Reporting Entity & Consolidation Principles IFRS 10 & 11 ACCA F7 & P2 Part 3 Mark Fielding-Pritchard Mark Fielding-Pritchard 2015

Consolidation Procedure required whenever business combination by acquisition of shares results in an investment account on records of acquiring company never required when business combinations by acquisition of net assets not required when business combination by acquisition of shares and the shares of acquired company liquidated Mark Fielding-Pritchard 2015

Steps in Consolidation Worksheet Procedure at Date of Acquisition Without Non Controlling Interest- Statement of Financial Position (BS) Draw up a worksheet with 4 columns, P, S, Adjustments & Consolidated enter the balance sheets of parent and subsidiary Calculate net assets at the date of acquisition Calculate goodwill Enter adjustments in the adjustments column Prepare consolidated balance sheet from worksheet Mark Fielding-Pritchard 2015

enter separate balance sheets of parent and subsidiary Steps in Consolidation Worksheet Procedure at Date of Acquisition With Non Controlling Interest enter separate balance sheets of parent and subsidiary prepare consolidation worksheet adjustments eliminate subsidiary owners’ equity recognize revaluation increments and decrements recognize goodwill complete non controlling interest column complete consolidated column prepare consolidated balance sheet from worksheet Mark Fielding-Pritchard 2015

On January 1, 20X1, P was able to control S. P received 80% of the common stock of S Company.   P S Adj Cons Cash $ 63,500 $ 10,000 Accounts receivable, net 100,000 27,500 Inventory 175,000 40,000 Investment in S Co. 120,000 Land 200,000 35,000 Building and equipment, net 325,000 80,000 Patent 7,500 Total assets $ 983,500 $200,000 Mark Fielding-Pritchard 2015

Liabilities and Equity Accounts payable $ 125,000 $ 26,925 Bonds payable, net 483,500 78,075 Common stock ($30 par value) 150,000 50,000 Retained surplus 225,000 45,000 Total liabilities and Equity $ 983,500 $200,000

Information on S Company as of January 1, 20X1 follows:   Current Value Book Value Remaining Life Inventory $42,500 $40,000 1 year Land 50,000 35,000 Indefinite Equipment 45,000 20,000 10 years Patent -0- 7,500 3 years The non controlling interest is valued at the date of acquisition as $23.5m

Consolidation Format- Goodwill Paid $120m + NCIs $23.5m = $143.5m Received Shares 50 Retained earnings = 45 Fair value adjustments = $35 Goodwill = 13.5 on acquisition Mark Fielding-Pritchard 2015

Goodwill Calculation Comparison of what we paid & what we received in S P Paid 120000 Cr Investment 120000 Shares (50000) Dr Share Capital S Retained Surplus (45000) Dr Retained Surplus S Fair Value Adjustments (35000) Dr/Cr Individual Assets Dr Inventory 2500 Dr Land 15000 Dr Equipment 25000 Cr Patent 7500 Missing number Goodwill 13500 Dr Goodwill 13500 Non Controlling interest Cr NCI 23.5 Mark Fielding-Pritchard 2015

P S Dr. Assets Cash 63,500 10,000 73500 Accounts receivable 100,000   P S Dr. Assets Cash 63,500 10,000  73500 Accounts receivable 100,000 27,500  127500 Inventory 175,000 40,000 2,500  217500 Investment in S Co. 120,000 (120,000) Land 200,000 35,000 15,000  250000 Building & equip., net 325,000 80,000 25,000  430000 Patent 7,500  (7500)  0 Goodwill 13,500  13,500 Total assets 983,500  1112000 Mark Fielding-Pritchard 2015

Liabilities and Equity Accounts payable $ 125,000 $ 26,925 151925 Bonds payable, net 483,500 78,075 561575 Common stock ($30 par value) 150,000 50,000 (50000) 150000 Retained surplus 225,000 45,000 (45000) 225000 NCI 23500 Total liabilities and Equity $ 983,500 $200,000 1112000

To Conclude Equity of S disappears as do pre acq profits of S Inter co sales are eliminated, Dr Revenue, Cr C of S If P has sold goods to S (or vice versa) inventory will include profit on sale, eliminate If assets are transferred then eliminate any gains to reduce the transfer to NBV Mark Fielding-Pritchard 2015