f7- cash flow statements and group accounts

F3 lectures and notes on the topics may help.

Hello Tolulope, I am new to F7 but with the little I have done in F7 at moment, I think I could help.

Group account is the consolidated account prepared only by the parent representing its interest in subsidiary (and associate if any). When an associate is involved in a group account preparation, you are expected to know the following:

(1) How much interest of the associate is held by the parent? for instance, if say, you are Papa and Atkin where Papa is a parent and Atkin is an associate, and Papa’s influence in Atkin is provided in number of shares – Papa acquired 40million shares out of 100million shares in Atkin. This means that Papa has a significance influence of 40% (40/100) in Atkin; and recall that a significance influence is used for associate interest while controlling interest is used in case of subsidiary because single entity(parent) will own over 50% in another company before it could possess a controlling interest while until it has less than 50%, it then becomes a parent-associate relationship.
(2) The holding in associate could be given on a platter of gold in percentage, usually below 50%. in this case, it is easier to use.
(3) Once the percentage is establised in either of the two ways, then the next thing is to calculate or confirm how much is the investment in associate, which could have been reported or not. If the question silent, just confirm the investment value in Statement of Financial Position against the parent by distinguishing that of subsidiary and associate. If it has not been recorded, then you may need to pass accounting entries. Debit investment in associate and credit bank provided there is no share exchange. If there is share exchange, then the credit is distributed between share capital at par value and share premium at the excess price over par value.
(4) Remember to share the profit made during the year by associate for the parent at the percentage holding; remember usually less than 50%(as may be earlier calculated or might have been given in the question). The profit would be shared in accordance to the number of months covered from date the associate was acquired. If the profit is seasonal and it is stated as such, you may need to know how of the profit falls within the period of acquisition and then apply the percentage to it to arrive at share of post-acquisition profit in associate for parent. Debit investment in associate and credit Group retained earning
(5) You also need to know if there is an unreaslised profit arising out of an inter-company sale of goods transaction between parent and associate; if any, unrealised profit needs to be netted against investment or group inventory. Debit Group retained earning and credit investment in associate, if the seller is the parent. Whereas debit Group retained earning and credit inventory, if the seller is the associate,

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
In the consolidated statement of profit or loss and other comprehensive income, the share of profit in associate for parent is credited to the Profit or Loss section of the statement. Unrealised profit is added to the cost of sales. In this case, the unsold goods would not be taken out of cost of sales and revenue reason being that, inter-company sales qualify for associate case except for the unrealised profit only. Also, remember that, you are not required to consolidate figures of the associate into the group except for those mentioned above because they are not members of same group.

In brief see the following extracts for your understanding.

INVESTMENT IN ASSOCIATE:
Amount invested in associate XX
Share of post-acquisition profit
in associate for parent XX
Gain on investment(if any from XX
fair value)
less:
Impairment on investment (XX)
(if any from fair value)
Unrealised profit (where the (XX)
seller is the parent) ———-
Total carrying value of investment XXX
in associate ————-

GROUP RETAINED EARNING:
Parent earning XX
Share of post-acquisition profit in:
Subsidiary XX
Associate XX
Unrealised profit from associate (XX)
Share of unrealised profit from subsidiary (XX)
(100% if sale by parent; otherwise lower
by NCI%)
Impairment of:
Goodwill (XX)
Investment in associate (XX)
Gain(loss) on financial asset-other equity XX or (XX)
investment ———
XXX
———-

CONSOLIDATED FINANCIAL POSITION
(If cost of investment was previously recorded)
Under Non-current assets:
Total carrying value of investment in associate XXX

(If cost of investment was NOT previously recorded and cash payment was made)
Under Non-current assets:
Total carrying value of investment in associate XXX
Under current assets:
Cash (Amount as given minus payment made for investment) XXX

(If cost of investment was NOT previously recorded and share exchange was made)
Under Non-current assets:
Total carrying value of investment in associate XXX
Under Equity:
Share capital (Amount as given plus par value of shares issued in exchange)
Share premium (Amount as given plus excess price value over the par value)

If you are not still clear in any of these points, please feel free to discuss it.

Regards,

Muyideen, F7 Student.