IFRS Chapter 9 the Consolidated Statement of Financial Positon

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Transcript of IFRS Chapter 9 the Consolidated Statement of Financial Positon

Chapter 9www.xisu.edu.cn

The consolidated statement of financial position

Contents1. IAS summary of consolidation procedures 2. Non-controlling interest 3. Dividends paid by a subsidiary

4. Goodwill arising on consolidation5. A technique of consolidation

6. Intra-group trading7. Intra-group sales of non-current assets

Contents8. Summaryconsolidated statement of financial position

9. Acquisition of a subsidiary during its accounting period

10. Dividends and pre-acquisition profits 11. Fair values in acquisition accounting

IAS summary of consolidation procedures

Accounting standards: IAS 27 Basic procedure(a) The carrying amount of the parents investment in each subsidiary and the parents portion of equity of each subsidiary are eliminated or cancelled (b) Non-controlling interests in the net income of consolidated subsidiaries are adjusted against group income (c) Non-controlling interests in the net assets of consolidated subsidiaries should be presented separately in the consolidated statement of financial position

IAS summary of consolidation procedures

Cancellation and part cancellationThe preparation consists of two procedures: Take the individual accounts of the parent company and each subsidiary and cancel out items which appear as a asset in one company and a liability in another Add together all the un-cancelled assets and liabilities throughout the group

Items requires cancellation:The asset shares in subsidiary companies which appears in the parent companys accounts will be matched with the liabilitys share capital in the subsidiarys accounts There may be intra-group trading.

IAS summary of consolidation procedures

Part cancellation An item may appear in the statements of financial position of a parent company and its subsidiary, but not at the same amounts The remaining un-cancelled will appear in the consolidated statements of financial position

Goodwill arising from consolidation

Non-controlling interestNon-controlling interest can be valued at: (a) Share of net assets; or (b) Fair value (per IFRS 3 revised) Fair value can be based on MV of shares, or you may be given the FV. Valuation of the NCI will affect the goodwill calculation

Non-controlling interest

Procedure(a) Aggregate the assets and liabilities in the statement of financial position is 100%p+100%s irrespectively of how much actually ownThis shows that the amount of net assets controlled by the group.

(b) Share capital in that of the parent only (c) Calculate the non-controlling interest share of the subsidiarys net assets (d) Balance of subsidiarys reserves are consolidated

Goodwill arising from consolidation Goodwill represents the difference betweenthe amount paid to acquire the net assets of a subsidiary and the fair value of those net assets. It may be positive or negative. difference between the consideration transferred plus the non-controlling interest and the fair value of the identifiable assets and liabilities acquired.

Goodwill arising on consolidation is the

Goodwill arising from consolidation Goodwill Consideration transferred Non-controlling interest Less: Net fair value of identifiable assets, liabilities and contingent liabilities

X X

(X) X

Goodwill arising from consolidation NCI Group

$ $ $ Consideration transferred/Fair value of non-controlling interests X X Less: Net fair value of identifiable assets acquired and liabilities assumed X Group/NCI % (X) (X) X X X

Goodwill arising from consolidationExample: Goodwill and pre-acquisition profitsSing Co acquired the ordinary shares of Wing Co on 31 March when the draft statement of financial position of each company were as follows. SING CO STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH Assets Non-current assets Investment in 50,000 shares of Wing Co at cost Current assets Total assets Equity and liabilities Equity Ordinary shares Retained earnings Total equity and liabilities 80,000 40,000 12,000

75,000 45,000 120,000

Goodwill arising from consolidationExample: Goodwill and pre-acquisition profitsWING CO STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH

Current assets Equity 50,000 ordinary shares of 1 each Retained earnings 50,000 10,000 60,000 60,000

Goodwill arising from consolidation Solution The technique to adopt here is to produce a new workingGoodwill . A formula is working out below.

