Topic 4: Con. : FV adjustments and Tax effects

Question 1

What is included in consolidation?

Answer 1

• FV of assets, liabilities, contingent liabilities and intangible assets

Question 2

What do we do when we adjust the FV of PPE that has previous accumulated depreciation already recognised in the subsidiary?
(what are the journal entries?)

Answer 2

• we write back all of the accumulated depreciation

DR accumulated depreciation
CR depreciation expense

Question 3

When adjusting a carrying amount to its FV in consolidation, when do we have to recognise a deferred tax effect?

Answer 3

• we recognise it on initial adjustment
  *we recognise it subsequently on its depreciation expense (1 year after acquisition by parent, and the remaining useful life years after)
  Note:when the DTA arises for depreciation we can use this too offset the DTL so we use the journal entry:
  DR DTL
  CR depreciation expense

Question 4

Do you have to worry about a deferred tax effect in adjusting an item in consolidation that does not have any tax applicable?

Answer 4

No you do not

Question 5

What are the two methods for doing FVA?

Answer 5

• on consolidation worksheet, or:
  in the subsidiaries books

Question 6

What are the methods for calculating carrying amounts for subsidiaries?

Answer 6

• cost model or revaluation model (revaluation model must be justified)

Question 7

Do we only recognise FVA journal entries in the consolidation worksheet method for adjusting FV?

Answer 7

Yes, you will only see the FVA journal entries doing the FVA on consolidation worksheet

Question 8

What are the exceptions to recognising DTA or DTL in consolidation?

Answer 8

*on goodwill
*on dividends
* on zero tax rate items

Question 9

Why is deferred tax liability transferred to the profit and loss statement but not accounted for in taxable income?

Answer 9

DTL represent the financial items that the company will have to pay in the future, not now so it is transferred to the profit until it is payable to the ato- and will be recognised in taxable income?

Question 10

When asked to write the consolidation adjusting journals ON different dates what do you do and what do you need to remember?

Answer 10

• You have to rewrite everything again including
• write back the accumulated depreciation
• write back the FVA on ppe & tax effect
• write back only the depreciation expense journals & tax effect for the year
• write back the rectified elimination of intragroup transaction of investment for subsidiary with its goodwill

Question 11

What is the consolidation adjustment journal for eliminating investment in sub & recognising goodwill?

Answer 11

Dr (total subsidiary shareholder equity accounts)
Dr Goodwill
Dr FVA accounts(ppe, etc)
Cr investment in subsidiary

Question 12

What depreciation do you recognise in the group consolidation journals?

Answer 12

*you only recognise the revalued increment/ decrementt of depreciation each year for the remaining UL of the PPE (‘you dont necessarily recognise any new depreciation expense’)

depreciation expense including revaluation

Question 13

What are the consolidation adjustment entries to eliminate the intra group payable and receivable?

Answer 13

Dr Payable to (parent/subsidiary)
Cr receivable from (subsidiary/ parent)

Question 14

what are the two different journal entries to recognise FVA and tax effect ?

Answer 14

DR asset
CR FVA
DR FVA
CR DTL/DTA

or

DR asset
CR FVA
CR DTL/DTA
*the second way is more concise and fits better to just paste into consolidated financial worksheet