Chapter 18 - Consolidated Statement of Financial Position Flashcards
When is control established?
When a parent has more than 50% of the ordinary share capital of a subsidiary
How many workings are there when producing a consolidated statement of financial position?
5
What is W1?
Group structure - We need to establish the group structure, identifying the parent, the sub, the % of ownership and the date of acquisition
What is W2?
Add together the assets and liabilities - parent and sub simply added together on a line by line basis
What is W3?
Cancel the parent investment - the investment shown in the parent’s FS is cancelled against the subs equity balances in order to calculate goodwill at acquisition date
What does goodwill represent?
the amount paid above the fair value of the assets acquired.
What happens to goodwill in the CSFP?
it is capitalised as an intangible NCA
What is W4?
Non-controlling interest - represents the value of the subsidiary’s net assets belonging to the shareholders other than the parent.
What is W5?
Group retained earnings - the group share of the subs post acquisition profits is calculated and added to group R.E within equity
The non-controlling interest at acquisition can be measured at what?
- fair value
- its proportionate share of the fair value of the subs net assets at the acquisition date
What is the calculation for the proportional method of valuing NCI?
NCI = Subsidiary net assets (W2) x NCI%
How do we work out the Goodwill impairment if fair value method was used?
deduct P%
How do we work out the Goodwill impairment if proportional method was used?
deduct in full (Proportional = Parent)
What is negative goodwill?
When the parent pays less than the value of their share of the net assets acquired
When is negative goodwill likely to occur?
if the shares are being sold quickly to avoid the subsidiary going onto liquidation
How is negative goodwill treated?
as a form of income, known as a gain on bargain purchase and credit to the SPL
What is Non-controlling interest?
represents the equity interest in a subsidiary not attributable to the controlling interest (i.e parent)
What is the measurement of cash a acquisition?
The cash paid with no other adjustment needed
What is the double entry for fair value of cash at acquisition?
Dr Cost of investment (W3)
Cr Cash
What is the measurement of deferred cash?
Present value
What is the double entry for deferred cash?
Dr Cost of investment (W3)
Cr Liability
What is the measurement of shares at acquisition?
valued at market value at the date of acquisition
What is the double entry for shares at acquisition?
Dr Cost of investment (W3)
Cr Share capital
Cr Share premium
What is the measurement of Deferred shares?
market value of the shares on the date of acquisition.
What is the double entry for deferred shares?
Dr Cost of investment (W3)
Cr Other components of equity
What is the fair value of Contingent consideration?
Fair value, exam will provide the figure
How are professional fees measured?
Should not be included in the fair value consideration. Expensed to profit or loss
When calculating goodwill how is purchase consideration measured?
at fair value
What is the double entry for contingent consideration?
Dr Cost of investment (W3)
Cr Liability/Equity
What is the calculation for present value with deferred tax?
multiplying the future payment by the following discount factor: 1 / (1+ r) >n (power of), r = cost of capital, n = number of future years
The subsidiary’s assets and liabilities should be recorded at what?
their fair value for the purposes of the calculation of goodwill and the production of consolidated financial statements
When would an adjustment be needed on consolidation?
if the fair values of the subs net assets are different to their carrying amount in the subs financial statements
Where assets and liabilities are not carried at fair value what happens?
Adjustments are made on W2 and on the SFP.
Typical fair value adjustments include what?
- PPE
- Inventory
- Intangible assets not recognised by the sub
- Contingent liabilities
Adjustments to PPE will need to reflect what?
any post-acquisition depreciation in the reporting date column of W2
Adjustments of inventory will reflect what?
Recorded in the reporting date column to allow for any inventory sold in post-acquisition period
How will intangible assets not recognised by the sub be adjusted?
will need to be added to the subs assets as a consolidation adjustment, reflecting an post-acquisition amortisation as necessary
How will contingent liabilities be adjusted?
not recognised by sub and will need to be deducted from W2 and inserted on the consolidated SFP, reflecting any post-acquisition adjustment necessary
How are intra group transactions recorded?
they are eliminated
What is the adjustment made if the Parent sends cash to the Sub before the Y/E but the sub doesn’t receive till after Y/E?
Dr Bank (payment)
Cr Receivables (payment)
What is the adjustment made if the Sub sends cash to the Parent before the Y/E but the sub doesn’t receive till after Y/E?
Dr Inventory (payment)
Cr Payables (payment)
What happens to the receivables and reconciled balances?
they are cancelled
If either the parent or the sub makes a loan, how is this recorded?
one entity will record a loan payable and the other a receivable, possibly an investment. The loans (assets and liabilities) must be removed from the consolidated SFP
What occurs if one group sells a non-current asset to another?
creates an unrealised profit which reduces as the asset is depreciated
What adjustment occurs when an unrealised profit is made?
a PUP adjustment is necessary
What does a PUP adjustment do?
reduces the carrying amount of the asset to that based on the original cost of the asset to the group
How is the calculated PUP split?
between the seller’s and buyer’s retained earnings (W2 and W5)
what does the original profit do?
reduces seller’s retained earnings
what does the excess depreciation do?
increases buyer’s retained earnings
what is the net PUP?
reduces carrying amount of PPE
What does the PUP calculation compare?
the carrying amount of the asset at the date of transfer, with and without the sale, to establish the initial profit (transfer price - CA) made by the seller
What does the difference in the 2 depreciation values represent?
the excess depreciation charged by the buyer
How do we find the net PUP?
difference between carrying amounts based on transfer price and cost to the group
What is the calculation for the pre-acquisition retained earnings?
opening retained earnings + time apportioned profits for the year up to the acquisition date
