IFRS10 - Consolidated Statement of Financial Position

Question 1

5 key workings for compiling the consolidated statement of financial position

Answer 1

w1) - Group Structure
w2) - Net assets of Subsidiary
w3) - Goodwill
w4) - Non-controlling interest
w5) - Consolidated reserves

Question 2

w1) - Group Structure

Answer 2

Draw the diagram to show who the Parent is, who the Subsidiary is, the Percentage of ownership (ordinary shares owned) and the date of acquisition.

Question 3

w3) - Goodwill

Answer 3

When a parent invests in a subsidiary it is probable they paid more than the value of the assets they have acquired, the amount paid above fair value is goodwill and is capitalised on the CSOFP.

P = Parent, S = Subsidiary.

Pro-forma: 
Fair value of "P" investment x,xxx
(N1) Value of NCI at acquisition x,xxx (used in w4).
less: Value of "S" assets (x,xxx)
Goodwill at acquisition = x,xxx

Less: full Impairment (x,xxx)
Goodwill in Group SOFP = x,xxx

n1)
Fair Value Method:
% NCI owns x total shares = NCI shares owned
NCI shares owned x Share Price = Value of NCI at acquisition.

Proportionate share method:
% NCI owns x Net assets at acquisition = Value of NCI at Acquisition.

Question 4

w4) - Non-controlling Interest Equity

Answer 4

This represents the the other shareholders that are not part of the group. During consolidation the net assets of the subsidiary (w2) attributable to the NCI need to be calculated and presented within equity.

n1 - The movement of net assets between acquisition and reporting date.
FV - Fair Value.

Proforma:
Value of NCI at acquisition (in w3) x,xxx
NCI% x Post acquisition reserves (n1) x,xxx
less: NCI% x impairment (if FV used only) (x,xxx)
= Non-controlling Interest Equity.

Question 5

w5) - Consolidated reserves

Answer 5

N1 - The movement of net assets between acquisition and reporting date.

Proforma:
Parents reserves (P retained earnings) x,xxx
(N1) P % of S’s Post-Acquisition reserves x,xxx
less: P% of Impairment (x,xxx)
= Consolidated Reserves / Retained Earnings

Question 6

w2) - Net Assets of Subsidiary

Answer 6

Pro forma is a table.
Columns:
Asset: | @Acquisition | Y/E | Post-Acquisition

Rows:
*Share Capital:   | x | x |   |
Share Premium: | x | x |   |
*Retained Earnings:  | x | x | x |
Fair Value Adj:   | x | x | x |
Depreciation Adj: |   | (x) | (x) |
PURP Adj:  |   | (x) | (x) |

Net Assets: | x | x | x |

Question 7

Calculating PUP

Answer 7

Sales of intercompany inventory sales are usually at a profit however the profit has not been realised in the perspective of the group until that inventory is sold to another party outside of the group. The inventory shown at cost price on the receiving companies SFP will include the profit margin of the seller, therefore the PUP adjustment is used to re-state the inventory at the initial cost to the group.

Journal Entries:
If P sells to Sub (Reduce value of group inventory):
Dr Retained Earnings (w5)
Cr Inventory

If S sells to P (Affects group and NCI):
Dr subs closing retained earnings (w2)
Cr Inventory

Formula for calculating PUP Value:
Mark up on cost formula
Revenue - (Revenue/1.uplift) = PUP Value

Gross profit margin
Revenue x Gross Margin = PUP Value