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FR - Financial Reporting > Chapter 18 - Consolidated Statement of Financial Position > Flashcards

Chapter 18 - Consolidated Statement of Financial Position Flashcards

1
Q

When is control established?

A

When a parent has more than 50% of the ordinary share capital of a subsidiary

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2
Q

How many workings are there when producing a consolidated statement of financial position?

A

5

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3
Q

What is W1?

A

Group structure - We need to establish the group structure, identifying the parent, the sub, the % of ownership and the date of acquisition

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4
Q

What is W2?

A

Add together the assets and liabilities - parent and sub simply added together on a line by line basis

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5
Q

What is W3?

A

Cancel the parent investment - the investment shown in the parent’s FS is cancelled against the subs equity balances in order to calculate goodwill at acquisition date

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6
Q

What does goodwill represent?

A

the amount paid above the fair value of the assets acquired.

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7
Q

What happens to goodwill in the CSFP?

A

it is capitalised as an intangible NCA

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8
Q

What is W4?

A

Non-controlling interest - represents the value of the subsidiary’s net assets belonging to the shareholders other than the parent.

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9
Q

What is W5?

A

Group retained earnings - the group share of the subs post acquisition profits is calculated and added to group R.E within equity

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10
Q

The non-controlling interest at acquisition can be measured at what?

A
  • fair value
  • its proportionate share of the fair value of the subs net assets at the acquisition date
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11
Q

What is the calculation for the proportional method of valuing NCI?

A

NCI = Subsidiary net assets (W2) x NCI%

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12
Q

How do we work out the Goodwill impairment if fair value method was used?

A

deduct P%

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13
Q

How do we work out the Goodwill impairment if proportional method was used?

A

deduct in full (Proportional = Parent)

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14
Q

What is negative goodwill?

A

When the parent pays less than the value of their share of the net assets acquired

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15
Q

When is negative goodwill likely to occur?

A

if the shares are being sold quickly to avoid the subsidiary going onto liquidation

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16
Q

How is negative goodwill treated?

A

as a form of income, known as a gain on bargain purchase and credit to the SPL

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17
Q

What is Non-controlling interest?

A

represents the equity interest in a subsidiary not attributable to the controlling interest (i.e parent)

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18
Q

What is the measurement of cash a acquisition?

A

The cash paid with no other adjustment needed

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19
Q

What is the double entry for fair value of cash at acquisition?

A

Dr Cost of investment (W3)
Cr Cash

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20
Q

What is the measurement of deferred cash?

A

Present value

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21
Q

What is the double entry for deferred cash?

A

Dr Cost of investment (W3)
Cr Liability

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22
Q

What is the measurement of shares at acquisition?

A

valued at market value at the date of acquisition

23
Q

What is the double entry for shares at acquisition?

A

Dr Cost of investment (W3)
Cr Share capital
Cr Share premium

24
Q

What is the measurement of Deferred shares?

A

market value of the shares on the date of acquisition.

25
Q

What is the double entry for deferred shares?

A

Dr Cost of investment (W3)
Cr Other components of equity

26
Q

What is the fair value of Contingent consideration?

A

Fair value, exam will provide the figure

27
Q

How are professional fees measured?

A

Should not be included in the fair value consideration. Expensed to profit or loss

28
Q

When calculating goodwill how is purchase consideration measured?

A

at fair value

29
Q

What is the double entry for contingent consideration?

A

Dr Cost of investment (W3)
Cr Liability/Equity

30
Q

What is the calculation for present value with deferred tax?

A

multiplying the future payment by the following discount factor: 1 / (1+ r) >n (power of), r = cost of capital, n = number of future years

31
Q

The subsidiary’s assets and liabilities should be recorded at what?

A

their fair value for the purposes of the calculation of goodwill and the production of consolidated financial statements

32
Q

When would an adjustment be needed on consolidation?

A

if the fair values of the subs net assets are different to their carrying amount in the subs financial statements

33
Q

Where assets and liabilities are not carried at fair value what happens?

A

Adjustments are made on W2 and on the SFP.

34
Q

Typical fair value adjustments include what?

A
  • PPE
  • Inventory
  • Intangible assets not recognised by the sub
  • Contingent liabilities
35
Q

Adjustments to PPE will need to reflect what?

A

any post-acquisition depreciation in the reporting date column of W2

36
Q

Adjustments of inventory will reflect what?

A

Recorded in the reporting date column to allow for any inventory sold in post-acquisition period

37
Q

How will intangible assets not recognised by the sub be adjusted?

A

will need to be added to the subs assets as a consolidation adjustment, reflecting an post-acquisition amortisation as necessary

38
Q

How will contingent liabilities be adjusted?

A

not recognised by sub and will need to be deducted from W2 and inserted on the consolidated SFP, reflecting any post-acquisition adjustment necessary

39
Q

How are intra group transactions recorded?

A

they are eliminated

40
Q

What is the adjustment made if the Parent sends cash to the Sub before the Y/E but the sub doesn’t receive till after Y/E?

A

Dr Bank (payment)
Cr Receivables (payment)

41
Q

What is the adjustment made if the Sub sends cash to the Parent before the Y/E but the sub doesn’t receive till after Y/E?

A

Dr Inventory (payment)
Cr Payables (payment)

42
Q

What happens to the receivables and reconciled balances?

A

they are cancelled

43
Q

If either the parent or the sub makes a loan, how is this recorded?

A

one entity will record a loan payable and the other a receivable, possibly an investment. The loans (assets and liabilities) must be removed from the consolidated SFP

44
Q

What occurs if one group sells a non-current asset to another?

A

creates an unrealised profit which reduces as the asset is depreciated

45
Q

What adjustment occurs when an unrealised profit is made?

A

a PUP adjustment is necessary

46
Q

What does a PUP adjustment do?

A

reduces the carrying amount of the asset to that based on the original cost of the asset to the group

47
Q

How is the calculated PUP split?

A

between the seller’s and buyer’s retained earnings (W2 and W5)

48
Q

what does the original profit do?

A

reduces seller’s retained earnings

49
Q

what does the excess depreciation do?

A

increases buyer’s retained earnings

50
Q

what is the net PUP?

A

reduces carrying amount of PPE

51
Q

What does the PUP calculation compare?

A

the carrying amount of the asset at the date of transfer, with and without the sale, to establish the initial profit (transfer price - CA) made by the seller

52
Q

What does the difference in the 2 depreciation values represent?

A

the excess depreciation charged by the buyer

53
Q

How do we find the net PUP?

A

difference between carrying amounts based on transfer price and cost to the group

54
Q

What is the calculation for the pre-acquisition retained earnings?

A

opening retained earnings + time apportioned profits for the year up to the acquisition date

FR - Financial Reporting (23 decks)

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