Consolidation

Question 1

When goodwill is impaired and NCI is valued at the proportionate share, how are the accumulated impairment losses adjusted? (SOFP)

Answer 1

Deduct total accumulated impairment loss from goodwill in “Goodwill Working”
Deduct P’s share from Parent’s RE in “Group RE Working”
Memorandum Entry:
Dr. Group RE (P’s share)
Dr. NCI (NCI’s share)
Cr. Goodwill (Total)

Question 2

With NCI valued at fair value, where is the accumulated impairment loss deducted? (SOFP)

Answer 2

Deduct total impairment loss from goodwill in “Goodwill Working”
Deduct S’s RE (subsidiary’s RE) in “Group RE Working”

Question 3

How do you adjust inter‑company balances for cash in transit? (SOFP)

Answer 3

Dr. Cash (add to cash)
Cr. Receivables (reduce receivables)

Question 4

How is an inter‑company “goods in transit” imbalance adjusted? (SOFP)

Answer 4

Dr. Inventory (add to inventory)
Cr. Payables (add to payables)
Then, once balances agree, eliminate by:
Dr. Payable
Cr. Receivable

Question 5

For a P-to-S inter‑company sale, how is URP adjusted? (SOFP)

Answer 5

Deduct URP from Inventory in the Group SOFP
Deduct URP from P’s RE in “Group RE Working”

Question 6

For an S-to-P sale, what’s the treatment for URP? (SOFP)

Answer 6

Deduct URP from Inventory in the Group SOFP
Deduct URP from S’s RE in “Group RE Working”
(Note: Adjust further if buyer’s NRV write‐down exceeds URP)

Question 7

How is a FV increase on an asset (still held in S’s books) adjusted? (SOFP)

Answer 7

Add FV adjustment to S’s net assets in “Goodwill Working”
Add adjustment to the relevant asset’s NBV in Group SOFP

Question 8

How is a FV increase on an asset already sold/settled by S adjusted? (SOFP)

Answer 8

Add FV adjustment to S’s net assets in “Goodwill Working”
Deduct the same amount from S’s RE in “Group RE Working”

Question 9

For an increase in a liability’s FV that still exists, what’s the treatment?

Answer 9

Deduct FV adjustment from S’s net assets in “Goodwill Working”
Add FV adjustment to the liability’s NBV in Group SOFP

Question 10

For an FV increase on a liability that’s been settled, how is it adjusted?

Answer 10

Deduct FV adjustment from S’s net assets in “Goodwill Working”
Add FV adjustment to S’s RE in “Group RE Working”

Question 11

How is extra accumulated depreciation (from FV adjustments) treated?

Answer 11

Deduct extra depreciation from the relevant PPE in the Group BS
Deduct extra depreciation from S’s RE in “Group RE Working”
Memorandum Entry:
Dr. Group RE; Dr. NCI
Cr. PPE

Question 12

How is profit on an inter‑company sale of a non‑current asset adjusted?

Answer 12

Deduct profit from the carrying amount of the relevant asset in Group SOFP
Deduct profit from the seller’s RE in “Group RE Working”

Question 13

For a P-to-S sale, how is excess accumulated depreciation adjusted?

Answer 13

Add excess depreciation to the relevant asset in Group SOFP
Add excess depreciation to P’s RE in “Group RE Working”

Question 14

For an S-to-P sale, what’s the treatment for excess depreciation?

Answer 14

Add excess depreciation to the relevant asset in Group SOFP
Add excess depreciation to S’s RE in “Group RE Working”

Question 15

How is the combined URP on inter‑company sale of non‑current asset adjusted?

Answer 15

Deduct URP from the relevant asset in Group SOFP
Deduct URP from the seller’s RE in “Group RE Working”
(Entries are analogous for both P→S and S→P sales, with NCI adjustment when required)

Question 16

How do you adjust for an intangible asset recognized at acquisition (even if not allowed by IAS 38 in S’s books)?

Answer 16

Add the acquisition‑date fair value to Intangible Assets in Group SOFP
Add the same amount to S’s net assets in “Goodwill Working”
Memorandum Entry:
Dr. Intangible Assets
Cr. Goodwill; Cr. NCI
For accumulated amortization:
Deduct from Intangible Assets in SOFP and from S’s RE in “Group RE Working”
Memorandum Entry:
Dr. Group RE; Dr. NCI
Cr. Intangible Assets

Question 17

Case 1: If the contingent liability still exists and S hasn’t recognized it, what is the treatment?
Case 2 & 3: If S later recognizes the liability at an amount different from (or equal to) the acquisition‑date fair value?

