Example of Consolidated Statement of Financial Position
Parent Subsidiary
Non-current assets
Tangible assets $1,000 $600
Investment in Subsidiary $1,200
Net current assets $500 $600
2,700 1,200
Issued capital $100 $50
Retained earnings $2,600 $1,150
$2,700 $1,200
Additional information:
Parent bought 80% of subsidiary two years ago.
Subsidiaryâs reserves were $150 at the date of acquisition.
Goodwill has been impaired by $200 since the date of acquisition.
Non-controlling interest is valued at the proportionate share of the subsidiaryâs identifiable net assets; it is not credited with its share of goodwill.
Required:
Prepare the consolidated statement of financial position.
Example of Consolidated Statement of Financial Position
Parent Subsidiary
Non-current assets
Tangible assets $1,000 $600
Investment in Subsidiary $1,200
Net current assets $500 $600
2,700 1,200
Issued capital $100 $50
Retained earnings $2,600 $1,150
$2,700 $1,200
Additional information:
Parent bought 80% of subsidiary two years ago.
Subsidiaryâs reserves were $150 at the date of acquisition.
Goodwill has been impaired by $200 since the date of acquisition.
Non-controlling interest is valued at the proportionate share of the subsidiaryâs identifiable net assets; it is not credited with its share of goodwill.
Required:
Prepare the consolidated statement of financial position.
Related questions
Topics 1 to 3 - Consolidation: Principles, accounting requirements, intra-group transactions and non-controlling interests
Parent Ltd acquired 80% of the issued shares of Subsidiary Ltd on 1 July 2014. At the acquisition date, the equity of Subsidiary Ltd consisted of Share Capital of $200,000; Retained Earnings of $ 74,000 and General Reserve of $6,000.
Parent Ltd uses the full goodwill method. The fair value of non-controlling interest at 1 July 2014 was $63,000.
All the identifiable net assets of Subsidiary Ltd were recorded at fair value at the date of acquisition, except for the following assets:4
| Carrying amount | Fair value | |
| $ | $ | |
| Plant (cost $150,000) | 100,000 | 110,000 |
| Land | 60,000 | 76,000 |
The plant has a further 10-year life, with benefits expected to be received evenly over that period. The land was sold on 1 February 2015 for $80,000. Any valuation reserve in relation to the land is transferred to retained earnings on consolidation.
Three years after acquisition, the financial information at 30 June 2017 of the two companies appears as follows:
|
| Parent Ltd | Subsidiary Ltd |
| $ | $ | |
| Sales | 632,000 | 440,000 |
| Other revenue: | ||
| Debenture interest | 10,000 | - |
| Management and consulting fees | 10,000 | - |
| Dividends from Subsidiary Ltd | 24,000 | - |
| Total revenue | 676,000 | 440,000 |
| Cost of sales | 260,000 | 170,000 |
| Manufacturing expenses | 180,000 | 120,000 |
| Depreciation on plant | 30,000 | 30,000 |
| Administrative expenses | 30,000 | 16,000 |
| Financial expenses | 22,000 | 10,000 |
| Other expenses | 28,000 | 24,000 |
| Total expenses | 550,000 | 370,000 |
| Profit before tax | 126,000 | 70,000 |
| Income tax expense | (50,000) | (34,000) |
| Operating profit after tax | 76,000 | 36,000 |
| Retained earnings 1 July 2016 | 100,000 | 90,000 |
| 176,000 | 126,000 | |
| Transfer to general reserve | 6,000 | - |
| Interim dividend paid | 20,000 | 20,000 |
| Final dividends declared | 20,000 | 10,000 |
| 46,000 | 30,000 | |
| Retained earnings 30 June 2017 | 130,000 | 96,000 |
| General reserve | 100,000 | 20,000 |
| Other components of equity | 26,000 | 20,000 |
| Share capital | 600,000 | 200,000 |
| Debentures | 400,000 | 200,000 |
| Current tax liability | 50,000 | 34,000 |
| Dividend payable | 20,000 | 10,000 |
| Deferred tax liability | - | 14,000 |
| Other liabilities | 180,000 | 24,000 |
| 1,506,000 | 618,000 | |
| Assets | ||
| Financial assets | 100,000 | 120,000 |
| Debentures in Subsidiary Ltd | 200,000 | - |
| Shares in Subsidiary Ltd | 263,200 | - |
| Plant (cost) | 240,000 | 204,000 |
| Accumulated depreciation â plant | (130,000) | (110,000) |
| Other depreciable assets | 152,000 | 110,000 |
| Accumulated depreciation | (80,000) | (50,000) |
| Inventory | 180,000 | 170,000 |
| Deferred tax asset | 170,800 | 60,000 |
| Land | 402,000 | 114,000 |
| Dividend receivable | 8,000 | - |
| 1,506,000 | 618,000 |
Additional information:
(a) The inventory on hand of Subsidiary Ltd on 1 July 2016 included a quantity priced at $20,000 that was transferred from Parent Ltd during the prior financial year. This inventory had cost Parent Ltd $15,000. This entire inventory was sold by Subsidiary Ltd to parties external to the group during the current financial year.
