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Kindly clear the confusion with respect tot he above topic with an example as follows:-
H hold 60% of S Processed the control on 1/1/2015 starting of the financial year.
Profit for the year H- 60,000 S- 20,000
In deriving the above profit a finance income and cost are included to the extend of 5000 for H & S respectively (For a loan taken by S from before the acquisition).
As per my understanding the calculation of the figures which should be taken to Group retained earnings & NCI are as follows:-
NCI – (20000+5000)*.40= 10000
Retained earning (80000-10000)= 70000Kindly confirm whether my understanding is correct or not . Because in the text which I followed along with open tuitions (BPP) they have not added back the 5000 for finding the NCI portion of profit
Two things …
1) if you’re (wrongly) going to add back the $5,000 into the S retained earnings for the purposes of determining the S retained earnings to be used to calculate the nci (NCI – (20000+5000)*.40= 10000), why are you not also deducting that same $5,000 from the parent’s retained earnings?
At least be consistent even if it’s consistently wrong!
2) the cancellation of intra-group transactions is a consolidation adjustment and is NOT used to change any underlying affected figures. Just think about the cancellation of intra-group trading (say it’s a sale of $20,000 from subsidiary to parent) where we reduce combined revenue and combined cost of sales by $20,000, the value of the intra-group trade.
In that situation we don’t reduce the subsidiary’s revenue figure (and therefore also the subsidiary profit figure) by $20,000
It’s a consolidation adjustment and comes into effect only when carrying out the cross addition (H + S – intra-group)
Is that better?
Unfortunately No… Sir ..
For the Second comment :
If the seller is the S for the goods transfered to H, then we would have considered (DEDUCTION) the unrealized profit to derive the profit figure for S and then proportionately divided between NCI and Group Retained earning.
Why the same logic is not applied for the interest expenses of S which is to be paid to H..
For the First Comment:-
It is considered while calculating the Group retained earning as follows :
H ‘s profit = 55000(60000-5000)
S’s profit = 25000 (20000+5000)So total 80000
Kindly comment .
Not valid to raise pups in this conversation!
The pup adjustment is an adjustment that has to be made to bring group inventory down to an aggregate figure that represents the lower of cost and net realisable value TO THE GROUP
The interest consolidation adjustment is not affecting any figure on the statement of financial position
It’s a cosmetic adjustment necessary if we are to show a situation other than parent receiving income from subsidiary paying interest to parent receiving interest from subsidiary paying inte …..
If we are to account for them as a single undertaking, we cannot show income being received from (effectively) ourselves
So we need to eliminate the interest received by the parent against that same amount of interest paid by the subsidiary to the parent and leave just the interest that is paid to the outside world
But that’s just cosmetic – it’s a presentation exercise
This layout confused me!
‘NCI – (20000+5000)*.40= 10000
Retained earning (80000-10000)= 70000’Can you arrive at group retained earnings of $72,000 from here? Because that’s what I believe it should be
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