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chapter 27.docx

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ACCT 301
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Chapter 27 Group accounts are required when a company acquires another company. The first company is called the holding or parent company and it controls the latter company, which is called the subsidiary. Group accounts basically consist of a consolidated balance sheet, which is a balance sheet that shows the net assets that the Holding Company controls and the ownership of those assets. The Group’s Capital and Reserves consist of the holding company’s capital and reserve and the group share of post-acquisition retained reserves of the subsidiary company. It also consists of what is called Minority Interest. The Preparation of the Group’s Consolidated Balance Sheet Step 1 you must first make sure at what date the acquisition took place. The reason for this is to have a clear picture in your mind concerning the events that occurred at the acquisition date and those of which occurred since. Step 2 the next step is to find out whether other parties hold a minority interest of the subsidiary’s consolidated net assets. This is done by dividing the amount of shares acquired by the subsidiary’s total share capital. The percentage of minority interest should be noted down. Step 3 when separate calculations of post acquisition profits, goodwill or minority interest are needed rather than all of them, just take a look at the column of each category to find out how to calculate it. Going through the calculations in this manner ensures that the possibility of your errors is minimal, and if they do occur you can systematically find out where they did. 80% Total of Total Equity The Purpose of Cost Accounting Cost accounting is part of management accounting, and its purpose arises due to the management’s need for specific or more detailed information as oppose to that provided by financial statements. Hence cost accounting will provide information to assist the management with planning, control and decision making as well as accumulating historical costs to establish stock valuations, profits and balance sheet items. All of this is done with the help of a Management Information System, which is simply a general term for the computer systems in an enterprise that provide information for management. Therefore the key points of cost accounting are: • The recording and analysis of actual costs • The forecast of future costs • Cost control Cost Classifications As such, it is necessary to be able to understand the basic cost classifications and behavior to manage a cost accounting system. Costs may be classified as either of the following: 1. Direct or Indirect Costs 2. Function Costs 3. Fixed or Variable Costs 4. Product Costs or Period Costs 5. Available or Unavailable 6. Controllable, Uncontrollable, or Discretionary Costs Direct or Indirect Costs A direct cost is a cost that can be traced in full to the product, service or department that is being coasted. These costs consist of direct labor, direct materials, and any other direct costs. Whereas an indirect cost is a cost that is incurred in the course of making a product, providing a service or running a department, but which cannot be traced directly and in full to the product, service or department. These costs consist of the following: a) Production overheads: indirect materials, indirect wages and indirect expenses b) Administration overheads: e.g. depreciation and office salaries c) Selling Overheads: e.g. commissions, advertising, market research, sales promotion d) Distribution Overheads: e.g. cost of packing cases, insurance charges. The two definitions mean that every product, service or department will incur a direct and indirect cost. Furthermor
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