2012最新ACCA考试-F3管理会计讲义Session 18
2012最新ACCA考试-F3管理会计讲义Session 18
Session 18 Consolidated financial statement Main Contents: 1. Introduction to group accounting 2. Consolidated statement of financial position 3. Consolidated statement of comprehensive income 4. Associates 18.1 Introduction to group accounting What is a group? Everything entity is a separate legal entity. Each one is required to prepare its own financial statements that will provide useful information for making economic decisions. However, sometimes a number of entities （known as subsidiaries ） will operate under the control of another entity （known as the parent）. Together they form a group, and the group operates as a single economic entity. Definitions: ● Parent – is an entity that has one or more subsidiaries. ● Subsidiary – is an entity that is controlled by another entity. （ known as the parent.） ● Control - is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. ● Consolidated- From the legal point, the results of a group must be presented as a whole （ consolidated） Consolidation will be defined more formally later in the chapter. Basically, it means Presenting the results of a group of companies as if they were a single company. ● Acquisition method: All groups are now consolidated using the acquisition method. This “freezes” the pre-acquisition reserves of subsidiaries. This means that the group’s equity will be less than the sum of the individual companies’ equity. As a result, groups appear to be more highly geared than their constituent companies. Accounting issues IAS 27 states that control can usually be assumed to exist when the parent owns more than half （ i.e. over 50%） of the voting power of an entity or （a）The parent has power over more than 50% of voting rights by virtue of agreement with other investors. （b）The parent has power to govern the financial and operating policies of the entity by Statute or under an agreement. （c ）The parent has the power to appoint or remove a majority of members of the board of directors. （d）The parent has power to cast a majority of votes at meetings of the board of directors. The single-entity concept Business combinations consolidate the results and net assets of group members so as to display the group’s affairs as those of a single economic entity. As already mentioned, this reflected, this conflict 18.2 Consolidated statement of financial position a. Eliminate cost of investment b. Goodwill and fair value c. Pre-acquisition and Post-acquisition reserves d. Non-controlling interest /Minority interest e. Intra-group balance f. Unrealized profit a. Eliminate cost of investment Acquisition of subsidiaries and businesses are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree. Acquisition-related costs are recognized in profit of loss as incurred. It is necessary to eliminate the cost of the acquisition in H’s books against the shareholder’s equity in S’s books. The elimination will avoid double counting when all the assets are liabilities of H and S are added together. Holding Co. Subsidiary Co Group Assets Non-current assets X X X Cost of investment X （other than in subsidiary） Goodwill X Current assets X X X Equity and Liabilities Share capital X X Reserve X X X Current liability X X X Non-current liability X X X X X X Example: Holding company has just bought 100% of the shares of Subsidiary Co. Below are the statement of financial positions of both companies just before consolidation. Holding Co Subsidiary Co $000 $000 Asset Assets Investment in subsidiary 50 Receivables 20 Receivables 30 Cash 30 80 50 Equity and liabilities Equity and liabilities Share capital 80 Share capital 50 The consolidated statement of financial position will appear as follows: Consolidated statement of financial position Assets: $000 Receivables 50 （30+20） Cash 30 80 Equity and liabilities Share capital 80 b. Goodwill and fair value Goodwill In acquiring a subsidiary, H may be willing to pay apremium for the benefits arising from the business combination, or for the earning potential of the subsidiary. It is recognized an intangible asset at the date that the control is acquired （the acquisition date）. Goodwill is not amortized, but is reviewed for impairment at least annually. Any impairment loss is recognized immediately in profit or loss/ income statement and is not