Consolidation Of Accounts Flashcards
What do Pre and Post profits of a subsidiary in an AOP signify?
Pre - profits that the subsy had earned till the date of purchase by Parent and hence a part of cost of investment to the extent of Parent’s share.
Post - profits that Parent earned from subsy after the purchase and hence shown as a part consolidated P/L to the extent of his share
“Shares were purchased/acquired”
What does it mean?
Always means that shares are obtained from market.
“Shares were subscribed”
What does it mean?
Always means that shares are obtained directly from company.
What do we do in AOP when date given balances of R/S and that of date of investment are different?
Time adjustment in AOP.
Cost of control is calculated based on the oldest data relating to date of acquisition.
False.
It is done on the latest data.
How is minority interest shown in CBS?
After share application money (share capital) as a separate head.
Shown as a part of equity.
Doubt: refer pg 3 back side last point.
If any figure is R/S is missing on the opening date then?
All figures same except P/L. It is shown zero.
Balances as on 31.3.13 in S ltd.
P/L Rs. 2,75,000
Investment purchased on 1.4.12. No other information given. What is that balance of P/L on that date?
Zero
How are share capital and R/S not owned by Parent shown in consolidated balance sheet?
Minority interest or Non - Controlling interest.
Treatment of abnormal loss in consolidation?
Add in AOP in Post head before time adjustment
Less from balance after times adjustment from Pre or Post wherever it was incurred.
Why is abnormal loss added on the Post side before Time adjustment in AOP?
Because before time adjustment the balance on Pre side is opening balance given in Q and on Post side is the Net profits earned during the period.
Hence abnormal loss is added to Post because they are being shown as already adjusted in Post amount. This is done to make the profit during the year normal.
After time adjustment abnormal loss is correctly allocated to Pre/Post period as per the date.
Role of insurance claim in abnormal loss.
Abnormal loss is calculated NET OF CLAIMS.
Treatment of revaluation for parent.
IRRELEVANT.
Revaluation for subsy other than date of purchase.
IRRELEVANT.
Revaluation for subsy on the date of acquisition.
Calculate revaluation profit or loss.
Additional depreciation or savings in depreciation to be calculated.
Pre or Post profits to be altered after applying Time Adjustment.
Treatment of revaluation P/L in AOP.
ALWAYS adjusted in Pre profits.
Treatment of Additional Depreciation in AOP.
Adjusted in Post acquisition profits always.
Is there any treatment of revaluation other than in AOP?
Yes.
In CBS adjust fixed asset that has been revalued.
How does bonus issue by subsy affect the holding ratio?
Shares of parent / subsy can be given before or after affects of bonus issue.
If bonus paid by parent is already adjusted by parent
No treatment.
If bonus given by parents is not adjusted by parent
Reserves&surplus dr.
To Share Capital
If bonus paid by subsy is already adjusted by subsy
Treat like dividend paid in AOP
Added to post before time adjustment then subtracted from Pre.
If bonus paid by subsy is not yet adjusted by subsy
Pre acq profit dr.
To share capital
Where is bonus reduced from in AOP?
As per SEBI bonus is paid out of earliest profits of the company hence reduced from PRE ACQUISITION PROFIS.
Entry for bonus in receiver’s books
No entry.
Just increase in investment but no financial transaction.
Bonus is always assumed to be wrongly treated by the subsy.
False. Only if clearly mentioned in Q.
Dividend is final if Q is silent.
True.
Pre acquisition dividend is always assumed to be correctly treated by parent if nothing mentioned.
False
If nothing mentioned then we assume that necessary appropriation for final dividend was made by subsy in the last year.
False.
Date for calculating final dividend.
As paid up share capital at the end of PY.
Date for calculation of interim dividend.
As paid up capital on date of distribution.
Date of purchase of investment 1.9.14 Date of distribution of dividend 31.12.14 Nature of dividend? Treatment. In the books of parent.
Final dividend. Pre acquisition.
Bank dr.
To investment
Date of investment 1.9.14 Date of distribution of interim dividend 31.5.14 Nature. Treatment. In the books of parent.
