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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. Goodwill Calculation
Comparison of what we paid & what we received in S
P Paid
120000
Cr Investment
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

10. P S Dr. Assets Cash 63,500 10,000 73500 Accounts receivable 100,000P 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  
Mark Fielding-Pritchard
2015

11. 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

12. 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