Good willConsideration transferred Non-controlling interest at acquisition Net assets acquired as represented by : Ordinary share capital Share premium

X X X

X X X(X)X

Retained earnings on acquisition

Goodwill arising from consolidation

Solution:GoodwillApplying this to our example will look like this Consideration transferred Non-controlling interest at acquisition Net assets acquired as represented by : Ordinary share capital Retained earnings on acquisition

80,000 80,000

50,000 10,000 (60,000) 20,000

Goodwill arising from consolidation

Solution:GoodwillSING CO CONSOLIDATED FINANCIAL STATEMENT OF FINANCIAL POSITION Assets Non-current assets Goodwill arising on consolidation Current assets Equity Ordinary shares Retained earnings

20,000 100,000 120,00075,000 45,000

Goodwill arising from consolidation Goodwill NCI at fair valueGoodwill is likely to be higher when NCI is valued at FV. This excess is termed: Goodwill attributable to the NCI. Non- controlling interest at year end then becomes:NCI% of S net assets PURP (if applicable) Goodwill attributable to NCI X (X) X X

Goodwill arising from consolidationExample:P acquired 75% of the shares in S on 1 January 2007 when S had trained earnings of 15,000. The market share price of Ss shares just before the date of acquisition was 1.60. P values non-controlling interest at fair value. Good will is not impaired. The statements of financial position of P and S are as follows:

P()Property, plant and equipment Shares in S Current assets 60,000 68,000 128,000 52,000 180,000 Share capital -1shares Retained earnings 100,000 70,000 170,000 Current liabilities 10,000 180,000

S()

50,000 50,000

35,00085,000 50,000 25,000 75,000 10,000 85,000

Goodwill arising from consolidationSolutionCONSOLIDATED STATEMENT OF FINANCIAL POSITION

Assets Property, plant and equipment

110,000 23,000 87,000 220,000 100,000 77,500 177,500 22,500 200,000

Goodwill(w1)Current assets(52,000+35,000) Total assets Equity and liabilities

Equity attributable to the owners of pShare capital Retained earnings(W2)

Non-current assetsTotal equity Current liabilities(10,000+10,000)

20,000 220,000

Goodwill arising from consolidation

Solution:Workings

1.GoodwillConsideration transferred Non-controlling interest at acquisition (12,500 shares @1.60) Net assets of S at acquisition(50,000+15,000) Goodwill (parent and non-controlling interest)

68,000 20,000 (65,000) 23,000

Non-controlling interest at fair value (as above)

20,000 (16,250) 3,750

Non-controlling share of net assets at acquisitionGoodwill attributable to non-controlling interest

Goodwill arising from consolidation

Solution:2.Retained earningsPer statement of financial position Less pre-acquisition 7,500 P() S()

70,000

25,000(15,000) 10,000

Group share of S (10,00025%)

Group retained earnings

77,500 18,750 3,750 22,500

3.Non-controlling interest at year endShare of net assets of S(75,00025%)

Goodwill(W1)

Goodwill arising from consolidation Impairment of goodwill Impairment tests are conducted at least at each year end. Any resulting impairment loss is first recognised against consolidated goodwill.

A technique of consolidation

Aggregate the assets and liabilitiesCalculate retained earnings Calculate non-controlling interest

Cancel common items

Calculate goodwill

A technique of consolidationExampleThe draft statement of financial position of Ping Co and Pong Co June 204 were as follows PING CO STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 204 Assets Non-current assets Property, plant and equipment 50,000

20,000 ordinary shares in Pong Co at cost

30,00080,000

Current assets Inventory 3,000

ReceivablesCash

16,0002,000 21,000 101,000

Total assets

A technique of consolidationExampleEquity

Ordinary shares of 1 eachRevaluation surplus Retained earnings

45,00012,000 26,000 83,000

Current liabilities Owed to Pong Co Trade payables8,000 10,000

18,000

Total equity and liabilities

101,000

A technique of consolidationExamplePING CO STATEMENT OF FINANCIAL POSITION AS AT JUNE 2004 Assets Property, plant and equipment Current assets Inventory Owed by Ping Co Receivables

40,0008,000 10,000 7,000

25,000Total assets Equity Ordinary shares of 1 each Revaluation surplus Retained earnings Current liabilities Owed to Pong Co Trade payables Total equity and liabilities

65,000 25,000 5,000 28,000 58,000 70,000 65,000

A technique of consolidationSolution:1. Agree current accounts

Ping Co has goods in transit of 2,000making its total inventory 3,000+ 2,000= 5,000and its liability to Pong Co 8,000+ 2,000= 10,000Cancel common items: these are the current accounts between the two companies of 10,000 2. Calculate goodwill Goodwill Consideration transferred Non-controlling interest(w3) Net assets acquired as represented by: Ordinary shares capital Revaluation surplus on acquisition Retained earnings on acquisition 25,000

30,0007,200 37,200

5,0006,000 (36,000) 1,200