Answer 17

For Case 1:
Deduct its fair‑value (at acquisition) from S’s net assets in “Goodwill Working”
Add the fair‑value amount to current liabilities in Group SOFP
For Case 2 & 3:
First, record the acquisition‑date fair‑value adjustment (as above)
Then adjust the difference by:
• Adding the lower of the two amounts to S’s RE in “Group RE Working” (if S’s liability is lower)
• Or, if settled/at acquisition fair‑value, add to S’s RE in “Group RE Working”

Question 18

For a loan note (or debenture) issued as purchase consideration (if unrecorded), what is the adjustment?

Answer 18

Include the cost (no. of notes × issue price) in P’s investment in “Goodwill Working”
Show the same amount as a Non‑current Liability in Group SOFP

Question 19

For a share exchange (if unrecorded), how is the consideration adjusted?

Answer 19

Include cost (no. of P’s shares issued × market value at acquisition) in “Goodwill Working”
Add the nominal value of shares to P’s Share Capital in Group SOFP
Add any excess to P’s Share Premium

Question 20

How is deferred cash payment (if unrecorded) adjusted?

Answer 20

Include the present value (discounted at P’s cost of capital) in P’s investment in “Goodwill Working”
Show its present value as a liability in Group SOFP
Deduct the excess of the liability over the investment cost from P’s RE as finance cost in “Group RE Working”

Question 21

For contingent consideration (if unrecorded), what are the adjustments?

Answer 21

Include the fair value at acquisition in P’s investment in “Goodwill Working”
Show the fair value at the SOFP date as a liability in Group SOFP
Adjust any subsequent changes (increase/decrease) from P’s RE in “Group RE Working”

Question 22

If P transfers another asset (e.g. property) as consideration (if unrecorded), what is the treatment?

Answer 22

Include the asset’s fair value (at acquisition) in P’s investment in “Goodwill Working”
Derecognize the asset’s carrying amount from the Group SOFP
Add/deduct any gain or loss (fair value minus carrying amount) to/from P’s RE in “Group RE Working”

Question 23

How do you adjust S’s reserves when the acquisition occurs during the year?

Answer 23

Pre‑acquisition reserves = S’s year‑end reserves less (income for the year × n/12)
Post‑acquisition reserves = S’s reserves less pre‑acquisition reserves (or income for n/12)

Question 24

If S’s inventory valuation method differs from group policy, how is the adjustment made?

Answer 24

Add or deduct the change in inventory value from Inventory in the Group SOFP
Adjust the corresponding RE in “Group RE Working”

Question 25

How is a dividend paid out of pre‑acquisition profits (if P already recognized it as income) adjusted?

Answer 25

Deduct the dividend from the Investment in “Goodwill Working” Also, deduct it from P’s RE in “Group RE Working”

Question 26

How is a post‑acquisition dividend adjusted?

Answer 26

Adjust based on P’s share (e.g. if S declares Rs. 100 dividend and P owns 80%, then P’s share is 80% of post‑acquisition dividend) Deduct P’s share from “Other Income” (or appropriate RE account)

Question 27

How are inter‑company finance lease balances eliminated?

Answer 27

Eliminate the “Lease Liability” and “Lease Receivable” The difference is closed against the RE of the entity with the higher balance

Question 28

What is the treatment for inter‑company operating leases?

Answer 28

Eliminate the “ROU Asset” and “Lease Liability” Adjust any difference in the lessee’s RE

Question 29

If an inter‑company sale of investment property occurs and the buyer uses the fair‑value model, what is done?

Answer 29

No URP adjustment is required

Question 30

How is an unrealized loss (URL) on inter‑company sales treated?

Answer 30

Calculate similarly to URP but with inverse signs If the loss indicates impairment, no URL adjustment is made

Question 31

How are provisional amounts handled in the first year of acquisition?

Answer 31

Consolidate using the provisional figures Adjust retrospectively if the figures are revised in the following year

Question 32

How are acquisition‑related costs capitalized in P’s books adjusted on consolidation?

Answer 32

Add these costs to “Finance Cost” or “Admin Expenses” as appropriate

Question 33

How is URP on a P-to-S sale reflected in SOCI?

Answer 33

URP is added to COS

Question 34

For an S-to-P sale, how is closing stock URP treated in SOCI?

Answer 34

Add to COS Deduct from S's PAT in "NCI working"

Question 35

How is extra depreciation for the year (from FV adjustments) shown in SOCI?

