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consolidated financial
statements
Velocity August 2010
We are replacing the cost of the investment in the holding entitys accounts with the fair value of the assets and
liabilities of the subsidiary.
Goodwill is likely to arise on acquisition. Shares purchased at the market price may not reflect the fair value of the
assets and liabilities of the subsidiary. Any difference between the amount paid and the value of the assets is
goodwill.
There must be no double counting. All items that relate to transfers within the group must be eliminated on
consolidation.
Inter-entity trading. Sales and purchases figures need to be adjusted on the income statement to remove double
counting of the sales. Any goods in closing inventory at the year end will include unrealised profit in the inventory
value, this must be removed.
Current accounts should be reconciled, making adjustments for any items in transit and then cancelled out on
consolidation.
Intra/inter-group dividends received are cancelled on consolidation against dividends paid.
Calculate group holdings and establish the status of each entity in the question (subsidiary, associate or
investment), W1
Establish fair value of assets acquired and calculate net assets of the subsidiary, W2
Calculate goodwill arising on acquisition, W3
Adjust for any intra-group activities, W4
Calculate balance carried forward on consolidated retained earnings, W5
6.
7.
Y
$000
$000
1,210
700
Investment in Y at cost
960
Non-current assets
2,170
700
Current assets
Sundry
1,780
80
Total assets
620
1,860
620
4,030
1,320
2,000
600
Retained earnings
400
300
2,400
900
Current liabilities
Trade payables
1,630
360
60
1,630
4,030
420
1,320
$000
$000
Revenue
910
390
Cost of sales
(461)
(171)
449
219
50
Expenses
(110)
(43)
389
176
(30)
(22)
359
154
Taxation
(43)
(12)
316
142
Finance cost
Additional information:
(i) Y paid an interim dividend of $50,000 on 31 December 2009
(ii) Y sent a cheque for 20,000 to X on 30 March 2010
(iii) X occasionally trades with Y. In November 2009 X sold Y goods for
$90,000. X uses a mark up of 50% on cost. On 31 March 2010 Y had not
paid for the goods and they were all still in Ys closing inventory.
Required
Prepare a consolidated, summarised statement of comprehensive
income for the year ended 31 March 2010 and a consolidated statement
of financial position for the X group of entities as at 31 March 2010.
Solution
All figures are in $000
Cost of sales (461+171-90 [w4ii] +30 [w4ii] +24 [w2]) 596 614
Expenses (110+43) (153)
461
Finance cost (30+22) (52)
409
Taxation (43+12) (55)
Profit for the year 354
X group - consolidated statement of financial position as at 31
March 2010
$000
Non-current assets
Goodwill [W3] 114
Property, plant and equipment
(1210+700+126 [w2] -24 [w2]) 2,012
2,126
Current assets
Sundry assets
(1,780+620-30 [w4ii] +20 [w4i]) 2,390
4,516
Equity and reserves
Ordinary shares 2,000
Retained earnings [W5] 526
2,526
Current liabilities
Trade payables
(1,630+360) 1,990
4,516
Conclusion
If you follow this approach to the preparation of consolidated financial
statements you should have no problem with the F1 questions and will
be well prepared for the consolidated financial statements on F2.