CONSOLIDATED FINANCIAL STATEMENT

kelvinmuleri wrote:TYU 8
The following scenario relates to five questions.<br>Bintou Co purchased its 80% shareholding in Malak Co five years ago when Malak Co’s retained earnings were $20,000 and had a balance on its revaluation surplus of $10,000. At the date of acquisition the fair value of Malak Co’s net assets was equal to their carrying amount.Nada Co had retained earnings of $16,000 when Bintou Co acquired its 75% shareholding for cash on 1 January 20X9. At the date of acquisition the fair value of Malak Co’s net assets was equal to their<br>carrying amount, with the exception of some plant whose fair value was $10,000 greater than its carrying amount. At this date the plant had a remaining life of five years. The following are the summarised statements of financial position of the companies as at 31 December 20X9.<br> BintouCo MalakCo NadaCo<br> $ $ $<br>Non-current assets:<br>Property, plant and equipment 180,000 120,000 100,000<br>Investments:<br>Malak Co 100,000 – –<br>Nada Co 110,000 – –<br>Current assets 406,000 140,000 60,000<br> ––––––– ––––––– ––––––<br> 796,000 260,000 160,000<br> ––––––– ––––––– ––––––<br>Ordinary $1 share capital 380,000 100,000 80,000<br>Revaluation surplus – 20,000 –<br>Retained earnings 116,000 60,000 32,000<br> ––––––– ––––––– ––––––<br> 496,000 180,000 112,000<br>Current liabilities 300,000 80,000 48,000<br> ––––––– ––––––– ––––––<br> 796,000 260,000 160,000<br> ––––––– ––––––– ––––––<br>At the end of 20X9, the goodwill impairment review revealed a loss of $1,000 in relation to the business combination with Malak Co. During November 20X9, Malak Co had sold goods to Bintou Co for $12,000 at a mark-up on cost of 20%. Half of these goods were still held by Bintou Co at 31 December 20X9, and the balance payable was still outstanding.Bintou Co measures goodwill and the non-controlling interest using the proportionate method for Malak Co, and the fair value method for Nada Co. The fair value of the non-controlling interest of Nada Co at the date of acquisition was $24,000.<br>5. What is the value of group retained earnings to be included on the consolidated statement of financial position at 31<br>December 20X9?

Hi,

The goodwill/NCI is measured using the full goodwill/fair value method for Nada. When we value it as such the goodwill calculated is that belonging to the parent but also that belonging to the NCI. If there is an impairment to the goodwill then the impairment needs to be shared between both the parent and the NCI, hence why they have taken the parent’s share in the group retained earnings figure.

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kelvinmuleri wrote:at the point of acquisition of a subsidiary, the parent offers to acquire half of the loan interest together with shares , my question is how will we treat the interest received and finance cost in coming up with a consolidated income statement

Hi,

You would treat it as any normal loan in the individual accounts of the parent and the subsidiary. These amounts would then be eliminated on consolidation.

Thanks

Hi,

This adjustment of 10,000 is a consolidation adjustment in the group accounts to reflect the fair value of the net assets at acquisition and the reporting date as per IFRS 3. It is not a revaluation of PPE in the individual accounts as per IAS 16. In the individual accounts the PPE is not adjusted, it is only the group accounts that are adjusted and the gain is part of the post-acquisition retained earnings.

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