Group Accounts Consolidation journal entries
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When preparing consolidated financial statements, it can be easier to use a consolidation worksheet. The journal entries referenced in the following pages can be used with consolidation worksheets to produce consolidated financial statements. These journal entries do not influence the individual financial statements of the group companies.
Consolidated accounts are prepared for a group of ent ities under the control of a parent. ‘A parent is parent is an entity that has one or more subsidiaries.’ ‘A subsidiary is subsidiary is an entity! that is controlled by another entity (parent)’ An investor (parent) controls an investee (subsidiary) if all the following apply: Power over over the investee Exposure or Exposure or rights, rights, to variable returns from its involvement wi th the investee The ability to ability to use its power to affect the amount of the investors returns • • •
Control is presumed to exist when t he parent owns, directly or indirectly, more than 50% of the voting power of an entity.
7 1428
Consolidation involves: Adding assets and liab ilities line by line
•
•
•
Eliminating inter-company balances Eliminating parent’s
Control may exist when the parent parent owns 50% or less of the voting power. This may occur if it would be dif ficult to co-ordinate the activities of the other shareholders to exert control over the subsidiary (e.g. small, individual shareholders). Consideration must be given to the existence and effect of any potential voting rights that may be currently exercisable or convertible. Consolidated accounts must be prepared using uniform a ccounting policies for like transactions and other events in similar circumstances. If the accounting policies of a subsidiary differ, an adjustment is required before preparing consolidated acc ounts.
investment in subsidiaries
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Partial goodwill method "
Identifiable net assets (fair value) NCI (Identifiable net assets x %) Net assets acquired Purchase consideration Bargain Purchase/(Goodwill)
XX (XX) XX (XX) XX/(XX)
Full goodwill method "
Identifiable net assets (fair value) NCI (valuation) Net assets acquired Purchase consideration Bargain Purchase/(Goodwill)
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XX (XX) XX (XX) XX/(XX)
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Recognise investment in controlled entities Date Description
DR !
Investment in subsidiary XX Share capital Bank Deferred consideration (discount to PV if applicable) Other consideration
CR !
XX XX XX XX
Acquisition costs cannot be capitalised and must be expensed in the period they are incurred. However, the cost to issue debt or equity for a business combination is treated as a reduction of equity. Expense costs of acquisition Date Description
DR !
Acquisition costs Cash
XX XX
Record the cost to issue shares Date Description
DR !
Share issue costs (Equity) Cash
CR !
XX XX
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At the d ate of acquisition, the subsidiary’s net assets are included in the consolidated SOFP at fair value.
Revaluation adjustment at the date of acquisition Date Description Net assets Goodwill (Group %) NCI (NCI %)
CR !
DR !
CR !
XX XX XX
If a depreciable asset is restated to FV, additional depreciation should be charged for each year up to the date of consolidation. Date Description DR ! CR ! Retained earnings (Group %) NCI (NCI %) Asset
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XX XX XX
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An acquirer has a maximum period of 12 months to finalise the acquisition accounting. If you become aware of an asset after the date of acquisition, but wi thin 12 months of the acquisition, you can recognise it on consolidation. Recognise asset at the date of ac quisition Date Description
DR !
Asset
CR !
XX Goodwill (Group %) NCI (NCI %)
XX XX
Depreciate asset Date Description
DR !
Amortisation/Depreciation expense Accumulated Amortisation/Depreciation
CR !
XX XX
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Date
Description
DR !
Share capital Reserves/Surplus Retained earnings (if any) Goodwill (CR if bargain purchase) Accumulated losses b/f (if any) Investment in subsidiary
XX XX XX XX
CR !
XX XX
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If goodwill is impaired, the following journal entries are required Recognise impairment of goodwill in inve stment in subsidiary Date Description Impairment Loss Goodwill
DR !
CR !
XX XX
Subsequent goodwill reporting/adjustment Recognise impairment of goodwill in inve stment in subsidiary Date Description Retained Earnings b/f Impairment Loss* Goodwill – accumulated impairment loss *if there is a current impairment loss as well
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DR !
CR !
XX XX XX
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7 58?38!0>=;8 >--82 FV > Carrying amount Revalue asset of subsidiary to fair va lue at the date of acquisition Date Description Asset
DR !
CR !
XX Goodwill (Group %) NCI (NCI %)
XX XX
Adjust depreciation charge to reflect the expense to the group based on the revised carrying amount Date Description DR ! CR ! Depreciation expense (Adjustment x months/12) PPE (Accumulated depreciation) Adjustment for prior years’ depreciation up to consolidation Date Description Retained Earnings b/f (Group %) NCI (NCI %) PPE (Accumulated depreciation)
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XX XX
DR !
CR !
XX XX XX
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Where there are intra-group sales and there remains unsold inv entory, the selling entity will recognise a profit. If t hese assets have not been sold to a third party at reporting date, there is an unrealised profit. Unrealised profits must be el iminated in full on consolidation.
7 1428 1. Eliminate intra-group sales and purchases Date Description Unrealised profit (‘URP’) on intra-group sales of inventory must be eliminated on consolidation.
DR !
Sales (intra-group sales) Purchases/Cost of goods sold
CR !
