have been paid
How do you calc Group P&L acc reserve b/f?
It is (W5) for CBS at the beginning of the year
Only diff is, we are doing it as if we are at the prior year end
Laid out as below
Group profit and loss acc reserve b/f
100% P’s Profit and loss account reserve b/f X
P% of S’s post acquisition prof an loss acc reserve b/f X
Less goodwill amortisation and impairment b/f (X)
Total X
How is W5 laid out for SoCIE?
Group profit and loss acc reserve b/f
100% P’s Profit and loss account reserve b/f X
P% of S’s post acquisition prof an loss acc reserve b/f X
Less goodwill amortisation and impairment b/f (X)
Total X
What is the difference between when P pays a dividend and S pays a dividend?
When P pays a dividend this reduces group profit and loss account reserve
When S pays a dividend the NCI will receive a share of the dividend
- NCI is therefore reduced by NCI% x S’s dividend paid
E.g. if S pays a dividend of £10,000, and 70% of the S is owned by the parent, how is this dealt with in consolidated SoCIE?
£7,000 is paid internally within the group and so can be ignored
Only interested in showing the £3,000 paid externally to the NCI
What must you be able to do for the exam re SoCIE?
In exam, you are expected to calc brought forward balance (NOT carried forward)- shown how to do this later
May even just ask to prepare certain lines, rather than the full statement
Share capital is often the proportion ignored
Then this means you can get the right proportionment
How are mid-year acquisitions dealt with?
On acquisition of a subsidiary, a new non-controlling interest enters the group. This needs to be shown as an addition in the CSOCE as follows B/fwd X profit for year X Dividends paid (X) Added on acquisition X C/f
What are the differences between UK GAAP and IFRS’s with consolidated P&L?
IFRS 3 assumes goodwill has an indefinite useful life and therefore no annual amortisation is charged on the balance
However, goodwill should be reviewed annually for impairment and any impairment will be charged through the CP&L
IFRS 3 does not allow impairment reversals for goodwill
Whereas FRS102 does allow reversals
Any -ve goodwill is considered a gain on bargain purchase and credited as income in the consolidated statement profit or loss
NCI balances in the SOCE could be different due to the choice between the Proportionate method (same as FRS102) and the Fair Value method (which would create a difference) for valuing NCI
