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Advanced Financial Accounting

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Advance Financial Accounting (FIN-611)
VU
LESSON # 40
GROUP ACCOUNTS
Example - [ Case xi ] Fair Value Adjustments
Balance Sheet as on 31st December 2008
P
S
Rs.
Rs.
Fixed Assets
1,000
550
Investment in S.
750
Current Assets
400
350
2,150
900
Share Capital
1,200
400
Reserves
700
300
Current Liabilities
250
200
2,150
900
The Parent Co. (P) acquired 80% shares of the Subsidary Co. (S) on 1st January 2008
when it's reserves were worth Rs.200 and the fair value of Net Assets of S were
Rs.300 more than the book value.
Prepare the Consolidated Balance Sheet as at
Required: 31/12/2008.
Solution - [ Case xi ]
Workings
W-1
Determine the % of holding by dividing the number of equity
shares acquired with the total number of shares of the
H%
80%
subsidiary company
%age representing the minority interest is very simple to
calculate, just subtract H% from 100
MI%
20%
W-2
Analysis of Equity of S Co
Pre-acquisition
Post-acquisition
Share Capital
400
Nil
Reserves
200
100
600
Fair Value adjustment
300
900
100
209
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Advance Financial Accounting (FIN-611)
VU
W-3
Calculation of goodwill
Rupees
Cost of investment
750
900 x
80%
Pre acquisition equity of S Co. to the extent of H%
-720
Goodwill
30
W-4
Group Reserves
700
All reserves of P Co
100 x
Post acquisition reserves of S Co to the extent of H%
80%
80
780
W-5
Minority Interest
Owners' equity of Subsidiary Company
700
Fair Value
adjustment
300
1,000
x 20%
200
Alternative working
Analysis of Equity of S Co
Pre-acquisition
Post-acquisition
Nil
Share Capital
400
Reserves
200
100
600
Fair Value adjustment
300
900
100
H%
80%
80
720
MI%
20%
180
20
Consolidated Balance Sheet
As at 31 December 2008
Rs.
Fixed Assets
(1,000+550=1,550+300)
1,850
Goodwill
30
Current Assets
750
2,630
210
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Advance Financial Accounting (FIN-611)
VU
Share Capital
1,200
Reserves
780
1,980
Minority Interest
200
2,180
Current Liabilities
450
2,630
Example - [ Case xii ] Fair Value Adjustments (with depreciation
adjustment)
Balance Sheet as on 31st December 2008
P
S
Rs.
Rs.
Fixed Assets
1,000
550
Investment in S.
750
Current Assets
400
350
2,150
900
Share Capital
1,200
400
Reserves
700
300
Current Liabilities
250
200
2,150
900
The Parent Co. (P) acquired 80% shares of the Subsidary Co. (S) on 1st January 2008
when it's reserves were worth Rs.200 and the fair value of Net Assets of S were
Rs.300 more than the book value. The revaluation of assets of S were subject to
depreciation of Rs.45. Goodwill has been impaired by Rs. 6.
Prepare the Consolidated Balance Sheet as at
Required: 31/12/2008.
Solution - [ Case xii]
Workings
W-1
Determine the % of holding by dividing the number of equity
shares acquired with the total number of shares of the
H%
80%
subsidiary company
%age representing the minority interest is very simple to
MI%
20%
calculate, just subtract H% from 100
W-2
Analysis of Equity of S Co
Pre-acquisition
Post-acquisition
Share Capital
400
Nil
Reserves
200
100
600
Fair Value adjustment
300
211
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Advance Financial Accounting (FIN-611)
VU
900
100
W-3
Calculation of goodwill
Rupees
Cost of investment
750
900 x
Pre acquisition equity of S Co. to the extent of H%
80%
-720
Goodwill
30
Impairment loss
6
24
W-4
Group Reserves
All reserves of P Co
700
100 x
Post acquisition reserves of S Co to the extent of H%
80%
80
780
Impairment loss of goodwill
-6
Depreciation against fair value adjustment to the extent
of H%
{45 x 80%}
-36
738
W-5
Minority Interest
Owners' equity of Subsidiary Company
700
Fair Value
adjustment
300
1,000
x 20%
200
Depreciation against fair value adjustment to the extent of
MI%
{45 x 20%}
-9
191
Note:
All revaluation reserves against the fair value adjustmet would be treated as pre-acquisition
equity. Whereas, the depreciation charge on the fair value adjustment would be treated as
postacquisition
Alternative working
Analysis of Equity of S Co
Pre-acquisition
Post-acquisition
Share Capital
400
Nil
Reserves
200
100
212
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Advance Financial Accounting (FIN-611)
VU
600
Fair value
adjustment/depreciatio
300
-45
900
55
H%
80%
720
44
Minority Interest
MI%
20%
180
11 191
Consolidated Balance Sheet
As at 31 December 2008
Rs.
(1,000+550=1,550+300-
Fixed Assets
45)
1,805
Goodwill
24
Current Assets
750
2,579
Share Capital
1,200
Reserves
738
1,938
Minority Interest
191
2,129
Current Liabilities
450
2,579
213
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