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ACT 3126 Advanced Accounting I

ACT 3126 Advanced Accounting I. Consolidating Group Companies. Content. Preference shares in group Inter-company balances Consolidated Income Statement Consolidated Balance Sheet Consolidation: the worksheet Parent vs. MI: the proof technique Illustrations. Preference shares. Liability.

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ACT 3126 Advanced Accounting I

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  1. ACT 3126Advanced Accounting I Consolidating Group Companies

  2. Content • Preference shares in group • Inter-company balances • Consolidated Income Statement • Consolidated Balance Sheet • Consolidation: the worksheet • Parent vs. MI: the proof technique • Illustrations

  3. Preference shares Liability Equity P – eliminate on consol MI – balance as ‘liability’ P – eliminate on consol MI – balance as in ‘MI’

  4. Example • P acquired S as follows: • 75% OSC for $215m • 60% PSC for $7m • 20% RPS for $2m As at acquisition: PS OSC of $1 each $300 $200m 8% PSC of $1 each $- $10m Retained profits $2.5m $1.2m L-T L: RPS $- $10m

  5. Eliminate investment OSC PS Cost of investment $215m $7m 60% PS in S ($6m) 75% - OSC $150m RP $0.9m $64.1m $1m Total Goodwill $65.1m

  6. Finding MI portion Eliminate balances in equity of S Bhd 40% PSC $4m 25% OSC $50m 25% RP $0.3m $54.3m LTL: RPS $8m (10-2)

  7. Consolidate P and subsidiary Goodwill $65.1m Equity OSC $300m (P) RP $2.5m (P) $302.5m (P) MI $54.3m $356.8m LTL: RPS $8m (10-2)

  8. Inter-co balances: Loan / advances • Recipient: S Bhd $200,000 (L) • Provider: P Bhd $200,000 (A) Adj: Dr Loan (in S) 200,000 Cr Loan to S (in P) 200,000

  9. Inter-co balances: Current Acc • S Bhd: Amt due to P Bhd $200,000 (L) • P Bhd: Amt due from S Bhd $300,000 (A) P Bhd sent a cheque of $100k, not yet recorded in S Bhd. P Bhd: Amt due from S Bhd 300,000 Adj – cash in transit (100,000) 200,000 (as in S) JE: Dr Amt due to P (in S) 200,000 Dr Bank (cash in transit) 100,000 Cr Amt due from S (in P) 300,000

  10. Bill of exchange • P Bhd: Bills receivable from S Bhd $100,000 • S Bhd: Bills payable to P Bhd $100,000 Eliminate: Dr Bills payable (S Bhd) 100,000 Cr Bills receivable (P Bhd) 100,000

  11. Bill of exchange: discounted • P Bhd: Bills receivable from S Bhd $40,000 Contigent liability: bills discounted $60,000 • S Bhd: Bills payable to P Bhd $100,000 Eliminate: Dr Bills payable (S Bhd) 100,000 Cr Bills receivable (P Bhd) 40,000 Dr Contingent Liability 60,000

  12. Dividend – I/S • Income – eliminate dividend paid by sub Dr Div Income Cr Div Paid • Paid – eliminate dividend paid by sub (as above) – only P’s remains in I/S

  13. Consolidated I/S and RP(page 31) • I/S = P + S – MI = profit attributable to members • RP = P + %S = Bal b/f + current year – div paid (P) – transfer to GR = Bal c/f

  14. Consolidated B/S N-C Assets P + S Goodwill on consol P C Assets P + S • C Liabilities P + S Net Assets XXX Equity: OSC P Reserves P + post-acq % in S MI % NA in S / % E in S LTL P + S (RPS other than P)

  15. Parent vs. MI: proof technique Interest in S Bhd Total Parent (80%) MI Pre Post (20%) OSC 100k 80k - 20k Cap Res 50k 40k - 10k Rev Res 60k 48k - 12k Ret. Prof. Pre 20k 16k - 4k Post 30k - 24k 6k 260k 184k 24k 52k Cost of investment (200k) Goodwill 16k Add: Retained Profits of P 90k . Consolidated Retained Profits 114k .

  16. Illustration 1 a) Revaluation 1)Freehold land on acquisition Dr Freehold land 2,000,000 Cr Revaluation Res 2,000,000

  17. Illustration 2) Other PPE Dr Other PPE – cost 500,000 Dr Acc. Depreciation 2,000,000 Cr Revaluation Res 2,500,000 Dr Depreciation exp 700,000 Cr Acc. Depreciation 700,000

  18. Illustration 1 b) Eliminate cost of investment Dr Share Capital of D 3,200,000 Dr Revaluation Res 3,600,000 Dr Retained Profit (pre) 2,000,000 Cr Investment in D 7,600,000 Cr Goodwill (Negative) 1,200,000

  19. Illustration 1 e) Record dividend declared and received out of pre-acquisition profit Dr Retained profit (pre) 500,000 Cr Bank balance 500,000 Dr Bank balance 400,000 Cr Investment in D 400,000

  20. Illustration 1 c) Finding MI Dr Share capital in D 800,000 Dr Revaluation Res 900,000 Dr Retained Profit (pre) 500,000 Cr Retained profits (post) 20,000 Cr Minority Interest 2,180,000

  21. Parent vs. MI: proof technique Interest in D Bhd Total Parent (80%) MI Pre Post (20%) OSC 4,000 3,200 - 800 Rev Res 4,500 3,600 - 900 Ret. Prof. Pre 3,000 2,000 - 500 (- div) (500) (400) - (100) Post 600 - 480 120 (- depr) (700) - (560) (140) 12,100 8,800 (80) 2,420 Cost of investment (7,600) Goodwill (1,200) Add: Retained Profits of P 2,000 Consolidated Retained Profits 1,920

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