8/18/2019 CONSO SOFP - CHAPTER 10.docx
1/23
CHAPTER 10
CONSOLIDATED STATEMENT OF FINANCIAL POSITION – ACQUISITION METHOD
1. Calculating pa!nt"# p!c!ntag! $% &$l'ing in #u(#i'ia)
• When calculating the parent’s percentage of holding in a subsidiary, the number of
ORDINARY shares held by the parent is divided by the total units issued by the
subsidiary
• When calculating it is important to determine the !AR value of the shares so the
correct number of units can be calculated
• "he balance of ordinary shares not o#ned by the parent #ould be o#ned by non$
controlling interest ie party or parties that have interest in the subsidiary company butdo not have control over the company
*. Calculating g$$'+ill
• I%R& ' re(uires good#ill be calculated on the date a company becomes a subsidiary
of another ,Dat! $% ac-ui#iti$n
• "he basic formula of computing good#ill is)
C$n#i'!ati$n tan#%!!'A'' N$n/c$nt$lling int!!#tL!## Fai alu! $% n!t# a##!t# ,#u(#i'ia)$$'+ill 2 ,(again puc&a#!
• *onsideration transferred is the payment made to ac(uire the subsidiary It can be in
the form of )$ *ash payment$ +(uity$ iability$ %uture payments -must be discounted to date of ac(uisition.
• %air value of net assets can be calculated either by
$ %/ of Assets less %/ of liabilities OR$ +(uities -ad0usted for fair value.
R!%! t$ g$$'+ill calculati$n +$3#&!!t
Full illu#tati$n
1
8/18/2019 CONSO SOFP - CHAPTER 10.docx
2/23
8/18/2019 CONSO SOFP - CHAPTER 10.docx
3/23
R2’444*onsideration transferred -=44744'44. 3,444ess. %air value of net assets)Ordinary &hare capital 544Retained earnings 744%/$ ad0ustments -properties. 344%/$ ad0ustment -patents 9 licenses. 744 -844.Bood#ill 344
OR
R2’444*onsideration transferred -=44744'44. 3,444ess. %air value of net assets)!roperties -544344. =44!lant 9 machinery 744
*urrent Assets '44!atents 9 licenses 744ong term liabilities -744.*urrent liabilities -344. -844.Bood#ill 344
7OURNAL *
Cournal entries to effect consolidation ad0ustments)
DR properties 344
DR !atents 9 licenses 744
*R Revaluation reserves '44
-to ad0ust assets of subsidiary to their fair values.
7OURNAL 5
DR Ordinary share capital of & 544
DR Revaluation reserves of & '44
DR Retained profits of & 744
DR Bood#ill on combination 344
*R Investment in & 3,444
-to eliminate cost of investment against share capital and pre$ac(uisition reserves.
sing the modified &O%! the consolidation is prepared as follo#s)
T&! c$n#$li'at!' SOFP can (! i!+!' a# %$ll$+#8
! R2’444 & R2’444 Wor>ings *onso
3
8/18/2019 CONSO SOFP - CHAPTER 10.docx
4/23
Ordinary share capital 3,744 544 3744544$544 3744
&hare premium '44 nil '44 '44
Retained profits 644 744 644744$744 644
ong term liabilities '44 744 '44744 =44
*urrent liabilities 344 344 344344 744
"O"A 7,=44 844 7E44
Investment in & 3,444 3444$3444 4
Bood#ill 344 344
!atents 9 licenses 744 744
!roperty 3,444 544 3444544344 3=44
!lant and e(uipment '44 744 '44744 =44
*urrent assets 744 '44 744'44 =44
"O"A 7,=44 844 7E44
Items in red has been used in calculating good#ill and therefore eliminated inconsolidation
N$t!8
"here are cases #here Fthe fair value of net assets 1 ac(uisition date G
consideration transferred and non$controlling interest "his #ill result in bargain
purchase or sometimes >no#n as Fnegative good#ill %or presentation purposes,
bargain purchase is accounted for in retained earnings of parent company "his #ill
Herorise the Fbargain purchase account and +ill n$t be presented in *onso &O%!
as a separate line item
Att!4pt calculat! t&! g$$'+ill (alanc!# %$4 t&! -u!#ti$n# in C&apt! 10.
