consolidation adjustments

Question 1

How to treat intra-group sales in the SoPL between sub/parent? (excluding the PURP adjustment)

Answer 1

SoPL:
Should remove the transaction from the Sales balance for the seller and the cost of sales of the buyer.

Remove the PURP amount from the seller (P or S) column under “COS” in the CSoPL w2 Consolidation schedule

The value removed should be the selling price and should be removed from the adjustment column.

Question 2

Adjustments in CSoFP for unrealised profits arising from intra-group sales of inventory when parent sells to subsidiary?

Answer 2

PURP value: % of inv unsold * margin/mark up earned on the sale

Adjustments:
Dr Group RE (w5)
Cr Group Inv (CSOFP)

Must make an adjustment for the inventory still held in inventory at the year end, as the profit is therefore unrealised. A provision is therefore created for this amount.

Question 3

Adjustments in CSoFP for unrealised profits arising from intra-group sales of inventory when subsidiary sells to parent/ other subsidiary?

Answer 3

PURP value: % of inv unsold * margin/mark up earned on the sale

Adjustments:

• Remove from subsidiary (seller) INA (in the year end column) (W2)
• Cr group Inv (CSOFP)

ie. reduce group inv and remove from INA of Subsidiary in W2, it will then be shown

Question 4

How to make the adjustment in CSoFP for cash still in transit? (ie payment made but not yet received by receiver)

Answer 4

In the receiving co books:
Dr Cash
Cr TR

Afterwards cancel out the intra-group balances

Question 5

How to make the adjustment in CSoFP for goods still in transit?

Answer 5

In the receiving co books:
Dr Inventory
Cr TP

Afterwards cancel out the intra-group balances as if the transaction never happened

Question 6

How to deal with NCA transfers for Sales from: i) parent to Sub; and ii) Sub to parent in the CSoFP?

Answer 6

Parent sells to Sub:
Cr NCA of Group *PURP
Dr Group RE (W5) *PURP

Sub to Parent:
Cr NCA of group *PURP
Dr INA of S (W2) (at year end column) *PURP

PURP: NCA NBV in buyer books - NCA NBV in seller books (as if sale never happend).

Question 7

how to treat -ve goodwill on consolidation?

Answer 7

Cr Group RE (W5)

Will create a gain on bargain purchase which should be represented immediately in the SoPL for the period.

Question 8

Adjustments in CSoPL for unrealised profits arising from intra-group sales of inventory when parent sells to the subsidiary?

What other entry is made in the SoPL for the group?

Answer 8

Increase the COS figure of the seller (Dr COS) by the Provision for unrealised profit figure

(The other side of this adjustment is to Cr Inv)

Dr Sales of the group by the selling price
Cr COS of the group by the selling price

Question 9

Treatment of intra-group dividends paid by S or A/JV to P in CSoPL and CSoFP:

Answer 9

CSoPL: In W2 consolidation schedule, remove the divs received from the Adjustment column in the investment income line (it will be revenue in here)

No other adjustment as remember divs are paid out of RE of subsidiary, and therefore shown in CSoCE (Show whole amount and NCI amount in NCI column)

CSoFP: * Dr Group RE of the amount received by the parent

Question 10

How do you treat preference shares in the SoPL, when held by P in S and are classified as financial liabilities

Answer 10

Dividends paid from financial liabilities will be recognised as finance income for the receiving entity.

The finance income must be removed from the parent SoFP, and finance cost should be removed from the subsidiary FS

Question 11

How to treat management charges occurring between S and P in the CSoPL and CSoFP?

Answer 11

SoPL: Remove the charge for the payer and the receipt of the income from the receiving entity FS as an adjustment in working 2 consolidation schedule.

SoFP: No impact in the SoFP unless there is an amount in transit

Question 12

How to treat FV adjustment of S in the CSoFP and CSoPL

Answer 12

CSoFP:

i) Include the FVA amount in W2 (INA of subsidiary) under the “at year end” and “at acquisition” column.
ii) Inlcude the excess depreciation arising on the FVA amount under the “at year end” column in W2 (Dont include in W5 as it will therefore reflect here through the post acq INA figure);
iii) Include FVA amount on the BS net of amortisation/depreciation which has been accrued to date (ie add it at carrying amount)

CSoPL: Include the extra depreciation within the SoPL which should be charged for that year!

