AC303 lecture 4 Methods of group accounting –Joint venture –Simple investment Other methods used for group accounting –Proportional method –Merger accounting Acquisition accounting - further considerations

Balance sheet treatment of JV Example: –Parent has 50% interest in JV. Share capital was acquired on the first day of incorporation at par. Total share capital = €100 –Initial parent investment = €50 –Parent share of profit for the year = €15 –Double entry would be as per the equity method but on balance sheet, replace the investment balance with share of gross assets and gross liabilities

Methods of accounting for a group Simple investments –Treatment in individual accounts of the investor and the group is the same –Treatment depends on intention intention is to hold on an ongoing basis => classify as fixed asset and refer to FRS 15 guidance otherwise classify as current asset and usually valued at lower of cost and NRV

Inter-company balance The investment by a parent in a subsidiary may not be the only economic transaction between these parties They may also buy and sell goods to each other They may provide loans to each other What are the implications for a consolidation process?

Goods in transit P Ltd and S Ltd trade goods with each other 30 December 2001: P Ltd sends goods to S Ltd and records the sale on credit of €2,000 S Ltd does not receive the goods until 5 January => Goods in transit on 31 December 2001 What implications for consolidation of P Ltd and S Ltd? Goods booked out of stock and into debtors for P Ltd but no corresponding entry in stock and creditors for S Ltd Reverse transaction entries in P Ltd OR book effective receipt of stock into S Ltd.