CONSOLIDATIN POST ACQUISITION DATE
2ost often, the parent company is re(uired to prepare the consolidation after the
ac(uisition date "his #ill result in t#o types of reserves for the &J&IDIARY ie)
4
8/18/2019 CONSO SOFP - CHAPTER 10.docx
5/23
3 !re$ac(uisition reserves -balances of retained earnings, general reserves and
revaluation reserves 9EFORE the ac(uisition date.
7 !ost K ac(uisition reserves -balances of retained earnings, general reserves and
revaluation reserves AFTER the ac(uisition date.
As sho#n in the earlier e@ample, the pre$ac(uisition reserves belonging to the
&J&IDIARY must be eliminated #hen consolidating -refer 0ournal '.
R!%! t$ p!/ac-ui#iti$n !#!!# a':u#t4!nt +$3#&!!t
Full Illu#tati$n
T&! SOFP $% P an' S a# at 51.1*.*061 a! a# %$ll$+#8
Pa!nt ,P
RM"000
Su(#i'ia),S RM"000
Ordinary share capital 1R23 par 3,'44 744
&hare premium nil 3=4
Revaluation reserve 344 =4
Retained profits :44 '44
ong term liabilities '44 744
*urrent liabilities 744 374
"O"A 7,644 3,474
!roperty 3,744 'E4!lant and e(uipment 7E4 '74
*urrent assets 3,374 '74
"O"A 7,644 3,474
On 3374;3, ! ac(uired 84< of the ordinary shares belonging to & by paying
R2=44,444 in cash and issuing 744,444 of !’s ordinary shares #ith mar>et value of
R27=4 on date of ac(uisition "he retained earnings of & at the date of ac(uisition is
R2744,444 Other reserves remain unchanged
SOLUTION
"he 0ournal entries for the above changes are as follo#s)
5
8/18/2019 CONSO SOFP - CHAPTER 10.docx
6/23
7OURNAL ;
In !’s boo>s 1 ac(uisition date
DR Investment 3,444,444
*R *ash =44,444
*R Ordinary shares -744,444 @ R2344. 744,444
*R &hare premium -744,444 @ R23=4. '44,444
STEP 18 Calculating g$$'+ill
*onsideration transferred 3,444,444
Add. N*I -34< @ %/NA. 64,444
ess. %air value of net assets of &)
$. Ordinary share 744,444
$. &hare premium 3=4,444
$. Revaluation reserve =4,444
$. Retained earnings 744,444 -644,444.
BOODWI 564,444
STEP * 8 P!paing t&! a':u#t4!nt %$ p! an' p$#t/ac-ui#iti$n !#!!#
RM"000 NCI ,10
8/18/2019 CONSO SOFP - CHAPTER 10.docx
7/23
A##!t# ,RM"000
Bood#ill 564
!roperty
!arents -3,744.
&ubsidiary -'E4. 3,=E4
!lant and e(uipment
!arents -7E4.
&ubsidiary -'74. 644
*urrent assets
!arents -3374$=44.
'74 854
T$tal A##!t# 5=>?0
E-uiti!# @ lia(iliti!#
Ordinary share capital !arent ONY -3,'44744.
&ubsidiary $ eliminate
3,=44
&hare !remium
!arent -'44.
&ubsidiary K eliminate
'44
Retained earnings :84
Revaluation reserve 344N*I :4
ong term liabilities
!arent -'44.
&ubsidiary -744. =44
*urrent liabilities
!arent -744.