XX XX
2. Eliminate the increase in inventory value arising from sale. 2(a). When the parent sells inventory to t he subsidiary (parent makes profit) Date Description DR ! CR ! Cost of goods sold (URP) (SOCI) Inventory (URP) (SOFP)
XX XX
2(b). When the subsidiary sells inventory to the parent (subsidiary makes profit) Date Description DR ! CR ! Cost of goods sold (URP Group %) (SOCI) NCI (URP NCI %) (SOCI) Inventory (URP) (SOFP)
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XX XX XX
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7 1428 Unrealised profit (‘URP’) and inflated depreciation on intra-group sales of assets must be eliminated on consolidation.
Where there are intra-group sales of non-current assets, the selling enti ty will recognise a profit. If these assets have not been sold to a third party at reporting date, there is an unrealised profit. Unrealised profits must be eliminated in full on consolidation. 1. Eliminate intra-group transfer of asset Date Description
DR !
Sale of asset (intra-group) Purchase of asset
CR !
XX XX
2. Eliminate the increase in a sset value arising from sale. 2(a). When the parent sells an asset to the subsidiary (parent makes profit) Date Description DR ! Retained earnings (URP) Property, plant and equipment (URP)
CR !
XX XX
2(b). When the subsidiary sells inventory to the parent (subsidiary makes profit) Date Description DR ! CR ! Retained earnings (URP Group %) NCI (URP NCI %) Property, plant and equipment (URP)
XX XX XX
Depreciation adjustment If a non-current asset is sold to a group entity at a profit, the depreciation charge in the buying entity’s accounts will be inflated. This additional depreciation must be eliminated on consolidation. Original depreciation charge = Original cost / Original useful life Revised depreciation charge = Consideration / Revised useful life Original depreciation charge - Revised depreciation charge = Adjustment
When the parent holds the asset Date Description
DR !
Property, plant and equipment (accumulated depreciation) XX Depreciation charge (current year) Retained earnings (previous years) When the subsidiary holds the asset Date Description
DR !
Property, plant and equipment (accumulated depreciation) XX Retained earnings (Group % of extra depreciation) NCI (NCI % of extra depreciation)
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CR !
XX XX
CR !
XX XX
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Ordinary dividends are not accrued until approved by the sh areholders at the AGM. Proposed ordinary dividends are not recognised as a liability in the financial statements of the parent, subsidiary or group. Preference dividends are recognised as a liabil ity in the financial statements: Payable by parent – no further adjus tments required Payable by subsidiary: Eliminate amount payable to parent in consolidated FS. Dividend payable to NCI is liability in consolidated SOFP. • •
• •
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If dividends have already been paid (by the parent or subsidiary) no adjustments are required to the SOFP. Adjustme nts are st ill required
Eliminate pre-acquisition dividend paid by subsidiary Date Description
for the SOCI.
Subsequent periods Eliminate pre-acquisition dividend paid by subsidiary Date Description
Investment in subsidiary Dividends paid
Investment in subsidiary Retained earnings b/f
DR !
CR !
XX XX
DR !
CR !
XX XX
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Eliminate dividend paid by subsidiary Date Description Dividend revenue (parent interest) (SOCI) Dividend paid (SOCIE)
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DR !
CR !
XX XX
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7 ;4>1 8;0E01>2041 Eliminate intercompany loan recognised in the individual financial statements Date Description DR ! CR ! Loans payable Loans receivable
XX XX
7 012838-2 8;0E01>2041 Eliminate intercompany interest in relation to th e loan during the year Date Description DR ! Interest revenue Interest expense
CR !
XX XX
7 E>1>98E812 ,88Eliminate of management fees Date Description Management fee income Management fee expense
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DR !
CR !
XX XX
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Parent Others
Group
70% 30% Subsidiary
Parent equity interest Non-controlling interest (‘NCI’) Total
Subsidiary 70% 30% 100%
Share Capital Share capital of subsidiary Revaluation Reserve ( pre-acquisition) Pre-acquisition revaluation reserve of the subsidiary Revaluation Reserve (post-acquisition) Any FV adjustments Other Reserves (pre-acquisition) Pre-acquisition other reserves of the subsidiary Retained Earnings b/f (pre-acquisition) Pre-acquisition retained earnings of the subsidiary Retained Earnings b/f (post-acquisition) Less: Unrealised profit in prior year re sale of inventory Less: URP in prior year re sale of non current assets Adjusted earnings b/f Current year dividends Dividends declared by subsidiary during year Current year operating profits Add: Adj. re depreciation of transferred non-current asset Adjusted current year operating profits Total Non-controlling Interest
(XX) (XX) XX
XX XX
Recognise the non-controlling interests’ entitlement in subsidiary Date Description Share Capital (A) Revaluation Reserve (B + C) Other Reserves (D) Retained earnings b/f (E + F) NCI share of current year profit (SOCI) (H) Dividends paid (G) NCI (SOFP) (I)
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DR !
Total ( !)
NCI (X%)(Ref.)
XX
Total x X% (A)
XX
Total x X% (B)
XX
Total x X% (C)
XX
Total x X% (D)
XX
Total x X% (E)
XX
Total x X% (F)
(XX)
Total x X% (G)
XX
Total x X% (H) Sum (I)
CR !
XX XX XX XX XX XX XX
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