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A parent company must prepare group accounts in accordance with the requirements of CA2006 Schedule 399. The following companies are exempt from the requirement to prepare consolidated accounts:

Companies subject to the small companies regime Companies included in the EEA accounts of a larger group Companies included in the non-EEA accounts of a larger group Companies with no subsidiaries that need to be included in the consolidation

Group accounts show the financial results of subsidiaries and associates, along with those of the acquiring entity, as though they were all one. Associates are not under the full control of the acquiring entity, but under its significant influence in terms of operating and financial policies. Typically, the acquiring entity will own between 25% and 50% of the share capital and voting rights of an associated company, and have significant influence over operating and financial decisions at board level. Subsidiaries are entirely under the control of the parent company, with more than 50% of its shares owned by the parent company and control over its operating and financial decisions subordinated to that parent company. The main features of group accounting are set out below: Associated Companies The consolidated balance sheet of the parent company will show the investment in the associate as a separate line item calculated as follows:
assets (capital + reserves) of associate x % A Net holding acquired B Goodwill at year end after accumulated amortisation C Investment in associate

x x x

The consolidated income statement will show the following amounts as separate line items, but only the % of the company acquired multiplied by the original amount in the acquired companys own income statement:
1

A B C

Operating profit Exceptional items Interest receivable

x x x x x

Interest D payable

Tax

This has the effect of showing the part of profit and net assets of the associated company under the control of the parent. Subsidiaries The consolidated balance sheet of the parent company will show the following assets and liabilities of both the parent company and the subsidiaries added together:

A B C D E F

Total of all assets line by line Total of all liabilities line by line Reduced by intra-group transactions line by line Share capital of the parent company Reserves of the parent company plus reserves of subsidiary earned after acquisition by the parent company less goodwill amortisation under consolidation Less minority interest in the net assets of the subsidiary

X (x) (x)/x X x/(x) x

The effect of this method is to show all the results and net assets under direct control of the parent company. The consolidated profit and loss account (income statement) will show the following results of the parent company and its subsidiaries added together:

A B C

Total of all income line by line Total of all expenses line by line Deduction of profit after tax due to minority shareholders of the subsidiaries

X (x) (x)

Calculating goodwill

Cost of acquiring subsidiary Fair value of the assets acquired:

B C D E

Share capital Reserves at acquisition Total Total X % of holding acquired Goodwill

X X X (x)

F G

Amortisation/Impairment Unamortised/Unimpaired goodwill

(x) x

Reserves (or profits/(losses) accumulated over a number of years) up to the date of acquisition are included in goodwill. Reserves accumulated after acquisition are included in accumulated reserves of minority interest as appropriate. Calculating reserves

A B C D E

Reserves of acquiring company Post acquisition reserves of subsidiary x % acquired Goodwill impaired/amortised Balance sheet reserves X

x (x) x

Goodwill amortisation for the year is shown in expenses, and accumulated amortisation is deducted from total reserves of the parent company and its subsidiaries. Calculating investment in associates

A B C

% acquired x (share capital + reserves) Unimpaired goodwill Groups share of net assets at the balance sheet date

X X X

Profit after tax x% acquired

B C

Goodwill amortisation Share of profit after tax of associate

(X) X

Goodwill amortisation or impairment during the year is deducted from expenses. Practical consolidation: the 50% example Using a spreadsheet, the individual trial balances of the parent company and the subsidiary can be used to calculate the consolidated trial balance before preparing the consolidated accounts. As the consolidated accounts present results as a single entity, all inter-company transactions of companies included in the consolidation are excluded. In this example a 50% holding is first treated as an associate using the equity method of accounting, then it is treated as a subsidiary using the full consolidation.

Parent

Subsid-iary/ Associate 50%

Associate

Subsid-iary

Intercompany

Consoli-dation Adjust-ment

Equity Method A (B) C (QX0.5) annual goodwill impair-ment subtotal (F) Subtotal

Consolidate

Turnover Expenses Operating profit Share of associate profit Investment income PBT Tax PAT Attributable to: Parent

A (B) C -

O (P)

A+O (B+P) C+Q -

(sales) Expenses (annual goodwill impairment) (annual goodwill impairment) -

Q
-

D E (F) G

R S (T) U

(annual goodwill impairment) (annual goodwill impairment)

Subtotal(E+S-D) (F+T) -

Subtotal(G+U-D) -

(H-D) + ((Qx0.5)annual goodwill impair-ment)

G-D + (Ux0.5)

(annual goodwill impairment)

Minority interest Balance Sheet Intangible assets Tangible assets

Vx0.5

W -

I (Z+A2+ B2) x0.5 + unimpaired goodwill K (L) (M)

J-(Z+A2) x0.50 I+W -

(goodwill impaired since acquisition) -

Cost of J investment in sub/assoc Debtors Creditors Capital Reserves: Pre Acquisition Post acquisition Minority interest K (L) (M) N1 -

X (Y) (Z)

K+X (L+Y) (M)

(Sales) (Exps) -

(goodwill impaired since acquisition) -

(A2) (B2) -

N1+ (0.5xB2) N1+ (0.5xB2) goodwill impaired (Z+A2+B2) x 0.5

Comments Write comment Gary - preparation in consolidated accounts The information is summarized and useful. Reply | Quote

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|112.120.18.xxx |2012-09-26 20:46:06 41

success daniel - comments |41.59.29.xxx |2012-11-21 23:50:11 morning! my comment is that please will you put examples on how to calculate all these,be cause here i can se formulas only Reply | Quote 2
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nfowler - @ Daniel |SAdministrator |2012-12-09 17:18:46 Please use the spreadsheet and follow the formulas to see examples of the calculations: http://www.uktaxandaccounts.com/index.php/Preparat ion-of-Accounts/consolidation.html Reply | Quote Powered by !JoomlaComment 3.26 2009 UKTaxAndAccounts - Home - RSS Feed - Terms And Conditions Login