More group accounts Flashcards
Fair value overview single company v consolidated
Single company can ignore market value / fair value of its assets and liabilities
Group accounts - sub must be stated at fair value
Fair value definition
The amount someone at an arms length transition who is knowledgeable and willing would pay
Intra group trading
Write off any intra group receivables
If any discrepancies in receivables / payables its likely due to something being in transit at year end complete the transaction. (eg cash in transit Dr Cash Cr Receivables)
Inventories sold at a profit to other group companies
When one company sells to another in the group and makes a profit when consolidating need to post adjustment for “unrealised profit” known as “provision for unrealised profit” (PUP)
This should only be for the goods left in inventories at year end
PUP adjustment in whose books (Dr & Cr)
DR retained earnings of the seller
Cr Consolidated inventories
PUP calculation
profit on inter company sale x % of goods still in inventories at year end
PPE carrying amounts explanation, calculation and Dr/Cr
PPE should be stated at cost. Additionally depreciated will be calculated on higher carrying amounts and effectively the assets are being “over-depreciated”
Dr Expense/Retained earnings (of selling company)
Cr Property, plant and equipment
Original PUP on transfer - depreciation until transfer (i.e. £200 a year and sold mid year so £100) = net unrealised profit
or
Original PUP on transfer x (Remaining life left at y/e / remaining life left at date of transfer)
Two methods of measuring the NCI at acquisition
Proportionate “partial method” - groups share of total goodwill done during calculation
Full or fair value - total goodwill of sub recognised
Cost of combination
Deferred consideration - any amounts payable in the future, present value of the future amount payable
Contingent consideration - fair value at the acquisition date
Share for share - shares issued should be valued at market value at acq’n date
Quoted shares - fair value is the published share price at acq’n date
Directly attributable costs - legal fees for transactions are an expenses not cost of investment
What can be shown in consolidated accounts but not in subs
If an asset or liability can have an established fair value then it has to be included at group level even when not at sub level
Such as intangible asset such as a brand can be included in group goodwill calculation
If a sub had a contingent liability in its own accounts the parent would need to include this as an actual provision (reduce net assets of sub and increase goodwill)
