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1.
INTRODUCTION
When preparing consolidated
financial statements, it can be
easier to use a consolidation
worksheet. The journal entries
referenced in the following
pages can be used with
consolidation worksheets to
produce consolidated financial
statements.
These journal entries do not
influence the individual financial
statements
of
the
group
companies.
Consolidated accounts are prepared for a group of entities under the control of a
parent.
A parent is an entity that has one or more subsidiaries.
A subsidiary is an entity that is controlled by another entity (parent)
An investor (parent) controls an investee (subsidiary) if all the following apply:
Power over the investee
Exposure or rights, to variable returns from its involvement with the investee
The ability to use its power to affect the amount of the investors returns
Control is presumed to exist when the parent owns, directly or indirectly, more than
50% of the voting power of an entity.
>
NOTE
Consolidation involves:
Adding assets and liabilities
line by line
Eliminating inter-company
balances
Eliminating parents
investment in subsidiaries
Control may exist when the parent owns 50% or less of the voting power. This may
occur if it would be difficult to co-ordinate the activities of the other shareholders to
exert control over the subsidiary (e.g. small, individual shareholders). Consideration
must be given to the existence and effect of any potential voting rights that may be
currently exercisable or convertible.
Consolidated accounts must be prepared using uniform accounting policies for like
transactions and other events in similar circumstances. If the accounting policies of a
subsidiary differ, an adjustment is required before preparing consolidated accounts.
XX
(XX)
XX
(XX)
XX/(XX)
XX
(XX)
XX
(XX)
XX/(XX)
2015
All
rights
reserved,
E&OE
(v.
1)
Consolidated FS
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DR
Investment in subsidiary
XX
Share capital
Bank
Deferred consideration (discount to PV if applicable)
Other consideration
CR
XX
XX
XX
XX
Acquisition costs cannot be capitalised and must be expensed in the period they are
incurred. However, the cost to issue debt or equity for a business combination is
treated as a reduction of equity.
Expense costs of acquisition
Date
Description
DR
Acquisition costs
Cash
CR
XX
XX
DR
CR
XX
XX
> NOTE
DR
CR
XX
XX
XX
Consolidated
FS
XX
XX
XX
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DR
Asset
CR
XX
Goodwill (Group %)
NCI (NCI %)
XX
XX
Depreciate asset
Date
Description
DR
Amortisation/Depreciation expense
Accumulated Amortisation/Depreciation
CR
XX
XX
Description
DR
Share capital
Reserves/Surplus
Retained earnings (if any)
Goodwill (CR if bargain purchase)
Accumulated losses b/f (if any)
Investment in subsidiary
XX
XX
XX
XX
CR
XX
XX
>
G OODWILL
If goodwill is impaired, the following journal entries are required
Recognise impairment of goodwill in investment in subsidiary
Date
Description
Impairment Loss
Goodwill
DR
CR
XX
XX
Consolidated
FS
DR
CR
XX
XX
XX
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DR
CR
XX
Goodwill (Group %)
NCI (NCI %)
XX
XX
Adjust depreciation charge to reflect the expense to the group based on the revised
carrying amount
Date
Description
DR
CR
Depreciation expense (Adjustment x months/12)
PPE (Accumulated depreciation)
Adjustment for prior years depreciation up to consolidation
Date
Description
Retained Earnings b/f (Group %)
NCI (NCI %)
PPE (Accumulated depreciation)
Consolidated
FS
XX
XX
DR
CR
XX
XX
XX
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>
NOTE
1. Eliminate intra-group sales and purchases
Date
Description
Unrealised profit (URP) on
intra-group sales of inventory
must be eliminated on
consolidation.
DR
CR
XX
XX
XX
XX
XX
XX
2(b). When the subsidiary sells inventory to the parent (subsidiary makes profit)
Date
Description
DR
CR
XX
Consolidated
FS
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Where there are intra-group sales of non-current assets, the selling entity will
recognise a profit. If these assets have not been sold to a third party at reporting
date, there is an unrealised profit. Unrealised profits must be eliminated in full on
consolidation.
1. Eliminate intra-group transfer of asset
Date
Description
DR
CR
XX
XX
XX
XX
XX
XX
2(b). When the subsidiary sells inventory to the parent (subsidiary makes profit)
Date
Description
DR
CR
XX
Depreciation adjustment
If a non-current asset is sold to a group entity at a profit, the depreciation charge in
the buying entitys accounts will be inflated. This additional depreciation must be
eliminated on consolidation.
Original depreciation charge = Original cost / Original useful life
Revised depreciation charge = Consideration / Revised useful life
Original depreciation charge - Revised depreciation charge = Adjustment
When the parent holds the asset
Date
Description
DR
DR
Consolidated
FS
CR
XX
XX
CR
XX
XX
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7.
DIVIDEND
E LIMINATION
Ordinary dividends are not accrued until approved by the shareholders at the AGM.
Proposed ordinary dividends are not recognised as a liability in the financial
statements of the parent, subsidiary or group.
Preference dividends are recognised as a liability in the financial statements:
Payable by parent no further adjustments required
Payable by subsidiary:
> NOTE
DR
CR
XX
XX
DR
CR
XX
XX
Consolidated
FS
DR
CR
XX
XX
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XX
XX
CR
XX
XX
Consolidated
FS
DR
CR
XX
XX
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Parent
Others
Group
70%
30%
Subsidiary
Subsidiary
70%
30%
100%
Share Capital
Share capital of subsidiary
Revaluation Reserve (pre-acquisition)
Pre-acquisition revaluation reserve of the subsidiary
Revaluation Reserve (post-acquisition)
Any FV adjustments
Other Reserves (pre-acquisition)
Pre-acquisition other reserves of the subsidiary
Retained Earnings b/f (pre-acquisition)
Pre-acquisition retained earnings of the subsidiary
Retained Earnings b/f (post-acquisition)
Less: Unrealised profit in prior year re sale of inventory
Less: URP in prior year re sale of non current assets
Adjusted earnings b/f
Current year dividends
Dividends declared by subsidiary during year
Current year operating profits
Add: Adj. re depreciation of transferred non-current asset
Adjusted current year operating profits
Total Non-controlling Interest
(XX)
(XX)
XX
XX
XX
Consolidated
FS
DR
Total ()
NCI (X%)(Ref.)
XX
Total x X% (A)
XX
Total x X% (B)
XX
Total x X% (C)
XX
Total x X% (D)
XX
Total x X% (E)
XX
Total x X% (F)
(XX)
Total x X% (G)
XX
Total x X% (H)
Sum (I)
CR
XX
XX
XX
XX
XX
XX
XX
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