&ubsidiary -374. '74
T$tal E-uiti!# @ Lia(iliti!# 5=>?0
NON/CONTROLLIN INTEREST
7
8/18/2019 CONSO SOFP - CHAPTER 10.docx
8/23
In many cases, subsidiary is not held #holly by the parent company %or instance subsidiary
& consists of E4< shareholding by parent and the remaining 74< is o#ned by other
partyLparties "he other party is >no#n as Fnon$controlling interest -N*I. or sometimes
>no#n as Fminority interest One of the method used to determine N*I is, N*I is
proportionate to the fair value of net assets belonging to the subsidiary sing this method
#ill result in patial g$$'+illM good#ill is only calculated for the parent
Another method used is N*I is based on fair value of shares held #hereby good#ill
calculated using this method is %ull g$$'+ill nder this method, good#ill is calculated for
both parent and N*I
In preparing consolidated &O%!, N*I must be sho#n as a separate line item "he calculation
of N*I includes N*I balance 1 ac(uisition date, its share of post$ac(uisition reserves and
preference shares belonging to the subsidiary not o#ned by the parent
Ea4pl! 18 T&! %$ll$+ing a! t&! SOFP# $% P an' S a# at 51.1*.6*
Pa!nt ,P
RM"000
Su(#i'ia),S RM"000
Ordinary share capital 1R23 par 3,'44 744
&hare premium 744 3=4
Retained profits E44 '=4
!reference shares 1 R23 par 374 344
ong term liabilities '44 744
*urrent liabilities 744 374
"O"A 7,874 3,374
!roperty 3,744 =44!lant and e(uipment 644 '44
*urrent assets 3,374 '74
"O"A 7,874 3,374
! ac(uired E4< of & on 3374;3 #ith cash consideration of R2=44,444 payable on the
ac(uisition date ! also purchased 74< of preference shares belonging to & #ith a cash
consideration of R274,444 &’s retained earnings on that date amounted to R23=4,444
Other reserves remain unchanged
"he ad0usting entries are as follo#s)
DR Investment K ordinary shares =44,444
*R *ash =44,444
DR Investment K preference shares 74,444
*R *ash 74,444
SOLUTION
8
8/18/2019 CONSO SOFP - CHAPTER 10.docx
9/23
St!p 1 8 $$'+ill calculati$n
*onsideration transferred =44,444
. N*I -=44,444 @ 74
8/18/2019 CONSO SOFP - CHAPTER 10.docx
10/23
ong term liabilities
!arent -'44.
&ubsidiary -744. =44
*urrent liabilities
!arent -744.
&ubsidiary -374. '74
T$tal E-uiti!# @ Lia(iliti!# 5=*0
N*I calculated in the above e@ample is calculated as proportionate to its share of fair value
of net assets When using this method, good#ill is only calculated for the parent company
only "his method is >no#n the Fpatial g$$'+ill method
Another method of calculating N*I is based on fair value of shares held "he good#ill
calculated using this method is for both parent and N*I "o calculate N*I and good#ill using
this method re(uires the share price of subsidiary on the date of ac(uisition
sing the same e@ample above, #e add e@tra information as follo#s)
On the date of ac(uisition the mar>et value of !’s ordinary share #as at RM5.002#&a!
