On consolidation Flashcards
what is the purpose of consolidation?
It is to show the operating results and a financial position of a group of business entities under common control as if they were all operating as a single entity under the same management
How should you structure the acqusition analysis for recognising goodwill or gain on bargain purchase?
- state the FV of purchase consideration at the top and we CR it
Less FV of net identifiable net assets of subsidiary - state the shareholder equity accounts for the subsidiary
Fair value of identifiable net assets of subsidiary acquired - recognise your goodwill or gain on bargain purchase as a CR
What is the consolidation entry to recognise the elimination for the investment into the subsidiary?
Dr subsidiary equity accounts (multiple)
Dr Goodwill
Cr Investment in Katia Ltd
How do we even calculate goodwill?
It is the FV of consideration paid for the subsidiary (100%)
Less:
- FV of Net identifiable assets(Assets- liabilities)
- shareholder equity
- issued capital
- retained earnings
Less of the total shareholder equity
Liabilities i.e. provisions
Recognise goodwill if the FV of cost of acquisition > FV of Net identifiable assets
How do we recognise impairment of goodwill in terms of its consolidation journal entries?
Dr Goodwill impairment loss
Cr Accumulated impairment loss
Further years:
Dr Goodwill impairment loss
Dr retained earnings
Cr Accumulated impairment loss (for accumulated amount of RE and impair)
NOTE: Any goodwill for the year is dealt with or written of the retained earnings at the end so to re recognise goodwill in its subsequent years we have to re recognise the previous years in RE.
How do we write the consolidation adjustment journals for dividends declared?
Dr dividend revenue
Cr dividend declared
How do we write the consolidation adjustment journals for dividends paid?
Dr dividends payable
Cr dividends receivable
What happens when dividends are only paid and declared before the end of the financial year?
we recognise both elimination entries for paid and declared
What happens when dividends are declared before the financial year and paid on the financial year date?
we only recognise the elimination entry for the dividends declared as the subsidiary and parent entity would have already eliminated these individually
what are consolidation adjustment journals for?
They are to eliminate intragroup transactions and to recognise tax effects and goodwill. Here, accurate consolidation adjustment entries are the heart to correct consolidated financial statements.
When do we recognise deferred tax effects?
- only on FVA on equipment
- non current assets
- intragroup sales transactions
what are the journal entries to consolidate dividends paid?
Dr dividend revenue
Cr dividend paid
What are the steps to consolidating non current assets and PPE?
- Reinstate the accumulated depreciation written of by the seller at the date of internal sale
- Adjustment gain on disposal and associated tax effect
- Adjust group depreciation expense and accumulated depreciation for reporting periods
Adjust income tax expense on depreciation expense
What are the journal entries to recognise the following year if there is unrealised profit in the opening inventory (if either parent or sub still holds 100% of inventory that was sold to them)
Dr Retained earnings ( Sales revenue- Cogs - DTA)
Dr income tax expense (current year)
Dr COGS (to be utilised this year)
how do we calculate the actual group cogs amount
