Ch 15 - Group Accounts: Consolidated SFP

Question 1

What complications can arise with a consolidated P&L?

Answer 1

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

Question 2

What are the 2 forms that the CP&L shows?

Answer 2

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

Question 3

What are the basic consolidated P&L workings?

Answer 3

!. Establish group structure (same for as CBS)

2. Consolidation Schedule
3. NCI (same as BSC)

Question 4

How do you calc W2 ?

Answer 4

Add adj column and total column onto P&L and total column = what appears on consolidated P&L

Question 5

What does the top and bottom half of P&L show?

Answer 5

Top = control 
Ownership = ownership

Question 6

When must stock be adjusted?

Answer 6

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

Question 7

What is the adjustment required for stock PURPs?

Answer 7

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

Question 8

What difference does it make if S is the seller on intra-traded stock?

Answer 8

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

Question 9

How do you calc stock when sale is mark-up of 20%?

Answer 9

Sale = 120% 
CoS = 100% 
Profit = 20%

Question 10

How do you calc PURP when sale is 20% profit margin

Answer 10

Sales = 100%
CoS = 80%
Profit = 20%

Question 11

What adjustment is required when one group company sells a tangible fixed asset to another in the group?

Answer 11

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

Question 12

What is a PURP made up for a tangible asset?

Answer 12

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

Question 13

How should intra-group interest and management charges be dealt with?

Answer 13

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

Question 14

When dealing with interest, what must be careful of in P&L?

Answer 14

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

Question 15

Where does goodwill appear in FS?

Answer 15

Usually operating expenses of P, unless told otherwise

Question 16

Where do you adjust for goodwill?

Answer 16

W2 in operating expenses unless told otherwise (P)

Question 17

When there is FV uplift, what must be done?

Answer 17

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)

Question 18

How are intra-group dividends dealt with?

Answer 18

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

Question 19

How should S’s investment income be dealt with?

Answer 19

S’s investment income can be left as this related to outside the group

Question 20

Describe the proforma for consolidated SoCIE

Answer 20

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

Question 21

What is the BF figure for Equity in SoCIE?

Answer 21

Share capital bf is only that of the parent

Question 22

What is NCI bf in SoCIE?

Answer 22

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

Question 23

How would you calc NCI interest b/f in SoCIE?

Answer 23

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

Question 24

How do you calc Group P&L acc reserve b/f?

Answer 24

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

Question 25

How is W5 laid out for SoCIE?

Answer 25

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

Question 26

What is the difference between when P pays a dividend and S pays a dividend?

Answer 26

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

Question 27

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?

Answer 27

£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

Question 28

What must you be able to do for the exam re SoCIE?

Answer 28

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

Question 29

How are mid-year acquisitions dealt with?

Answer 29

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

Question 30

What are the differences between UK GAAP and IFRS’s with consolidated P&L?

Answer 30

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