Question 13

How to treat impairments of goodwill when NCI And goodwill accounted for under A) FV method; and B) proportionate method?

Answer 13

A) Under FV method:

i) Include whole amount in W3 Goodwill calc to reduce the goodwill figure at reporting date.
ii) Include non controlling shareholding % x Impairment value in W4 NCI as Dr entry (reduce) (W4)
iii) Include the Controlling interest shreholding % x impairment value as a Dr entry in Group RE (reduce) (W5)

B) Proportionate method:

i) Include whole amount in W3 to reduce the goodwill figure at reporting date.
ii) Include the whole impairment value as a Dr entry in Group RE (reduce) (W5)

Question 14

How to calculate NCI when NCI and goodwill accounted for under A) FV method; and B) proportionate method?

Answer 14

A) FV method: FV of NCI at acquisition (given in Q) + (NCI shareholding % x post acq change of reserves in S (W2))

B) Proportionate method: (Non-controlling shareholding % x net assets of S at acquistion (w2)) + (Non-controlling shareholding % x post acq change of reserves in S (W2)

Question 15

How to deal with goods sold from P to A/JV in CSoFP and CSoPL?

Answer 15

CSoFP:
Calculate the PURP (Profit from sale to P x % unsold) and multiply by the shareholding held in the associate/joint venture.

i) Cr (Deduct) this amount from the “Investment in A/JV figure” (NCA balance); and
ii) Dr Group RE figure (W5)

CSoPL:
Increase the COS figure of the parent (Dr) in W2 Consolidation schedule by the PURP amount (above)

Question 16

How to treat the Group investments figure in the CSoFP? What if there is deferred consideration or contingent consideration?

Answer 16

P+S, and then remove the consideration amounts paid for shares in S and any other A/JV by P

If deferred consideration take the discounted consideration figure and remove from the group investments figure

If contingent consideration take the FV amount at acquisition date and remove from the group investment figure

Question 17

What to do with deferred consideration for shares in S which has not yet been paid by the parent?

Answer 17

In W3 (goodwill) consider the discounted value of the deferred consideration as the value at date of acquisition.

At acq the deferred consideration should be recognised as a liability in the SoFP at the discounted value with finance cost recognised year on year until payment date. The liability will therefore equal the undiscounted amount at the payment date.

Question 18

How to treat impairments to the investment in the associate or joint venture?

Answer 18

Cr the investment in A/JV (NCA on SoFP)

Dr the Group RE (W5)

Question 19

How to deal with goods sold from A/JV to Parent in CSoFP and CSoPL?

Answer 19

Calculate the PURP (Profit from sale to P x % unsold) and multiply by the shareholding held in the associate/joint venture.

i) Dr (Deduct) this amount from P share of A/JV profit from the period (therefore included in W5 & Investment in A calculation for SoFP)
ii) Cr Group Inventory figure by the PURP amount (above)

CSoPL:
Reduce P Share of “Profit from A/JV” figure figure (Dr) by the PURP amount (above).Rember this is shown as line before profit before tax.

Question 20

How to deal with NCA’s sold from A/JV to Parent in CSoFP and CSoPL?

Answer 20

CSoFP:
Cr Group NCA
Dr (Deduct) this amount from P share of A/JV profit from the period (therefore included in W5 & Investment in A calculation for SoFP)

CSoPL:
Reduce P Share of “Profit from A/JV” figure figure (Dr) by the PURP amount (above).Rember this is shown as line before profit before tax.

PURP: NCA NBV in buyer books - NCA NBV in seller books (as if sale never happend).

Question 21

How to deal with NCA sold from P to A/JV in CSoFP and CSoPL?

Answer 21

CSoFP:
Cr Investment in A
Dr Group RE (W5)

CSoPL:
Dr COS of the parent in W2 Consolidation schedule (seller)

PURP: NCA NBV in buyer books - NCA NBV in seller books (as if sale never happend).

Question 22

What adjustments are required in the SoFP and CSoPL when the question states that on acquisition the A/JV had assets or liab in excess of their fair value?

Answer 22

SoFP:

Cr The excess depreciation since acq of the FVA amount to the “profit from A/JV” figure X shareholding held in A/JV (therefore reflected in Group RE W5)

SoPL:
Dr the “profit from the associate” figure with the excess depreciation that should be charged for that period

Question 23

How to treat contingent consideration if forms part of the acquisition of S shares? What adjustments?

