Chapter 18 - Consolidated Statement of Financial Position

Question 1

When is control established?

Answer 1

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

Question 2

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

Answer 2

5

Question 3

What is W1?

Answer 3

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

Question 4

What is W2?

Answer 4

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

Question 5

What is W3?

Answer 5

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

Question 6

What does goodwill represent?

Answer 6

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

Question 7

What happens to goodwill in the CSFP?

Answer 7

it is capitalised as an intangible NCA

Question 8

What is W4?

Answer 8

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

Question 9

What is W5?

Answer 9

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

Question 10

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

Answer 10

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

Question 11

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

Answer 11

NCI = Subsidiary net assets (W2) x NCI%

Question 12

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

Answer 12

deduct P%

Question 13

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

Answer 13

deduct in full (Proportional = Parent)

Question 14

What is negative goodwill?

Answer 14

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

Question 15

When is negative goodwill likely to occur?

Answer 15

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

Question 16

How is negative goodwill treated?

Answer 16

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

Question 17

What is Non-controlling interest?

Answer 17

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

Question 18

What is the measurement of cash a acquisition?

Answer 18

The cash paid with no other adjustment needed

Question 19

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

Answer 19

Dr Cost of investment (W3)
Cr Cash

Question 20

What is the measurement of deferred cash?

Answer 20

Present value

Question 21

What is the double entry for deferred cash?

Answer 21

Dr Cost of investment (W3)
Cr Liability

Question 22

What is the measurement of shares at acquisition?

Answer 22

valued at market value at the date of acquisition

Question 23

What is the double entry for shares at acquisition?

Answer 23

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

Question 24

What is the measurement of Deferred shares?

Answer 24

market value of the shares on the date of acquisition.

Question 25

What is the double entry for deferred shares?

Answer 25

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

Question 26

What is the fair value of Contingent consideration?

Answer 26

Fair value, exam will provide the figure

Question 27

How are professional fees measured?

Answer 27

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

Question 28

When calculating goodwill how is purchase consideration measured?

Answer 28

at fair value

Question 29

What is the double entry for contingent consideration?

Answer 29

Dr Cost of investment (W3) Cr Liability/Equity

Question 30

What is the calculation for present value with deferred tax?

Answer 30

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

Question 31

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

Answer 31

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

Question 32

When would an adjustment be needed on consolidation?

Answer 32

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

Question 33

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

Answer 33

Adjustments are made on W2 and on the SFP.

Question 34

Typical fair value adjustments include what?

Answer 34

- PPE - Inventory - Intangible assets not recognised by the sub - Contingent liabilities

Question 35

Adjustments to PPE will need to reflect what?

Answer 35

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

Question 36

Adjustments of inventory will reflect what?

Answer 36

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

Question 37

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

Answer 37

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

Question 38

How will contingent liabilities be adjusted?

Answer 38

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

Question 39

How are intra group transactions recorded?

Answer 39

they are eliminated

Question 40

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?

Answer 40

Dr Bank (payment) Cr Receivables (payment)

Question 41

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?

Answer 41

Dr Inventory (payment) Cr Payables (payment)

Question 42

What happens to the receivables and reconciled balances?

Answer 42

they are cancelled

Question 43

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

Answer 43

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

Question 44

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

Answer 44

creates an unrealised profit which reduces as the asset is depreciated

Question 45

What adjustment occurs when an unrealised profit is made?

Answer 45

a PUP adjustment is necessary

Question 46

What does a PUP adjustment do?

Answer 46

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

Question 47

How is the calculated PUP split?

Answer 47

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

Question 48

what does the original profit do?

Answer 48

reduces seller's retained earnings

Question 49

what does the excess depreciation do?

Answer 49

increases buyer's retained earnings

Question 50

what is the net PUP?

Answer 50

reduces carrying amount of PPE

Question 51

What does the PUP calculation compare?

Answer 51

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

Question 52

What does the difference in the 2 depreciation values represent?

Answer 52

the excess depreciation charged by the buyer

Question 53

How do we find the net PUP?

Answer 53

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

Question 54

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

Answer 54

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