Pre acquisition
No treatment.
Date of investment 1.9.14 Date of interim dividend 31.10.14 Nature. Treatment. In the books of parent.
5 months Pre. 2 months Post.
Bank dr.
To investment
Bank dr.
To P/L
If subsy distributes pre acq dividend of parent and parent wrongly credits it to P/L. Rectify.
P/L dr.
To investment
Treatment of dividend paid by subsy in AOP.
Added back to profits from where it has been appropriated.
Time adjustment.
Reduce dividend from its actual source of profits.
We always assume that dividend is appropriated and paid in the CY itself.
True.
What is the source of profits for final and inerim dividend?
Final - profits of last year then moving backwards (LIFO)
Interim - profit of CY upto date of distribution and moving backwards
Relevance of dividend paid by parent.
Irrelevant.
If within a group (i.e. H & S) payable
Cheque in transit.
If within a group (i.e. H & S) payable > receivable the what is the difference called?
Some error will be given in the Q. Such error will be rectified & then contra cancelled.
When is rectification of error supposed to be done?
Before time adjustment always.
How do you calculate unrealised profit or loss on assets transferred in a group?
Calculate BV of the concerned asset (net of depreciation)
Calculate unrealised P/L on this BV
If no date is mentioned regarding date of transfer of asset in the group then the assumption is that the asset was sold on 1st date of the period.
What is the relevance of this assumption?
False. Always assume the last date.
This assumption is essential for calculation of depreciation.
What is upstream transaction?
From subsy to parent
What is downstream transaction?
From parent to subsy.
Treatment of unrealised P/L in upstream transaction.
Reduce that P/L from relevant profits in AOP with a similar effect in the asset.
Treatment of unrealised P/L in downstream transaction.
Reduce it from CPL with a similar effect in the asset.
If H has received bills from S and got them discounted then the liability is shown as Contingent liability. At the time of consolidation what will be the treatment of such liabliy?
Such liability will be reduced by the amount of bills discounted that were receivable from S.
Whenever BR are discounted by receivable of bills then contingent liability should be reduced with the similar amount. Why?
(Suppose H is the receiver of bills from S)
This is because
If H discounts bill drawn by S then contingent liability means that if S fails to pay the liability then the same shall fall on H.
At the time of consolidation financial statements of both the companies come together. Due to this the assets and liabilities become one for the group. Hence liability for bills discounted becomes that of the group. So the contingent liability is reduced to that effect.
What is the treatment of proposed dividend - equity shares?
Proposed dividend attributable to minority interest will be shown as deducted from minority interest and reported as short term provision.
How is proposed dividend by subsy treated for parent share?
No treatment.
What is the treatment of proposed dividend - preference shares?
Appropriated from AOP and distributed among parent and minority in their shareholding. AOP dr. To CPL To C/C To m intt / s term prov
Proposed dividend on preference shares is given out only when declared in Question.
False. Given out whether declared or not.
Proposed dividend is treated only when declared.
True.
What is the treatment of proposed dividend on equity shares given by parent?
Already appropriated: no treatment
To be appropriated:
CPL dr.
To prop div (s t prov)
What is the treatment of proposed dividend on preference shares given by parent?
No treatment.
How is an AOP prepared for multiple acquisitions?
Separately for each acquisition.
Holding of m intt will be calculated on BS date based on final holding by parent.
For multiple acquisitions minority intt share of profits shall be calculated only in the AOP for last acquisition.
False. Can be prepared in any AOP. Share will be that on the final BS date.
For a foreign subsy AOP is prepared in which currency?
Same was in foreign currency.
As per AS-11 foreign subsy is treat as NIFO. True or false?
True
Rates of conversion same as in AS-11
What is the diff in foreign currency called while converting the B/S of subsy? How is it treated while consolidation?
Foreign currency translation reserve (FCTR)
Treated as Capital Reserve just like share capital.
Steps of consolidation of foreign subsy.
- AOP in foreign currency
- Convert BS of subsy including pre n post profits as per AS-11
- Convert treating subsy as NIFO
- Ex diff treated as FCTR and treated as capital reserve