subsequently reversed. （a）Partial goodwill （old method） $ Cost of investment X Less:P's share of FV of S's Net assets at DOA （X） Goodwill on consolidation X （b）Full Goodwill calculation: $ Cost of investment X Add: Non-controlling interest at Fair Value X Less: Fair value of the subsidiary's net identifiable assets （X） Goodwill on consolidation X Goodwill is measured as the excess of the sum of theconsideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously- held equity interest （if any） in the entity over the net fair value of the identifiable net assets recognized. Example: Holding Co. has just bought 100% of the shares of Subsidiary Co. below are the statement of financial position of both companies just before consolidation. Holding Co. Subsidiary Co. $000 $000 Assets Assets Investment in subsidiary 60 Receivables 20 Receivables 30 Cash 30 90 50 Equity and liabilities Equity and liabilities Share capital 80 Share capital 50 Reserves 10 50 90 The consolidated statement of financial position will appear as follows: Solution: Goodwill on acquisition $000 Cost of invest 60 Less Fair value of net assets acquired （50） Share capital Goodwill 10 Consolidated statement of financial position Assets $000 Goodwill 10 Receivables 50 Cash 30 Total assets 90 Equity and liabilities Share capital 80 Reserves 10 Total equity and liabilities 90 Negative goodwill （Excess of share of net assets acquired over consideration） If, after reassessment, the group's interest in the net fair value of the acquiree's identifiable net assetsexceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer's previously-held equity interest （if any）, the excess is recognized immediately in profit or loss as a bargain purchase gain. Fair values IFRS 3 Business combinations require that both the consideration given and thenet assets acquired should be measured at fair values as at the date of the acquisition. Assets and liabilities must be recognized if they are separately identifiable and can be reliably measured. Only assets and liabilities that existed at the date of acquisition can be recognized. The fair value exercise affects both the values given to the assets and liabilities acquired and the value of goodwill. Example: Brussels acquired 100% of Madrid At acquisition, the statement of financial position of Madrid showed net assets with a book value of $6,255,000. Included in this total is freehold land with a book value of $400,000 （ market value $958,000）, a brand with a nil book value （market value ￥500,000）， plant and machinery with a book value of $1,120,000 and a market value of $890,000. The fair value of all other assets and liabilities is approximately equal to book value. The directors of Brussels intent to close down one of the divisions of Madrid and wish to provide for operating losses up to the date of closure, which are forecast as $729,000. The consideration comprised cash of $6,000,000, 1,500,000 shares with a nominal value of $1.00 and fair value of $1.50 each as well as further cash consideration of $400,000 to be paid one year after acquisition. The discount rate is 10%. Calculate the goodwill arising on consolidation. Solution: Goodwill on acquisition $000 $000 Cost of investment - Cash 6,000 - Share exchange （1.5 m x $1.5） 2,250 - Deferred consideration（$400/1.1） 364 8,614 Less Fair value of net assets acq. Book value 6,255 Adjustment: - land 558 - brand 500 - plant and machinery （230） 7,083 1,531 c. Pre-acquisition and Post-acquisition reserves Pre-acquisition reserves Pre-acquisition reserves represent the net assets of the subsidiary at the date of acquisition and therefore have to be eliminated against the cost of investment in the consolidation process. Also, pre-acquisition reserves are not earned under common control and thereforeshould be excluded from the consolidated accounts. Post acquisition reserves Post acquisition reserves represents reserves earned by the subsidiary after it became a member of the group and therefore form part of the reserves of the group and consequentlyhave to be included in the consolidated accounts. Example: Four years ago, Holding Co. has bought 100% of the shares of Subsidiary Co. for $90,000. The subsidiary’s reserve was $50,000 at the date of acquisition. Below are the statement of financial positions of both companies just before