Consolidated Financial Statements

Question 1

What is a group and advantages of this?

Answer 1

A group is where a company owns more than 50% of the ordinary shares of another company

Ad:
Gives control of the subsidiary
Voting power to appoint all directors

Question 2

who is the non controlling interest?

Answer 2

The other shareholders in the company when a company owns 50% or more

Question 3

How retained earnings shown on the consolidated financial position?

Answer 3

Only the parents values are shown

Question 4

How are the assets of both the parent and subsidiary shown on the consolidated financial position?

Answer 4

Added together to make a total

Question 5

How is share capital treated on the consolidated financial position?

Answer 5

Only parent is shown
Investment in subsidiary on parent and Share capital on subsidiary should cancel out. If not the difference is goodwill

Question 6

How is goodwill calculated?

Answer 6

Consideration (investment) - NCI interest - Net assets acquired = goodwill

Net assets acquired = Share Capital (S) + Retained earnings at point of acquisition (S)

NCI Interest = Share capitl (S) + Retained earnings (S) x NCI of company as a percentage

Question 7

How is the new retained earnings calculated?

Answer 7

Retained Earnings (P)
+ Subsidiary post acquisition profits (Detailed in Q)
- Impairment of goodwill

Question 8

How to calculate whether there is a NCI?

Answer 8

How many shares were bought compared with the subsidiary share capital

Question 9

Where there is a fair value adjustment for an NCA in the consolidated financial position, what is the double entry for NCA?

Answer 9

D - NCA
C - Reval surplus

Question 10

How is the non-controlling interest at acquisition calculated if the revaluation surplus has increased?

Answer 10

Share Capital (S) + Retained Earnings (S) + Reval Surplus x amount owned by S. Ie 25%

Question 11

Will inter-company receivables, payables and loans be shwon on the statements?

Answer 11

No

Question 12

If the subsidiary sells products to the parent and makes a profit, how is this treated?

Answer 12

Depends on how much is left in the inventory. If half the goods are sold, and half is left in inventory then the profit made by the sub will be halved in the statements.

PnL is reduced on sub
Inventory is reduced on sub

Question 13

Whats the first step when preparing the consolidated statements?

Answer 13

Identify who is parent and subsidiary
Percentage of control
Date of Acquisition
Date of statements

Question 14

Whats the second step when preparing the consolidated statements?

Answer 14

Calculate the net assets for the subsidiary at both the acquisition date and date of statements.

Share Capital +
Share Premium +
Reval surplus +
Retained Earnings +
Unrealised Profits

Question 15

Whats the third step when preparing the consolidated statements?

Answer 15

Calculate goodwill of the sub at the date of acquisition.

Consideration +
NCI interest at acquisition +
Net assets acquired
minus any impairment of goodwill

NCI at acquisition = Share Cap + Retained Earnings + Reval x percentage of sub

Question 16

Whats the fourth step when preparing the consolidated statements?

Answer 16

Calculate the non-controlling interest

Total Equity (Share Cap + RE) + Reval surplus - unrealised profit x NCI percentage

Question 17

Whats the fifth step when preparing the consolidated statements?

Answer 17

100% of the parents retained earnings +/- the sub retained earnings since the acquisition x parents control

Question 18

If there is an inter-company transaction, in which parts of the consolidated statements does this need to be adjusted?

Answer 18

Current Assets
Current Liabilities

Taken off both

Question 19

If there is unrealised profit, where in the consolidated statements does this need to be adjusted?

Answer 19

Retained earnings
Current assets