sing this information, the N*I 1 ac(uisition can be calculated as -744,444@ 74t price of &’s shares on ac( date ? R2'74
"herefore N*I based on %/ of shares held ? =4,444 @ R2'74 ? R2364,444
sing this N*I #ill result in FULL OODILL
Qu!#ti$n t$ att!4pt8
10
8/18/2019 CONSO SOFP - CHAPTER 10.docx
11/23
! ac(uired E4< of ordinary shares belonging to & on '337;= by issuing 64,444 units of its
o#n ordinary shares "he retained earnings of & on that date #as R2=6,444 "he follo#ing
is an e@tract of &O%! for ! and & 1 '337;E)
P ,RM S ,RM
Ordinary shares 1 R23 par 7,444,444 344,444
&hare premium 3=4,444 74,444
Retained earnings 3,5=E,744 E:,444
iabilities E84,644 66,'44
Ma3!t pic! %$ $'ina) #&a!#
P ,RM S ,RM
1 '337;= '74 7=4
1 '337;6 '64 754
1 '337;: '3= 77=
1 '337;E '44 7'4
Determine FULL OODILL
IMPAIRMENT OF OODILL
11
8/18/2019 CONSO SOFP - CHAPTER 10.docx
12/23
Bood#ill is impaired not amortised
Bood#ill can be impaired subse(uent to ac(uisition date Bood#ill impairment is a reduction
in the value of assets and therefore need to be charged to retained earnings
As #e have learnt, good#ill can be calculated using the partial or the full method "he
impairment of good#ill to retained earnings is dependent on #hether good#ill is calculated
as partial good#ill of full good#ill
%or partial good#ill, all impairment #ill be charged to the group’s retained earnings %or full
good#ill, the impairment needs to be allocated to N*I and group retained earnings in
accordance to its share of shareholding
Ea4pl! 8 I4pai4!nt a':u#t4!nt %$ patial g$$'+ill
NCI ,50
8/18/2019 CONSO SOFP - CHAPTER 10.docx
13/23
%air value accounting is no# an important element in reporting %air value of assets and
liabilities can e@perience an increase or a reduction in value %or consolidation purposes all
fair value ad0ustments must be accounted for unless specifically stated other#ise Joth
parent and subsidiary assets can be revalued up#ards or do#n#ards "he treatment of fair
value ad0ustment for subsidiary pre$ac(uisition and post$ac(uisition is different
Fai alu! c&ang!# %$ n$n/'!p!cia(l! a##!t#
"reatment for fair value changes at the date of ac(uisition)
and belongs to Joo> /alueL*arrying
value 1 Ac(uisition
date
%air /alue 1
Ac(uisition date
%air /alue
*hanges
&ubsidiary R2'44,444 R25=4,444 R23=4,444
!arent R23,444,444 R23,=44,444 R2=44,444
%or subsidiary)
DR Non$ *urrent Assets 3=4,444
*R Revaluation Reserve 3=4,444
-!lease ta>e note that this fair value change too> place 1 ac(uisition date and therefore is
considered as revaluation reserve balance 1 ac(uisition "herefore R23=4,444 is used in
calculating good#ill and #ill not be sho#n as RR in consolidated accounts.
"he good#ill calculation can be vie#ed as follo#s)
*onsideration transferred ;;
. N*I ;;
$. %air value of net assets)
Ordinary shares ;
Retained earnings ;
Revaluation reserve 3=4,444 -;.
Bood#ill L Jargain purchase ;
%or parent)
DR Non$ *urrent Assets =44,444
*R Revaluation Reserve =44,444
-!lease note, this fair value changes affect the parent’s boo>s "herefore it WI NO" be
used as good#ill calculation It #ill ho#ever be sho#n as part of revaluation reserve in
consolidated accounts.
13
8/18/2019 CONSO SOFP - CHAPTER 10.docx
14/23
Fai alu! c&ang!# %$ '!p!cia(l! a##!t#
E4< of the ordinary shares belonging to & #as ac(uired by ! on 3374;3 "he follo#ing are
the details of &’s properties #hich has useful life of 34 years 1 date of ac(uisition "he
group practices depreciation on a straight line method "he subsidiary has not ad0usted its
assets to fair value *onsolidation date is '33774;3
Joo> value 1 3374;3 ? R2'44,444
%air value 1 3374;3 ? R2'=4,444
SOLUTION
Date Joo> /alue
-R2.
%air /alue
-R2.
%/ ad0ustmt
-R2.
Accounting treatment
3374;3
'44,444 '=4,444 =4,444 "reated as an increase inrevaluation reserve to be used in
calculating good#ill because this
is considered as pre$ac( reserves
"he asset must be reported at its
fair value 1 date of ac(uisition in
the consolidated accounts In the
conso accounts, the revaluation
reserve at the date of ac(uisition
is +;*D+D from conso as it is
considered to pre$ac(uisitionreserves #hich have been used in
calculating good#ill
&ince the subsidiary is reporting the asset at its boo> value in its boo>s and the group is
reporting the asset at fair value, ad0ustment must be made for depreciation differences
bet#een the boo> value and the fair value
Date Depreciation
on boo> value
Depreciation
on fair value
Depreciation
ad0ustment
Accounting treatment
'337
74;3
'4,444
-'44,444L34
years.
