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Group Accounts: The Consolidated Statement of Financial Position (1a) – ACCA (FA) lectures

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  1. Hello quick question. Since we paid a premium of $8000 for the shares of S because of the pre aquisition retained earnings, why are we not entitled to said premium of $8000 post acquisition.
    In my head we paid an extra $8000 to get an extra $8000 as retained earnings? Obviously this is incorrect from my side but could you please tell me what I am missing out on.
    Thanks in advance.

  4. Hi John,

    A quick question, why did we subtract the pre-acquisition retained earnings of S to calculate consolidated retained earnings. Didn’t P pay extra (8000) to make those earnings theirs?

    Thank you.

    • We are showing the statement as if it was just one big company owned by the shareholders of P.
      S’s share capital is replaced by the net assets of S (and you will remember from earlier lectures that the share capital of any company is equal to the net assets of the company).

  12. Hi Mr. John. Great effort as always.

    I have following confusion which i am trying to clarify:

    1) In example 1 – While consolidating, we did not added up share capital of subsidiary company (10,000) to the parent company. Parent company’s share capital stood at (25,000) before and after the consolidation. Does it mean that the (10,000) share capital of “S” was already included in the share capital of “P”? If this is the reason then i got the logic else please explain otherwise. And if it was already included in 25,000 share capital of P, then why we were showing investment of 10,000 separately in un-consolidated account of P?

    2) In example 2 – We have eliminated the previously carrying retained earning of “S” (8,000) while consolidating the retained earnings of both the companies. It may be possible that “S” may have declared the dividends of all 8,000 after it was acquired by “P”. Or if not, then may be it can declare in coming next months. My question is, how long this 8,000 will keep on eliminated for how many years? Can there be any event in future which let that 8,000 not to continue further?

  15. hey,
    sir i am still unclear about why we are not showing the investment amount and share capital of subsidiary in the consolidated sofp, because the justification you provided that we are bringing the net assets of subsidiary is confusing, because then why are we bringing the retained earnings of subsidiary??
    Thanks

  16. Sir, you say that we ignore the share capital of the subsidiary company in the Consoliated SoFP; my understanding is that the “share capital” of the subsidiary company is represented by its assets and liabilities in the Consolidated SoFP, is this correct?

  17. Dear John,
    About the consolidated accounts, we do a fair value adjustment when the fair value is higher than the carrying value, what about when the fair value is lower than the carrying amount? do we do an adjustment (negative one) as well?
    Thanks.

  18. Thank You so much for the Fantastic teachings. I appreciate it.
    I have a quick question. I work in a subsidiary company that is involved in selling contents to the Parent at a Mark-up of 5% and VAT of 5% and the Parents company Pay for this service. First question is, while computing the Net VAT to be remitted to the tax authority, is it proper to deduct the VAT that happened as inter-company sales or just concentrate on the VAT output tax charged to other companies

    Second During consolidation, how do we treat the VAT element in the PUP and Profit made from sales.

    Is it even right to charge VAT in the first place for inter-company transactions.

    Thanks

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