Group Accounts Consolidation

Question 1

What percentage does the parent company need to have control?

Answer 1

More than 50%

Question 2

If the parent had less than 50% how else can they gain control

Answer 2

Power over more than half the voting rights is established by virtue of agreement with other investors

Power to govern the financial and operating policies of the entity is gained via statute

Power to appoint or remove the majority of members of the board of directors is held

Power to cast the majority of votes at the meeting of the board of directors is held

Question 3

What does PUP stand for?

Answer 3

Provision for unrealised profit

Question 4

What are the 3 adjustments for consolidated financial statements?

Answer 4

Intercompany transactions
Provision for unrealised profit
Fair value adjustments

Question 5

What are the intercompany transaction that need to be adjusted for?

Answer 5

Intercompany sales and purchases
Intragorup loans and any interest on loans
Intercompany dividends
Imtragroup receivable and payable balances
Cash in transit
Goods in transit

Question 6

What is the rule for cash in transit?

Answer 6

Push onwards to ultimate destination

Question 7

What is the rule for goods in transit?

Answer 7

Push transactions into receiving company

Question 8

Cash in transit can be spotted by…

Answer 8

Having a difference in the intergroup receivable/payable balances

Question 9

What is the double entry for cash in transit?

Answer 9

Dr Bank
Cr Intergroup receivable

Then the receivable and payable should match

Question 10

What is the double entry for goods in transit?

Answer 10

Dr Inventory

Cr Intragroup receivable

Question 11

When is a pup adjustment required?

Answer 11

When there has been intercompany sales and then some of that inventory remains at year end.

Question 12

What goes in a NCI working?

Answer 12

Subsidiary Share capital x %
Subsidiary share premium x %
Subsidiary Current Retained earrings x %
Fair value adjustment x %

Question 13

What goes in retained earnings working?

Answer 13

Parent current retained earnings
Subsidiary (current - acquisition) retained earnings x controlling interest %
Pup adjustment if one
Goodwill impairment if any

Question 14

What goes in goodwill working?

Answer 14

Consideration transferred (investment)
Add NCI at acquisition ((ret earn + shares) x% 
Less 100% share capital 
Less 100% share premium 
Less 100% retained earnings
Less fair value adjustment

Question 15

Rice Ltd owns 80% of share capital in George Ltd. Is George Ltd a subsidiary of Rice Ltd?

Answer 15

Yes. It owns more than 50%

Question 16

Rice Ltd has the right to appoint a director on the board of Jennings, of which it owns 45% of the share capital. Is Jennings a subsidiary of Rice?

Answer 16

No to be considered to have control you must be able to appoint or remove the majority of the board members.

Question 17

Rice Ltd owns 20% share capital of Lom Ltd. Bren Ltd own 25% of the share capital of Lom Ltd and have agreed to vote as Rice Ltd dictate. Is Lom a subsidiary or Rice?

Answer 17

No because even with the addition 25% voting rights it still only 45% which is not enough for control.

Question 18

Rice Ltd own 40% of Clarke Ltd but have 60% of the voting rights. Is Clarke Ltd a subsidiary of Rice Ltd?

Answer 18

Yes because they have control of the voting rights.

Question 19

Rice Ltd own 40% of Clough Ltd but have indicated that they want to buy another 11% of the share capital. Is Clough a subsidiary of Rice?

Answer 19

No not at this point as they actually only own 40% currently which is not enough for control.

Question 20

How do you calculate the element of profit related to to NCI?

Answer 20

Subsidiaries profit after tax x NCI %

Question 21

Who’s profit does the pup adjustment get deducted from?

Answer 21

The subsidiary because it’s the subsidiary that made the profit by selling to the parent.

Question 22

Do you include intercompany dividends in consolidated P + L?

Answer 22

No never

Question 23

Removing intercompany sales double entry

Answer 23

Dr sales

Cr cost of sales

Question 24

What is the double entry for the pup adjustment if we are working on p + L?

Answer 24

Dr Cost of sales 
Cr Inventory (this is in SFP so you dont touch p + L for this)

Question 25

What must you remember to check when doing a fair value adjustment?

Answer 25

If there has been any movement ie amortisation. If it mentions useful life then adjust for amortisation. The adjustment is only for the carrying amount after the amortisation.

Question 26

In the attributable to section what is the calculation for non controlling interest?

Answer 26

The subsidiaries profit x NCI % less % of pup adjustment