Week 4 - Group Accounts/Consolidated Statements Flashcards
Impaired Goodwill
If goodwill is impaired, say by 5%, the new Goodwill on Balance sheet should reflect that.
The impairment amount e.g. £1m goes down as an EXPENSE ON INCOME STATEMENT
Non-controlling interest in Balance Sheet and Income Statement
SoFP: we will still show 100% of the assets and Liabilities of both the parent and the subsidiary companies, since the parent company CONTROLS all of these whether it has a 50%+1 stake or a 100% stake. However in the Equity section of SoFP we write:
Equity attributable to:
owners of the parent -
non-controlling interest -
Income Statement: we will still include 100% of the postacquisition revenues and expenses of the subsidiary until we have calculated a profit after tax figure, then we will analyse the profit for the period attributable to:
Owners of the parent
Non controlling interest
Two ways to measure non-controlling interest value and how goodwill is affected
Percentage of the companies net assets
Fair value of the NCI. May be given this or have to work it out by mutiplying number of shares in the subsidiary held by the NCI by the subsidiary share price at acquisition
Goodwill can be different depending on which method is used
Statements if one firm buys another
Prepare consolidated account as if they were a single entity, even if only 51% owned
SoFP Share Capital & Share Premium of a Consolidated Statement
show the share capital of the PARENT COMPANY ONLY since
the group is owned by the shareholders of the parent company
Share Premium is price of shares at acquisition -£1 per share as the Premium is the price on top of the £1 ordinary share. (Note this is only for the share premium section of SoFP, within goodwill and all other calculations you use the price paid per share)
If shares were issued in the purchase, calculate parent Co’s share premium using: Share premium of individual statement + (Share Premium [£1 less] x New shares issued during purchase)
3 major calculations and 3 minor adjustment factors to
consider in preparing consolidated accounts
Major calculations
1. Goodwill, calculated at the acquisition date
2. Consolidated Retained earnings, calculated at the reporting date
3. Non-controlling interests
Minor adjustment factors
1. Fair Value (“FV”) adjustments
2. Unrealised Profit (“URP”) adjustments
3. Consistent Accounting Policy (“CAP”) adjustments
When doing the major calculations, your minor calculations will most likely be included within your workings for each e.g. Fair Value adjustment might have to be made during your consolidated retained earnings calculation
Goodwill accounting def.
future economic benefits arising from assets that are not capable of being
individually identified and separately recognised
Calculating goodwill
Cost of investment - net assets (assets-liabilities) of subsidiary.
We put goodwill into the new consolidated account
Consolidated Retained Earnings
3
RE of parent company + POST-ACQUISITION RE of acquired firm
RE of acquired firm pre-acquisition must be subtracted.
if the goodwill has been impaired, this
means an extra expense (and hence reduction in accumulated earnings)
URP calculations !Important!
Remove the profit from: Retained Earnings & Inventories
remove the entire transaction value from BOTH COMPANIES IN YOUR CONSOLIDATED ACCOUNT: Current liabilities and Trade Recievables