'=,444
-'=4,444L34
years.
=,444 Additional R2=,444Lyear must be
charged to retained earnings and
allocated to both N*I and group
retained earnings
14
8/18/2019 CONSO SOFP - CHAPTER 10.docx
15/23
-!lease note the amount of depreciation e@penses ad0usted depends on the number of
years that has lapsed since ac(uisition date up to consolidation date In this e@ample, 3 year
has lapse from ac(uisition to consolidate date "herefore the depreciation e@penses
ad0ustment is only made for 3 year only.
"he same depreciation principle is applied for parent’s fair value changes in depreciableassets "he ad0ustments can be vie#ed as)
A':u#t4!nt
!’s boo>s
!arent’s R+ 1 consolidation ;;
L $ . depreciation ad0ustment @ L -@.
15
8/18/2019 CONSO SOFP - CHAPTER 10.docx
16/23
P$#t/ac-ui#iti$n %ai alu! c&ang!#
&ometimes #e encounter cases #here the asset has fair value changes post ac(uisition
date
+@ample)
&ubsidiary & #as ac(uired on 3374;3 "he follo#ing are the details of its properties #hich
has useful life of 34 years 1 date of ac(uisition "he group practices depreciation on a
straight line method "he subsidiary has not ad0usted its assets to fair value
Joo> value 1 3374;3 ? R2'44,444
%air value 1 3374;3 ? R2'=4,444
%air value 1 '33774;3 ? R2'64,444
N9 G1.1.*061
F G1.1..*061
Fai alu!c&ang!#
Acc$unting t!at4!nt
'44,444 '=4,444 =4,444 DR properties R2=4,444
*R RR R2=4,444
-"his R2=4,444 change is to be used in good#ill
calculation since the change occurred 1
ac(uisition date.
Depreciation ad0ustment 1 '337;3)
Depreciation e@p based on R2'44>
DR Depreciation e@p -R+. R2'4,444
*R Accumulated depn R2 '4,444
Additional depn e@p due to %/ change1 ac( date
DR Depreciation e@p -R+. R2=,444
*R Accumulated depn R+ =,444
-After ad0usting for total depreciation of R2'=,444M
the asset less accumulated depreciation is
R2'3=,444
F l!## acc
'!pn G
51.1*.61
N!+ F G
51.1*.61
Fai alu!
c&ang!#
Acc$unting t!at4!nt
'3=,444 '64,444 5=,444 DR properties R25=,444 *R RR R25=,444
-!lease note there #ould not be any additional
depreciation besides the R2'=,444 because the
date fair value is ad0usted for the second time is
the same as consolidation date.
16
8/18/2019 CONSO SOFP - CHAPTER 10.docx
17/23
"he #or>ings of fair value ad0ustment are illustrated as follo#s)
St!p 1 8 $$'+ill calculati$n
*onsideration transferred ;;
. N*I ;;
$. %air value of Net Assets -&ubsidiary 1 ac(uisition.)
$. Ordinary shares ;;
$. &hare !remium ;;
$. Retained earnings ;;
$. %/ ad0ustment K property =4,444 -;;.
$$'+ill 66
P!paing t&! a':u#t4!nt %$ p! an' p$#t/ac-ui#iti$n !#!!# G c$n#$ 'at!