Answer 23

In W3 Goodwill calc include the contingent consideration at FV on date of acquisition.

At year end take the updated FV and reflect with the following entries:
Cr Contingent consideration (CSoFP FS) (the amount above originally recorded value)
Dr Group RE (W5) (the amount above originally recorded value)

Question 24

How to treat the share-based consideration if it forms part of acquisition of S shares?

Answer 24

In W3 Goodwill calculation include the shares consideration value at the MV at date of acquisition

In CSoFP:
Cr (increase) the parent Share capital by the number of shares issued.
Cr (increase) the parent share premium by the amount of premium x no. of shares

Question 25

How to treat subsidiary disposed of in year in CSoPL?

Answer 25

Sale of subsidiary in CSoPL should be classified as a IFRS 5 discontinued operation

Do not consolidate the profit balances in the W2 Consolidation schedule and therefore CSoPL.

Calculate the profit or loss on disposal of S at disposal date and include this as a line above profit before tax.

Question 26

How to calculate the profit or loss on the disposal of a subsidiary?

Answer 26

Proceeds from sale of shares
(-) Goodwill of S at date of disposal
(-) INA of S at disposal date (whole amount)
(+) NCI of INA of S at disposal date
(+) Profit of S attributable to P in period up to date of disposal (e.g. if YE 31/12 and dispose on 1/4, then profit of S from 1/1 to 31/3). (This part is not required if disposed on date of YE)

Question 27

How to treat an impairment on goodwill of the S in the CSoPL

Answer 27

Remove from the parent column under COS figure in the W2 Consolidate schedule

Question 28

How to treat professional fees which were incurred by the parent upon acquisition of S?

Answer 28

These should be an expense in the profit or loss for the period, so:
Cr Cash
Dr Group RE (W5)

Question 29

How to deal with the following statement:

“Sub SoFP at the date of acquisition included goodwill at £20,000 which arose on acquisition of a sole trader. In the 6 months to 31/12/20 an impairment of £4,000 was recognised in relation to goodwill.”

Answer 29

In W2, INA of the subsidiary, deduct the £20,000 from the at acquisition column and deduct £16,000 from the at year end column.

This is because the goodwill will be recalculated in working 3 for the group as a whole.

Question 30

How to deal with intangible assets in the subsidiary which have only appeared on acquisition of the subsidiary by the parent (e.g. a brand)

Answer 30

• In W2, INA of the subsidiary, recognise the FV of the brand amount in both the “at acquisition” column and the “at year end” column.
• If there is amortisation on the brand thish should also be in W2 “at year end” column as a deduction.
• Include the intangible in the group NCA balance at FVA less the amortisation that has accrued on the intangible (NBV)

Question 31

How to deal with the following:

“On 1/1/14 (YE = 31/12/14), the fair value of the subsidiaries inventory was £124,000, but the carrying amount was £107,000. At year end half the inventory was still held by the subsidiary.”

Note the date of acq was 1/1/14 of the subsidiary

Answer 31

On acquisition the inventory should be recognised as a FVA on the date of acq. The inventory should be marked in the “at year end” column at £8,500 (£124,000 - £107,000 / 2).

• Increase the group inventory at year end by £8,500 to represent the fair value adjustment

Question 32

How to deal with the following:

“Inventories in the statement of financial position of all group companies were held on a physical inventory count, carried out at year end (31 /12). On 15/1, the subsidiary received a report from one of its customers, A Ltd, showing that at year end A Ltd held £23,600 (cost to A Ltd) of the subsidiary inventory on a sale or return basis. A Ltd makes a gross profit margin of 25% on all sales but has not yet raised any invoices for this transaction.”

Answer 32

You need to add the amount held by A (£23,600*0.75) to the group inventory figure for the year end, and in W2 INA of the subsidiary in the “at year end column.

No invoices have been raised so no reduction from TP or TR is required

Question 33

How to deal with subsidiary which was acquired part way through the year IN CSoFP and CSoPL?

Answer 33

CSoPL: In W2 Consolidation schedule, must time apportion the amounts to ensure that the only the profits, expenses, etc are only taken for the period of the year which P had ownership over S. Therefore Time apportion the figures assuming they accrue evenly over the course of the year.

CSoFP: No difference in calculations