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Question to attempt
P acquired 80% of ordinary shares belonging to P on 31.12.20X5 by issuing 60,000 units of its
ordinary shares. The retained earnings of S on that date was RM56,000.
The following is an extract of the statement of financial position @ 31.12.20X8:
Ordinary shares
Share Premium
Retained earnings
Liabilities
Market price for ordinary shares (RM)
@ 31.12.20X5
@ 31.12.20X6
@31.12.20X7
@31.12.20X8
P
2,000,000
150,000
1,458,200
890,600
P
3.20
3.60
3.15
3.00
0,000 units
@ acquisition.
ill method.
S
100,000
20,000
87,000
66,300
S
2.50
2.40
2.25
2.30
When consolidation date is after the acquisition date, additional adjustments need to be made.
Adjustments have to be made for various reasons:
1. Eliminate pre-acquisition reserves belonging to subsidiary
2. Fair value changes in depreciable assets which requires depreciation adjustments
3. Intercompany profits due to sales of assets
4. Income derived from companies within the group
ELIMINATING PRE-ACQUISITION RESERVES
In consolidating, pre-acquisition reserves must be eliminated as the balances have
been taken up in the calculation of goodwill.
Exercise 1
The following is the extract of S statement of financial position for the respective dates:
Assume P owns 80% of ordinary shares in S.
Date of
acquistion
31.12.20X2
Ordinary shares
Revaluation reserve
Retained earnings
2,000,000
250,000
987,000
Solution
Adjustment:
S's books
RE @ conso
Less) RE @ acquisition
Post acquisition RE
RR @ conso
Less) RR @ acquisition
Post acquisition RR
1,200,500
(987,000)
213,500
280,000
(250,000)
30,000
on adjustments
balances have
e respective dates:
Date of
consolidation
31.12.20X3
2,000,000
280,000
1,200,500
NCI
42,700
6,000
GRE
GRR
170,800
24,000
RM
3,000,000
900,000
750,000
Balance @ 31.12.20X1
Cost
Land
Building
Machinery
3,000,000
1,000,000
900,000
Adjustment:
S's books
Post acquisition RE
Less) depreciation building
Add) depreciation machinery
Question to attempt
P acquired S on 31.12.20X4. The fair value of plant and equipment belonging to S was RM1.5 million a
The useful life for both the assets are 10 years each. The assets were not adjusted to its fair value. Th
recorded in S's books on 31.12.20X7 are RM700,000 for plant and RM315,000. Determine the adjustm
consolidated accounts on 31.12.20X7.
nd machinery belonging to S
respectively.
on 31.12.20X2:
Useful life
9 years
5 years
nce @ 31.12.20X1
Fair value
3,500,000
1,250,000
840,000
Fair Value
Adjustment
500,000
250,000
(60,000)
Useful Life
10 years
6 years
XX
(25,000)
10,000
Depreciation
Adjustmt/yr
nil
25,000
(10,000)