NCI ,*0
8/18/2019 CONSO SOFP - CHAPTER 10.docx
18/23
T&! SOFP $% P an' S a# at 51.1*.*061 a! a# %$ll$+#8
Pa!nt ,P
RM"000
Su(#i'ia),S RM"000
Ordinary share capital 1R23 par 3,'44 744
&hare premium nil 3=4Retained profits E44 '=4
ong term liabilities '44 744
*urrent liabilities 744 374
"O"A 7,644 3,474
!roperty 3,744 'E4
!lant and e(uipment 7E4 '74
*urrent assets 3,374 '74
"O"A 7,644 3,474
On 3374;3, ! ac(uired 84< of the ordinary shares belonging to & by paying
R2=44,444 in cash and issuing 744,444 of !’s ordinary shares #ith mar>et value of
R27=4 on date of ac(uisition "he retained earnings of & at the date of ac(uisition is
R27=4,444 Other reserves remain unchanged"he fair value of &’s property on ac(uisition date #as R2=44,444 &ubse(uently on
'33774;3 the fair value of &’s property is estimated to be at R2644,444 As at
ac(uisition date, property is depreciated over 74 years on a straight line basis As at ac(uisition date, & also o#ns patents and licenses #orth R2744,444 #hich has
= years useful life
SOLUTION
"he 0ournal entries for the above changes are as follo#s)
7OURNAL >
In !’s boo>s 1 ac(uisition date
DR Investment 3,444,444
*R *ash =44,444
*R Ordinary shares -744,444 @ R2344. 744,444
*R &hare premium -744,444 @ R23=4. '44,444
7OURNAL
In &’s boo>s 1 ac(uisition date -pre$ac(uisition ad0ustments.
DR !roperty 344,444
DR !atents 9 icenses 744,444
*R Revaluation reserve '44,444
7OURNAL
18
8/18/2019 CONSO SOFP - CHAPTER 10.docx
19/23
In &’s boo>s 1 consolidation date -post ac(uisition ad0ustments.
DR !roperty 37=,444
*R Revaluation reserve 37=,444
STEP 18 Calculating g$$'+ill
*onsideration transferred 3,444,444
Add. N*I -34< @ %/NA. 84,444
ess. %air value of net assets of &)
$. Ordinary share 744,444
$. &hare premium 3=4,444
$. Retained earnings 7=4,444
$. Revaluation reserve -patents. 744,444
$. Revaluation reserve -property. 344,444 -844,444.
BOODWI 384,444
&ince there is a fair value ad0ustment in property and patents9 licenses, depreciation
and amortiHation ad0ustments must be made)
!roperty ) %/ ad0ustment =44,444 K 544,444. L 74 years ? =,444Lyear
!atents 9 licenses ) %/ ad0ustment 744,444L= years ? 54,444Lyear
STEP * 8 P!paing t&! a':u#t4!nt %$ p! an' p$#t/ac-ui#iti$n !#!!#
RM"000 NCI
,RM"000
CONSO RE
,RM"000
CONSO RR
,RM"000
N*I 1 ac(uisition 84
&ubsidiary)
R+ 1 conso
ess.R+ 1 ac(uisition
!ost$ac(uisition R+Depreciation -=44,444$'E4,444.L74
Amortisation -744,444L= years.
Revaluation reserve post
ac(uisition -644$5:=.
'=4
-7=4.
344-=.
-54.
==
37=
==
37=
58=
337=
!arent)
Retained earnings E44
"otal 34E E58= 337=
19
8/18/2019 CONSO SOFP - CHAPTER 10.docx
20/23
STEP 5 8 PREPARIN CONSOLIDATED SOFP8
A##!t#
CONSO
,RM"000
Bood#ill 384
!atents 9 licenses &ubsidiary -744,444$54,444. 364
!roperty
!arents -3,744.
&ubsidiary -'E434437=$=. 3,E44
!lant and e(uipment
!arents -7E4.
&ubsidiary -'74. 644
*urrent assets
!arents -3374$=44.
'74 854
T$tal A##!t# 5=0
E-uiti!# @ lia(iliti!#
Ordinary share capital !arent ONY -3,'44744. 3,=44
&hare !remium!arent -'44.
&ubsidiary K eliminate'44
Retained earnings E58=
Revaluation reserve 337=
N*I 34E
ong term liabilities
!arent -'44.
&ubsidiary -744. =44
*urrent liabilities
!arent -744.