consolidation. Holding Co Subsidiary Co. $000 $000 Assets Assets Fixed assets 30 Fixed assets 20 Investment in subsidiary 90 Receivables 70 Receivables 10 Cash 30 130 120 Equity and liabilities Equity and liabilities Share capital 100 Share capital 30 Reserves 30 Reserves 90 130 120 Solution: Goodwill on acquisition $000 $000 Cost of investment 90,000 Less Fair value of net assets acq. Share capital （30） Pre-acquistion reserve （50） （80,000） 10,000 Consolidated Statement of financial position Assets $000 Goodwill 10,000 Fixed assets 50,000 Receivables 80,000 Cash 30,000 Total assets 170,000 Equity and liabilities Share capital 100,000 Reserves 70,000 Total equity and liabilities 170,000 d. Non-controlling interest / Minority interest A parent can control a subsidiarywithout owning all of its equity shares. The interest of other shareholders in the subsidiary entities are referred to as non-controlling interest. The basic aggregation is not affected where subsidiaries are no wholly owed. The net assets of the parent and 100 per cent of the net assets of the subsidiary are added together, over which the group exerts control. The non-controlling interest in the net assets of the subsidiary is shown as one figure separately from issued capital and reserves of the group. IFRS 3 allows two alternative ways of calculating non-controlling interest in the group statement of financial position. Non-controlling interests can be valued at: （a） Old method -NCI % x Fair Value of Subsidiary’s Identifiable Net assets （b） New method NCI % x Fair Value of Subsidiary’s Identifiable Net assets at DOA +NCI’s share of post-acquisition retained earnings （and other reserves） + Goodwill attributable to NCI （at DOA） NCI under New method Sinceconsolidated goodwill represents that of both the parent and the NCI; NCIshould include its part of the goodwill into NCI calculation. Example: Four years ago, Holding Co has bought 80% of the shares of Subsidiary Co. for $90,000. The Subsidiary’s reserve was $50,000 at the date of acquisition. Below are the statement of financial positions of both companies just before consolidation. The non-controlling interest is valued at its proportional share of the fair value of the subsidiary’s net assets. Holding Co Subsidiary Co. $000 $000 Assets Assets Fixed assets 30 Fixed assets 20 Investment in subsidiary 90 Receivables 70 Receivables 10 Cash 30 130 120 Equity and liabilities Equity and liabilities Share capital 100 Share capital 30 Reserves 30 Reserves 90 130 120 Solution: Goodwill on acquisition $000 $000 Cost of investment 90,000 Non-controlling interest （30+50） x 20% 16,000 Less Fair value of net assets acq. Share capital （30） Pre-acquistion reserve （50） （80,000） 26,000 Consolidated Statement of financial position Assets $000 Goodwill 26,000 Fixed assets 50,000 Receivables 80,000 Cash 30,000 Total assets 186,000 Equity and liabilities Share capital 100,000 Reserves （30+ 40 x 80%） 62,000 162,000 Non- controlling interest （ 120 x 20%） 24,000 Total equity and liabilities 186,000 Now we will look at how the answer to the question above would appear if the non-controlling interest was at Fair value. The director valued the Non-controlling interest at the date of acquisition at $20,000. The goodwill calculation will be: Solution: $000 $000 Cost of investment 90,000 Non-controlling interest fair value 20,000 Less: fair value of the subsidiary’s net identifiable asset （80） Consolidated goodwill 30 Non-controlling interest at fair value 20,000 Less: share of net assets （ 80,000 x 20%） 16,000 Non-controlling interest’s goodwill 4,000 Parent’s goodwill 26,000 Consolidated Statement of financial position Assets $000 Goodwill 30,000 Fixed assets 50,000 Receivables 80,000 Cash 30,000 Total assets 190,000 Equity and liabilities Share capital 100,000 Reserves （30+ 40 x 80%） 62,000 162,000 Non- controlling interest （ 4+ 120 x 20%） 28,000 Total equity and liabilities 190,000 e. Intra-group balances Where trading takes place between group entities then intra-group receivables and payables are likely to exist at the year-end. Intra-group balances need to be eliminated in preparing the consolidated statement of financial position, at the stage where the net assets are added together to give the consolidated figures. Original double entries If Parent sells goods to Subsidiary In P’s book In