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consolidated financial statement

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › consolidated financial statement

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • February 16, 2017 at 5:13 am #372631
    adarsh1997
    Participant
    • Topics: 646
    • Replies: 282
    • ☆☆☆☆

    P owned all the ordinary shares and 40% of the the stock of S since incorporation.
    Extracts of both companies:

    P-equity
    ord shares of $1, fully paid=$100,000
    RE =$95,000

    NCL
    10% loan stock =$75,000

    S-Equity
    ord shares of $1, fully paid =$80,000
    RE =$28,000

    NCL
    12% loan stock $50,000

    -In the answer, when consolidating, the NCL is 75,000+(50,000 x 60%)
    -I am unable to understand the logic behind this calculation.P has acquired 40% of the loan stock, but at the end of the day, it is still a loan which needs to be repay; therefore a liability to the group which eventually should be added. Could you please explain?

    Thanks.

    February 16, 2017 at 7:48 am #372645
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    In P’s records there is an asset representing the $20,000 cost of 40% of the S loan stock

    In S’s records there is a non-current liability representing $50,000 loan stock of which $20,000 is held by P

    On consolidation, cancel $20,000 asset in P against $20,000 of the $50,000 liability in S and leave $30,000 liability owed to the outside world

    You’re worried that it’s a loan and will need to be repaid, no matter who owns the loan stock

    “but at the end of the day, it is still a loan which needs to be repay”

    Ok, let’s move on in time and repay that loan

    $30,000 is paid to the outside world and the remaining $20,000 is taken out of one ‘pocket’ and put into the other ‘pocket’

    So how much of that $50,000 actually left the group?

    OK?

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  • The topic ‘consolidated financial statement’ is closed to new replies.

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