&ubsidiary -374. '74
T$tal E-uiti!# @ Lia(iliti!# 5=0
INTERCOMPAN 9ALANCES AND TRANSACTIONS
It is common for companies #ithin the same group to conduct transactions among each
other "his #ill result in asset balances in one company’s boo> #hilst it #ill be reported as
liability in another company’s boo>s &ince the preparation of consolidation consists of
aggregation of assets and liabilities of all the companies in a group, this #ill result in double
reporting "herefore before consolidation is done, intercompany balances must be
eliminated
&ome of the balances can be sho#n as follo#s)
3 oans receivableLpayable7 Accounts receivablesL payables' *urrent accounts5 Jills receivablesLpayables= Interest receivablesLpayables6 Dividends receivablesLpayables
In cases #here one party has remitted cash payment of deliver goods #hich have yet to be
accounted for by the other party, the payment or goods is to be treated as asset in transit
20
8/18/2019 CONSO SOFP - CHAPTER 10.docx
21/23
INTERCOMPAN 9ALANCES
Ea4pl! 1
21
8/18/2019 CONSO SOFP - CHAPTER 10.docx
22/23
! ac(uired E4< of the ordinary shares in & on '337;:
"he follo#ing is the e@tract of &O%! for ! and & as at '337;8)
! -R2444. & -R2444.
and 34,444 5,444
!lant ',444 3,=44
2achineries 7,444 844
oan to & =44 nil
*urrent account 744 nil
Inventories '44 344
"rade receivables 7=4 374
*ash in ban> 7=4 E4
36,=44 6,:44
Ordinary shares 34,444 5,444
Retained earnings =,=44 3,=44
oan from ! nil =44
*urrent account nil 744
"rade payables 3,444 =44
36,=44 6,:44
3 ! has given a loan to & amounting to R2=44,444
7 ! has made some advance payments on behalf of & and all advances are recorded in current account' In trade receivables of !, there is amount due from & valued at R2=4,444 & has recordedthis
as part of its trade payables
S$luti$n
oan $ recorded as asset in !s boo>s and liability in &s boo>s Need to eliminate
*urrent account $ recorded as asset in !s boo>s and liability in &s boo>s Need to eliminate
"rade receivables in !s boo>s contained amount due from & &o R2=4,444 must be deducted
from trade receivables of ! R2=4,444 must also be deducted from trade payables in &s boo>s
"herefore in consolidating &O%!, the follo#ing items are Herorised)
$ loan to & L loan to !
$ both current accounts
$ trade receivables of ! -7=4$=4 ? 744.$ trade payables of &-=44$=4?5=4.
ITEMS IN TRANSIT
&ometimes overlapping balances in parents boo>s and subsidiarys boo>s do not match
"his can be caused by)
3 payment in transit
7 inventories in transit"he differences bet#een the balances in parents and subsidarys boo>s are added bac> toeither Fcash in ban> account or Finventories account depending on #hich item is in transit
STATEMENT OF FINANCIAL POSITION
22
8/18/2019 CONSO SOFP - CHAPTER 10.docx
23/23
DEFERRED TA6 IMPLICATION ON FAIR ALUE AD7USTMENT
%or consolidation purposes, assets are re(uired to be reported at fair value, therefore
depreciation charged #ill be based on fair value
At the company level, the subsidiary may not report its assets at fair value, therefore
depreciation charged #ill be based on boo> value
In circumstances #here fair value is higher than boo> value, depreciation charged at
consolidation level #ill be higher than at company level "his increases depreciation
e@penses #hich in turn #ill reduce net profits "his #ill result in lo#er ta@ value than actual
ta@ payable "his creates deferred ta@ liability
+@ample)
As at 3374;3 the follo#ing values #ere given
seful life Joo> /alue %air /alue
!lant = years 74,444 7=,444
Depreciation per year 5,444 =,444
Assume company ta@ at 7=<
A':u#ting !nti!#8
DR !lant =,444
*R Revaluation surplus -:=