S’s book Dr. Cash Dr. I/S Cost of sales Dr. Receivables Cr. Cash Cr. I/S – Sales Cr. Payables Outstanding balance of transactions: In group account, the outstanding balance in receivables and payables should be cancelled: Dr. Payables Cr. Receivables Where there are items in transit （ usually cash or inventory） then the balances to be eliminated may not agree.The cash or inventory in transit must be recognized as an asset of the group before the elimination can take place. f. Provision for Unrealized profits （ PURP） If a company sells goods to another company in the same group, its turnover will appear to increase and a profit will be recorded. However,from the point of view of the group an external profit has not actually been realized because no sales has been made outside of the group and therefore the closing inventories are overstated by the profit element. Remember that the objective of consolidated accounts is to reflect the financial results and position of the group as a single entity. To achieve this, we need to make an adjustment. Unrealized profit in inventory If Parent sold goods to Subsidiary: If Subsidiary sold goods to Parent Dr. Group reserve Dr. Group reserve Cr. Group inventory （whole） Dr. Non-controlling interest Cr. Group inventory （whole） 18.3 Consolidated statement of comprehensive income The basic idea is to present one set of financial statements for all entities under common control.In the context of the statement of comprehensive income, this means presenting the results ofall group entities in one statement of comprehensive income. The majority of the figures are simple aggregations of the results of the parent entity and all the subsidiaries.Intra-group investment income is eliminated. This is because intra-group investment income is replaced by the underlying profits and losses of the group entities. If there is anon-controlling interest, then some of the profits earned by the subsidiary and reported in the group income statement belong to them. Profit after tax is apportioned between profit attributable to the shareholders of the parent and profit attributable to the non-controlling interest. Example: Percy has held 75% of the equity share capital of Mercy for many years. A draft summarized income statement for Percy and Mercy for the year ended 31 December 20x3 are below. Income statement at 31 December 20x3 Percy Mercy Revenue 500,000 300,000 Cost of sales 300,000 200,000 Gross profit 200,000 100,000 Administrative expenses 90,000 45,000 Profit before taxation 110,000 55,000 Income taxes 10,000 5,000 Profit for the year 100,000 50,000 During the year, Percy sold goods which cost Percy $20,000 to Mercy at a margin of 20%. At the year end, all of these goods remained in inventory. Required: Prepare the consolidated income statement for the Percy group as at 31 December 20x3. Answer Percy Group Consolidated income statement at 31 December 20x3 $ Revenue （ 500 + 300 – 25（w）） 775,000 Cost of sales （300+200 – 25（w） + 5（w）） 480,000 Gross profit （200 + 100 – 5（w）） 295,000 Administrative expenses（90 + 45） 135,000 Profit before taxation 160,000 Income taxes （10+5） （15,000） Profit for the year 145,000 Profit attributable to Owners of the parent（ balancing figure） 132,500 Non-controlling interest （25% x 50） 12,500 145,000 Non-controlling interest: S’s profit after tax X Less: unrealized profit （X） X NCI % X Only applicable if sales of goods made by subsidiary. 18.4 Associates An associate is an entity over which another entity exertssignificant influence. Associates are accounted for in the consolidated statements of a group using the equity method. ●Associates – An entity, including an unincorporated entity such as a partnership, in which an investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. ●Significant influence – IAS 28 states that if an investor holds 20% or more of the voting power of the entity or （a）representation on the board of directors of the investee （b）participate in the policy making process （c）material transactions between investor and investee （d）interchange of management personnel. （e）provision ofessential technical information ●Equity method: （IAS 28） An investment in an associate is accounted for using the equity method. Under the equity method, the investment in an associate is initially recorded at cost