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Advance Financial Accounting (FIN-611)
VU
LESSON # 36
GROUP ACCOUNTS
It is obvious from the name that group accounts will be demonstrating financial status
of more than one entity. Group accounts are the financial statements of different
entities operating in a group. Group of companies is established in order to obtain
benefits of synergy, better management of resources, and to avoid competitive
business environment.
Formation of a group of companies takes place when one company establishes its
control over another company. This creates a relationship of parent and subsidiary.
The company that enjoys control is named as parent company and the company that is
controlled is known as subsidiary company. In a group there will be one parent
company with its one ore more than one subsidiary companies. Therefore, Group
means a parent and all its subsidiaries.
Control:
According to IFRS 3 and IAS 27, Control is the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
Normally control is assumed to exist when the parent company acquires majority
number of ordinary share capital. But according to the above referred accounting
standards control exists when any of the following situation crops up.
When the parent company:
1. Has owned more than 50% of the voting rights of subsidiary company (Each
ordinary share capital has one voting right)
2. Has power over more than 50% of the voting rights of subsidiary company by
virtue of agreement with other share-holders of it.
3. Has power to govern the financial and operating policies of subsidiary
company by statute or under an agreement.
4. Has power to appoint or remove a majority of the directors of subsidiary
company.
5. Has power to cast the majority of votes at meetings of the board of directors of
subsidiary company.
Consolidated Financial Statements:
A single set of financial statements that combine the assets, liabilities, incomes and
expenses of a parent company and its subsidiaries. In our syllabus we shall learn how
to prepare:
1. Consolidated Balance Sheet
2. Consolidated Income Statement
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Advance Financial Accounting (FIN-611)
VU
Group Accounts
Example - [ Case i ] Simple Consolidation
Balance Sheet as on 31st December 2008
S
P
Rs
Rs
400
Fixed Assets
1,000
Investment in S.
500
Current Assets
400
200
1,900
600
Share Capital
1,200
300
Reserves
500
200
Current Liabilities
200
100
1,900
600
The Parent Co. (P) acquired 100% shares of the Subsidiary Co. (S) on 31st
December 2008.
Required:
Prepare the Consolidated Balance Sheet as on the same date.
Solution - [ Case i ]
Consolidated Balance Sheet
As at 31 December 2008
Rs
Fixed Assets
1,400
Current Assets
600
2,000
Share Capital
1,200
Reserves
500
Current Liabilities
300
2,000
The above example covers simple consolidation of balance sheet that explains
how the assets and liabilities of subsidiary company are consolidated with the
assets and liabilities of the parent company. This also explains that the cost of
investment appearing in the parent company gets cancelled with the amount of
the owner equity of the subsidiary company. This cost of investments is asset of
the parent company made up from its own sources therefore in the consolidated
balance sheet we have to replace the cost of investment in subsidiary company
with net assets of it. The only care is to be taken is to consolidate all assets and
liabilities individually and remember do not confuse why we are not
consolidating the owner equity of the subsidiary company in the parent
company's owners' equity.
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Advance Financial Accounting (FIN-611)
VU
Example - [ Case ii ] Goodwill
Balance Sheet as on 31st December 2008
P
S
Rs
Rs
Fixed Assets
1,000
400
Investment in S.
500
Current Assets
400
200
1,900
600
Share Capital
1,200
300
Reserves
500
150
Current Liabilities
200
150
1,900
600
The Parent Co. (P) acquired 100% shares of the Subsidiary Co. (S) on 31st
December 2008.
Prepare the Consolidated Balance Sheet as on the
same date.
Required:
Solution - [ Case ii ]
Working for Calculation of Good will:
Cost of investment
500
Net assets of S Co acquired
450
Good will
50
Consolidated Balance Sheet
As at 31 December 2008
Rs
Fixed Assets
1,400
Goodwill
50
Current Assets
600
2,050
Share Capital
1,200
Reserves
500
Current Liabilities
350
2,050
Good Will:
Good will is the excess of the cost of investment made in the subsidiary
company over the fair value of the net assets of the subsidiary company
acquired.
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Table of Contents:
  1. ACCOUNTING FOR INCOMPLETE RECORDS
  2. PRACTICING ACCOUNTING FOR INCOMPLETE RECORDS
  3. CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
  4. SINGLE ENTRY CALCULATION OF MISSING INFORMATION
  5. SINGLE ENTRY CALCULATION OF MARKUP AND MARGIN
  6. ACCOUNTING SYSTEM IN NON-PROFIT ORGANIZATIONS
  7. NON-PROFIT ORGANIZATIONS
  8. PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
  9. DEPARTMENTAL ACCOUNTS 1
  10. DEPARTMENTAL ACCOUNTS 2
  11. BRANCH ACCOUNTING SYSTEMS
  12. BRANCH ACCOUNTING
  13. BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
  14. STOCK AND DEBTORS SYSTEM
  15. INDEPENDENT BRANCH
  16. BRANCH ACCOUNTING 1
  17. BRANCH ACCOUNTING 2
  18. ESSENTIALS OF PARTNERSHIP
  19. Partnership Accounts Changes in partnership firm
  20. COMPANY ACCOUNTS 1
  21. COMPANY ACCOUNTS 2
  22. Problems Solving
  23. COMPANY ACCOUNTS
  24. RETURNS ON FINANCIAL SOURCES
  25. IASBíS FRAMEWORK
  26. ELEMENTS OF FINANCIAL STATEMENTS
  27. EVENTS AFTER THE BALANCE SHEET DATE
  28. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
  29. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1
  30. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2
  31. BORROWING COST
  32. EXCESS OF THE CARRYING AMOUNT OF THE QUALIFYING ASSET OVER RECOVERABLE AMOUNT
  33. EARNINGS PER SHARE
  34. Earnings per Share
  35. DILUTED EARNINGS PER SHARE
  36. GROUP ACCOUNTS
  37. Pre-acquisition Reserves
  38. GROUP ACCOUNTS: Minority Interest
  39. GROUP ACCOUNTS: Inter Company Trading (P to S)
  40. GROUP ACCOUNTS: Fair Value Adjustments
  41. GROUP ACCOUNTS: Pre-acquistion Profits, Dividends
  42. GROUP ACCOUNTS: Profit & Loss
  43. GROUP ACCOUNTS: Minority Interest, Inter Co.
  44. GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit)
  45. Comprehensive Workings in Group Accounts Consolidated Balance Sheet