Groups Flashcards
How much control is needed to be considered a subsidiary in a group account?
> 50%
How do you calculate a sub’s net assets at acquisition?
Share capital + Reserves of S at acquisition
Do you show dividend income from a sub to the parent in group accounts?
No, this is replaced by the consolidated P/L to show group performance
What is the NCI?
The non controlling ownership of the subsidiary that is not owned by the parent
How is control reflected in group accounts?
How is ownership reflected in group accounts?
Control is reflected in the
* SOFP Assets & liabilities -
* P/L Revenue
Showing all of the parents and subsidiaries’
Ownership is reflected in the
* SOFP equity section - Reserves shows all of parent + Parent’s share of post acquisition reserves
* NCI’s share of ownership is also reflected in the equity section
* P/L Profit after tax is split between parent’s & NCI’s share
How do you calculate the goodwill on purchase of a sub?
If goodwill is positive, how is this reflected in the accounts?
If goodwill is negative, how is this reflected in the accounts?
Consideration paid for sub (Investment in S in P’s SOFP)
Add NCI at acquisition
Less Net Assets of sub at acquisition
Positive goodwill is reflected as an intangible asset in the group accounts
Negative goodwill is shown as a gain the P/L
What is the fair value method of calculating NCI and how does it impact goodwill & impairment?
Fair value method is what the NCI is willing to pay for their shares, over and above Net Asset value. Thus, it includes NCI’s share of goodwill
Impairment lossess are all allocated to the parent if NCI is measured at share of net assets as they have not taken any goodwill.
Impairment losses are shared between the parent and NCI if NCI is calculated at Fair Value, as this includes a share of goodwill
How are goods/cash in transit between inter group companies dealt with at year end
Adjust the recieveing company’s bookds as if the in transit items had been recieved
This allows the payable and recievables to balance so it can be cancelled
What is PURP
Why would inventory figures need to be adjusted for PURP?
Provisions for unrealised losses
This occurs when intragroup trading/transfers gives rise to unrealised profits that need to be eliminated from the group accounts
Figures only need to be adjusted if inventory is still held at YE
Group company A may sell inventory that it purchased from a supplier for £50 to group company B for £70. If group compny B still has this at YE, inventory is overstated by £20 as inventory should be held at the lover of cost to the group or NRV.
Additionally, company A has a profit of £20 which needs to be eliminated as the goods are still held by the group
In what working will you see a PURP adjustment if the sub is the seller?
In what working will you see a PURP adjustment if the parent is the seller?
PURP adjustment in NA W2 if sub is seller
PURP adjustment in RE W5 if parent is seller
If a sub’s depreciation policy is more aggressive than the parent’s, how is this adjusted in group accounts?
The difference is added to sub’s RE in NA W2 - the additional dep cost would have increased expenses and reduced retained earnings
An adjustment is necessary as the accounting policies of group companies must be consistent in the group statements
How are intangible assets different in group accounts compared to single entity accounts?
How are contingent liabilities different in group accounts compared to single entity accounts?
Research costs are not allowed to be capitalised in single entity accounts but should be recognised as an intagible in group accounts & should be amortised
In single entity accounts, contingent liabilities are not recognised on the face of the accounts, but are in the group accounts
Both adjustments are made in W2 NA
How are PPE & Inventory different in group accounts compared to single entity accounts?
PPE
* In a sub’s account, PPE is measured at NBV
* In group accounts, they are measured at fair value
* The difference is recognised in W2 NA in both collumns of YE & Acqn
* The depreciation on the excess needs adding to YE collumn
Inventory
* Depends whether the inventory is still held at year end as to where it needs t be adjusted in NA working
In what situations can the goodwill value be restated in group accounts?
If tehre is an adjustment of fair value within 1 year of acquisition
What entities are condidered as associates?
How are they reflected in group accounts?
< 50% shares
The associate is not part of the group but is significant
The associate is included in group accounts by including one line under non-current assets showing the group share of net assets & increase RE
* Assets and liabilities are not aggregated in the SOFP on line by line method
* Cost + Share of reserves - Impairment losses to date (CSI)
* No goodwill for associates as we do not have control
Are transactions between an associate and a parent cancelled on consolidation of group accounts?
How does PURP occur in transactions between Associates and Parents?
No
Normal PURP calculation needed to show what unrealised profit needs to be adjusted - but only adjust for Parent’s share
Always hown in W5 Retained earnings
If parent holds inventory at YE then adjust inventory at YE. If Associate hoilds inventory at YE, then adjust investment in associate working
Must joint ventures be agreed by a contract?
Yes, the agreement must result in their shared control ober the shared activities
Is a joint veture a separate legal entity?
Yes - a JV can enter into contracts and raise finance in its own name
How do you account for a JV in group acconting?
In the same way that you would record an associate - one line in Non current asset one line in P/L
How do you show an investment in associate in the consolidated P/L?
One line added in that shows the share of the profit in associate before PBT
Associate’s figures are not aggregated on a line by line basis
If there has been a disposal of a subsidiary, how do you calculate the profit or loss on the disposal in the consolidated accounts?
Proceeds
Less NA @ Disp
Add NCI @ Disp
Less CA Goodwill (w)
= P/L on disp
(w)
Consideration
Less NA @ Acqn
Add NCI @ Acqn
Less impairment
= CA Goodwill
How do you calculate the retained earnings b/f (SOCIE) for the group?
Parents RE at start of year
Add Parent’s % of sub’s post acquisition RE (RE - Op RE * %)
Less any goodwill impairment
How do you calculate the retained earnings b/f (SOCIE) for the NCI?
NCI % NA @ acqn (Op RE + Sh c * %)
Add NCI’s share of post acqn RE (RE - Op RE * %)
How do you calculate the retained earnings c/f (SOCIE) for the group?
Parents RE
Add
In which wokring do PURP adjustments occur if the Parent is the seller and the inventory is still held at YE?
In which wokring do PURP adjustments occur if the Sub is the seller and the inventory is still held at YE
If the parent is the seller
DR Retained earnings working 5 (to reduce)
CR Inventory in consolidated SOFP
If the sub is the seller
DR Retained earnings in the net assets working 2 (to reduce)
CR Inventory in consolidated SOFP
How are loss making associates dealt with in the
a) P/L
b) SOFP
a) The groups share of the loss should be recognised (limited to the CA)
b) The groups share of the loss should reduce the CA to a minimum of zero
E.g. if the CA of a 40% investment is £600,000 and the Associate makes a £2,000,000 loss for the year;
Investment in Associate woudl =
P/L: (600,000)
SOFP: NIL
Recognition of loss in P/L is limited to CA