and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. Initial investment cost X Share of profit X （Dividends received） （X） Investment in associate X ●Statement of financial position show the investment in associated undertakings as a non-current asset investment, stated at cost. The individual company’s income statement shows dividend income received from associates under the heading “investment income”. Example 1: Swing purchased 80% of Cat’s equity on 1 January 20x8 for $120,000 when Cat’s retained earnings were $50,000. The fair value of the non-controlling interest on that date was $40,000. During the year, Swing sold goods which cost $80,000 to Cat, at an invoiced cost of $100,000. Cat had 50% of the goods still in inventories at the year end. The two companies’ draft financial statements as at 31 December 20x8 are shown below. Income Statement for the year ended 31 December 20x8 Swing Cat $000 $000 Revenue 5,000 1,000 Cost of sales 2,900 600 Gross profit 2,100 400 Other expenses 1,700 320 Net profit 400 80 Income tax 130 25 Profit for the year 270 55 Statement of financial position at 31 December 20x8 Swing Cat $000 $000 Non-current assets Investment in Cat 120 - Tangible non-current asset 1,880 200 Current assets Inventory 500 120 Trade receivables 650 40 Bank and cash 390 35 1,540 195 3,540 395 Equity and liabilities Equity Share capital 2,000 100 Retained earnings 400 200 2,400 300 Current liabilities Trade payables 910 30 Tax 230 65 1,140 95 3,540 395 Required: Prepare the draft consolidated income statement and draft consolidated statement of financial position for the Swing group at 31 December 20x8. Solution: SWING GROUP Consolidated income statement for the year ended 31 December 20x8 $000 Revenue （ 5,000 + 1,000 – 100） 5,900 Cost of sales （2,900 + 600 – 100 + 10 （w2）） 3,410 Gross profit 2,490 Other expenses （1,700 + 320） 2,020 Net profit 470 Tax （ 130 +25） 155 Profit for the year 315 Profit attributable to: Owners of the parent （bal figure） 304 Non-controlling interest （20% x 55） 11 315 Consolidated statement of financial position as at 31 December 20x8 $000 $000 Non-current assets Goodwill （w1） 10 Tangible non-current assets（1,880 + 200） 2,080 2,090 Current assets Inventory （500+ 120 -10（w2）） 610 Trade receivables （650+40） 690 Bank and cash （390+35） 425 1,725 3,815 Equity and liabilities Equity attributable to owners of the parent Share capital （Swing only） 2,000 Retained Earnings （w3） 510 2,510 Non-controlling interest （w4） 70 Total equity 2,580 Current liabilities Trade payables （910+30） 940 Tax （230 +65） 295 1,235 3,815 Total equity and liabilities Workings 1. Goodwill $000 $000 Fair value of consideration transferred 120 Plus fair value of non-controlling interest at acquisition 40 Less fair value of net assets acquired as represented by Share capital 100 Retained earning at date of acquisition 50 （150） 10 2. Provision for unrealized profit Profit on intra-group sales （100-80） 20 Unrealized profit （50% x 20） 10 50% of the inventories form the intra-group sales remain in inventories at the year end, therefore the unrealized profit is 50% of the overall profit made on the intra-group sales. The rest of the profit from the intra-group sales is now realized as the inventories have been sold outside the group. 3. Retained earnings Swing Cat $000 $000 Per question 400 200 Adjustments（unrealized profit （w2）） （10） Pre-acquisition retained earnings （50） 150 Group share of post-acquisition retained earnings Cat （80% x 150） 120 Group retained earnings 510 4. Non-controlling interest at reporting date $000 Fair value of NCI at acquisition 40 Plus NCI’s share of post-acquisition retained earnings （20% x 150） 30 NCI at reporting date 70 Example 2: Prestend is the parent company of Northon. The following are the statement of financial position for both companies as at 31 October 20x7. Prestend Northon $000 $000 $000 $000 Assets Non-current assets Property, plant and equipment 4,200 3,300 Investments: Shares in Northon at cost 3,345 Current assets Inventory 1,500 800 Receivables 1,800 750 Bank 600 350 3,900 1,900 11,445 5,200 Total assets Equity and liabilities Equity $1 ordinary shares 9,000 4,000 Retained earnings 525 200 9,525 4,200 Current liabilities Payables 1,220 200 Tax 700 800 Total equity and liabilities 11,445 5,200 |
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