Answer 35

Add extra depreciation to “Cost of Sales” or “Admin Expenses” Deduct the same from S’s PAT in “NCI Working”

Question 36

How is inter‑company profit on sale of a non‑current asset adjusted in the year of disposal? (SOCI)

Answer 36

For P→S sale: Deduct profit from “Other Income” For S→P sale: Deduct profit from “Other Income” and from S’s PAT in “NCI Working”

Question 37

How is excess depreciation on the sale of a depreciable asset adjusted in SOCI?

Answer 37

For P→S sale: Deduct excess depreciation from “Cost of Sales” or “Admin Expenses” For S→P sale: Add excess depreciation to S’s PAT in “NCI Working Deduct from COS or Admin Expenses”

Question 38

How is P’s share in interest or dividend (after proper accrual) adjusted?

Answer 38

Deduct P’s share from “Other Income” (or from Finance Cost if applicable)

Question 39

How is negative goodwill treated on consolidation?

Answer 39

Recognize as income in the year of acquisition Add negative goodwill to P’s RE in “Group RE Working”

Question 40

In SOCI, how is the amortization of an intangible asset (recognized at acquisition) adjusted?

Answer 40

Add the amortization expense to “Admin Expenses” Deduct the same from S’s PAT in “NCI Working”

Question 41

How are subsequent changes in S’s contingent liability reflected in SOCI?

Answer 41

If S recognizes a liability at an amount different from acquisition‑date fair value, adjust by: • Deducting any reversal of expense from “Admin Expenses” • Adding the reversal to S’s PAT in “NCI Working”

Question 42

How is the finance cost on deferred consideration and fair‑value change on contingent consideration adjusted in SOCI?

Answer 42

For deferred consideration: Add the finance cost on the change (year-end PV minus beginning PV or discount rate × beginning PV) to Group SOCI Finance Cost For contingent consideration: Recognize the fair‑value change in “Admin Expenses”

Question 43

How is a non‑cash asset transfer adjusted in the first year on SOCI?

Answer 43

Recognize the profit or loss on the transfer in Group SOCI If the asset is depreciable, reverse any depreciation charged post‑acquisition

Question 44

How are S’s income and expenses time‑apportioned when acquisition occurs mid‑year?

Answer 44

Adjust all post‑acquisition items on a “months since acquisition” basis (n/12) Treat exceptional, period‑specific items separately

Question 45

How is an impairment loss on an investment in an associate adjusted?

Answer 45

Deduct the accumulated impairment loss from P’s RE in “Group RE Working” Deduct the same from the “Investment in A” working Memorandum Entry: Dr. Group RE Cr. Investment in A

Question 46

What elimination is needed for inter‑company balances/incomes between P and an associate?

Answer 46

No elimination is required (since no consolidation of associate’s income/expenses is done)

Question 47

How is URP on a P-to-A sale adjusted?

Answer 47

Deduct P’s share of URP from the “Investment in A” working Also, deduct it from P’s RE in “Group RE Working”

Question 48

For an A-to-P sale, what is the treatment of URP?

Answer 48

Deduct P’s share of URP from Inventory in the Group SOFP Deduct it from P’s RE in “Group RE Working”

Question 49

How is extra depreciation on a fair‑value adjustment for an associate’s depreciable asset treated?

Answer 49

Deduct extra depreciation from A’s RE in “Group RE Working” Memorandum Entry: Dr. Group RE Cr. Investment in A

Question 50

How is the URP on the sale of a non‑current asset between P and A adjusted?

Answer 50

For P→A sale: Deduct P’s share of URP from the “Investment in A” working and from P’s RE For A→P sale: Deduct P’s share of URP from the relevant asset in Group SOFP and from P’s RE

Question 51

How is negative goodwill on an associate investment adjusted?

Answer 51

Add negative goodwill to P’s RE in “Group RE Working” Add the same amount to the “Investment in A” working Memorandum Entry: Dr. Investment in A Cr. Group RE

Question 52

How is P’s share in an associate’s dividend (after proper recording) treated?

Answer 52

Deduct P’s share from “Other Income” (since the associate’s profit is separately shown)

Question 53

How is an associate’s PAT adjusted when acquisition occurs mid‑year?

Answer 53

Time‑apportion the associate’s PAT in “Share of Profit from Associate Working” on an n/12 basis

Question 54

How is an additional impairment loss for the year on an investment in an associate adjusted in SOCI?

Answer 54

Deduct the impairment loss from the share of profit from the associate in “Share of Profit from Associate Working”