Introduction to group accounts

Question 1

Rules of group statement of financial position

Answer 1

Investment in subsidiary never appears in the consolidated accounts - it is replaced by the net assets of the sub and goodwill

Share capital is only that of the parent

Assets and liabilities added together

Goodwill needs to be calculated and shown as an intangible asset

Retained earnings needs to be calculated

Question 2

Goodwill definition

Answer 2

The difference between the price paid for the business and the fair value of that businesses net assets.

It will be impaired annually

Question 3

Goodwill proforma

Answer 3

Investment cost X

Less company’s net assets at acq’n date
Share Capital X
Retained Earnings X
Total (X+X)*ownership

Goodwill X

Before taking the net assets off of the investment cost remember to consider the % ownership of the sub. If you only own 50% then take the total and times by 0.5 before subtraction

Question 4

Group retained earnings definition

Answer 4

The parents retained earnings plus the group company’s share of the subsidiary’s post acquisition reserves (profit)

Question 5

Retained earnings proforma

Answer 5

Parent retained earnings at SFP date = A

Subsidiary retained at SFP date = B
Subsidiary retained at acquisition = C
(B-C) * ownership % = D

A+D - any goodwill impairment losses to date (given in question) = retained earnings

Question 6

Non-controlling interest

Answer 6

NCI at acquisition (from goodwill workings)
Plus NCI of subsidiary’s post acq’n retained earnings (from retained earnings workings)
Less NCI of goodwill impairment (if using “Full” method)

Question 7

Methods of recording an investment

Answer 7

ONLY if not consolidated with the investment company.

Can be done at:
Cost
At costs and then revalued each year to fair value, or
Using equity method

Question 8

Companies exempt from producing accounts

Answer 8

If its a wholly owned sub and it is not publicly traded and the ultimate parent produces group accounts that comply with IFRS

Question 9

Negative goodwill

Answer 9

Pay less for the company than total net assets - difference between paid and total net assets

Question 10

Other reserves

Answer 10

Any other reserves such as revaluation surplus will undertake same workings as retained earnings