Consolidation for Disposal of Subsidiary – Full & Partial Disposal

At as 31 December 20X7, P Ltd has three 80%-owned subsidiaries, E Ltd, F Ltd and G Ltd.

The share capital of P Ltd comprises 400,000 ordinary shares. The share capital of E Ltd, F Ltd and G Ltd each comprises 100,000 ordinary shares.

P Ltd acquired its 80% interest in E Ltd for cash consideration of $80,000 in January 20X1 when E Ltd was incorporated with share capital of $100,000.

P Ltd acquired its 80% interest in F Ltd for cash consideration of $160,000 in February 20X2 when F Ltd’s net assets at fair value were represented by share capital of $100,000 and retained profit of $100,000.

P Ltd acquired its 80% interest in G Ltd for cash consideration of $240,000 in March 20X5 when G Ltd’s net assets at fair value were represented by share capital of $100,000 and retained profit of $150,000. FRS 27 (2005) was adopted from 1 January 20X5. However, there has been no goodwill impairment.

The group adopts FRS 110 and FRS 103 on 1 January 20X8.

On 1 January 20X8, P Ltd sold (i) all its shareholding in E Ltd for cash consideration of $430,000, (ii) 70,000 of F Ltd’s shares for cash consideration of $333,000, and (iii) 10,000 of G Ltd’ shares for cash consideration of $50,000. The fair value of the remaining 10,000 shares in F Ltd (which is to be accounted for as AFS investments under FRS 39) was $45,000 and $50,000 on 1 January 20X8 and 31 December 20X8 respectively.

FS of the companies for the yr 2008 are as follows:

B/S 31 Dec 2008 P Ltd E Ltd F Ltd G Ltd
$’000 $’000 $’000 $’000
Investment in AFS, at FV
10K shares in F Ltd 50
Investment in Subsidiary, at cost
70K shares in G Ltd 210
Other Assets 940 800 700 600
TOTAL 1200 800 700 600

Share Capital 400 100 100 100
FV Reserve 30
Retained Profits 550 420 280 290
Liabilities 220 280 320 210
TOTAL 1200 800 700 600

SOCI FYE 31 Dec 2008

P Ltd E Ltd F Ltd G Ltd
$’000 $’000 $’000 $’000
Sale 400 500 300 200
Less: Cost of Sale (100) (200) (100) (100)
Gross Profit 300 300 200 100
Profit on Sale of Shares of E 350
Profit on Sale of Shares of F 193
Profit on Sale of Shares of G 20
Less: Operating Expenses (363) (120) (80) (40)
Profit before Tax 500 180 120 60
Less: Taxation (50) (60) (40) (20)
Profit after Tax 450 120 80 40
Other Comprehensive Income
FV Gain 30 – –
Total Comprehensive Income 480 120 80 40

SOCE (Partial) FYE 31 Dec 2008
P Ltd E Ltd F Ltd G Ltd
$’000 $’000 $’000 $’000
Beginning Retained Profits 100 300 200 250
Profit for the year 450 120 80 40
Ending Retained Profits 550 420 280 290

Beginning FV Reserve (AFS) – – – –
FV Gain for the year (AFS) 30 – – –
Ending FV Reserve (AFS) 30 – – –

QN:
Is the CBS, CSCI and CSCE figures at the right column correct?
Is there any way to upload the Excel file? There are too many workings to add here.

ANS:

With disposal of 80% & 70% shares in 2008, P Ltd has lost control over E & F Ltd
E & F Ltd has become a mere investment and its accounts will thus not be consolidated.

SOCI FYE 31 Dec 2008
P Ltd E Ltd F Ltd G Ltd DR CR CSCI
$’000 $’000 $’000 $’000 $’000 $’000 $’000
Sale 400 500 300 200 600
Less: Cost of Sale (100) (200) (100) (100) (200)
Gross Profit 300 300 200 100 400
Profit on Sale of Shares of E 350 (240) 110
Profit on Sale of Shares of F 193 (70) 138
15
Profit on Sale of Shares of G 20 (20) 0
Less: Operating Expenses (363) (120) (80) (40) (403)
Profit before Tax 500 180 120 60 245
Less: Taxation (50) (60) (40) (20) (70)
Profit after Tax 450 120 80 40 175
Other Comprehensive Income
FV Gain 30 – – (30) 5 5
Total Comprehensive Income 480 120 80 40 180

Profit Attributable to:
Owners of the Parent 163
Non-Controlling Interest 12
175
Total Comprehensive Income Attributable to:
Owners of the Parent 180
Non-Controlling Interest –
180

SOCE (Partial) FYE 31 Dec 2008
P Ltd E Ltd F Ltd G Ltd DR CR CSCI
$’000 $’000 $’000 $’000 $’000 $’000 $’000
RETAINED PROFITS
Beginning Balance 100 300 200 250 40 488
70
10
10
(105)
(87)
Profit for the year 450 120 80 40 163
Ending Balance 550 420 280 290 (192) 330 651

FAIR VALUE RESERVE
Beginning Balance – – – –
Gain for the year 30 – – – 5 5
(30)
Ending Balance 30 – – – (30) 5 5

CAPITAL RESERVE
Beginning Balance – – – –
Gain for the year – – – – 15 15
Ending Balance 0 – – – 0 15 15

B/S 31 Dec 2008 P Ltd E Ltd F Ltd G Ltd DR CR CBS
$’000 $’000 $’000 $’000 $’000 $’000 $’000
Investment in AFS, at FV
10K shares in F Ltd 50 10 50
15
5
(30)
Investment in Subsidiary, at cost
70K shares in G Ltd 210 (210) 0
Goodwill on Consolidation 35 40
5
Other Assets 940 800 700 600 1540
1200 800 700 600 70 (240) 1,630

Share Capital 400 100 100 100 (70) 400
(30)
FV Reserve 30 5
Capital Reserve 15
Retained Profits 550 420 280 290 651
NCI 117 129
12
Liabilities 220 280 320 210 430
1200 800 700 600 (100) 129 1,630

QN:

Provide independent proof of the following items in the 20X8 consolidated balance sheet.
(i) Retained profit;
(ii) Fair value reserve; and
(iii) Capital reserve.

ANS:

Can provide some advice on this? My independent proof do not seem to tally with the CFS figures?

SUBSIDIARY
G Ltd
$’000
Beginning RP of current year 2008 means end 2007 250 SOCE
–
Pre-Acquisition. Retained Profit 150 QN
Post Acquisition RP from previous years 100
X
Parent OLD % of Subsidiary 80%
Group’s share of Subsidiary G’s Post Acquisition RP 80 #~#

Subsidiary G’s After-Tax Profit 40
X
Parent NEW % of Subsidiary 70%
Group’s interest in Subsidiary G’s After-Tax Profit 28 @

Group’s share of Subsidiary G’s Post Acquisition RP 80 #
+
Group’s interest in Subsidiary G’s After-Tax Profit 28 @
Group’s Interest in Subsidiary G’s Post Acquisition RP 108 ^~^

Parent P’s Ending Retained Profit 550
–
Profit on Sale of Shares of E 350
Profit on Sale of Shares of F 193
Profit on Sale of Shares of G 20
Parent C’s After-Tax BUSINESS Profit (13)
+
Group’s Interest in Subsidiary G’s Post Acquisition RP 108 ^~^
Group’s Retained Profit as at 31 Dec 2008 95

I am not sure how to do the Proof for FV Reserve.

$’000
CR Sale Proceeds of share disposal 50
DR Change in NCI due to share disposal (35)
CR Capital Reserve 15