(b) Subsidiary Ltd sold inventory to Parent Ltd for $120,000 during the year. This inventory had an original cost to Subsidiary Ltd of $110,000. This entire inventory was held by Parent Ltd during the year.
(c) On 1 January 2016, Subsidiary Ltd sold an item from its inventory to Parent Ltd for $40,000. Parent Ltd had treated this item as an addition to its plant. The item was put into service as soon as received by Parent Ltd and depreciation charged at 20% p.a. The cost of that item to Subsidiary Ltd was $30,000.
(d) The management and consulting fees of Parent Ltd were all paid by Subsidiary Ltd and represented charges made for administration $4,400 and technical services $5,600. The latter were recognised as manufacturing expenses by Subsidiary Ltd.
(e) All debentures issued by Subsidiary Ltd are held by Parent Ltd. The related interest has been recorded by Parent Ltd accordingly and Subsidiary Ltd recorded the interest paid in financial expenses.
(f) Other components of equity relate to movements in the fair values of the financial assets. The balance of these accounts on 1 July 2016 was $20,000 for Parent Ltd and $16,000 for Subsidiary Ltd.
(g) The tax rate is 30%.
Required:
Prepare an acquisition analysis and the consolidation journal entries necessary for preparation of the consolidated financial statements for the year ending 30 June 2017 for the group comprising Parent Ltd and Subsidiary Ltd.
Note: show all necessary workings and narrations.
| Question 1 | Max. marks allocated |
| Acquisition analysis | 5 |
| Consolidation entries - accuracy | 35 |
| Total | 40 |
Assume an investee has the following financial statement information for the three years ending December 31, 2013:
| (At December 31) | 2011 | 2012 | 2013 |
|---|---|---|---|
| Current assets | $310,500 | $416,550 | $428,205 |
| Tangible fixed assets | 844,500 | 861,450 | 992,595 |
| Intangible assets | 75,000 | 67,500 | 60,000 |
| Total assets | $1,230,000 | $1,345,500 | $1,480,800 |
| Current liabilities | $150,000 | $165,000 | $181,500 |
| Noncurrent liabilities | 330,000 | 363,000 | 399,300 |
| Common stock | 150,000 | 150,000 | 150,000 |
| Additional paid-in capital | 150,000 | 150,000 | 150,000 |
| Retained earnings | 450,000 | 517,500 | 600,000 |
| Total liabilities and equity | $1,230,000 | $1,345,500 | $1,480,800 |
| (At December 31) | 2011 | 2012 | 2013 |
|---|---|---|---|
| Revenues | $1,275,000 | $1,380,000 | $1,455,000 |
| Expenses | 1,162,500 | 1,260,000 | 1,314,000 |
| Net income | $112,500 | $120,000 | $141,000 |
| Dividends | $37,500 | $52,500 | $58,500 |
Review of pre-consolidation cost method (controlling investment in affiliate, fair value equals book value)
Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values. In addition, the acquisition resulted in no goodwill or bargain purchase gain recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the cost method to account for its investment in the investee, what is the balance in the "investment in investee" account in the investor company's preconsolidation balance sheet on December 31, 2013?
A. $900,000
B. $750,000
C. $675,000
D. $1,480,800
Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values. In addition, the acquisition resulted in no goodwill or bargain purchase gain recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the cost method to account for its investment in the investee, what is the balance in the "income from investee" account in the investor company's preconsolidation income statement for the year ended December 31, 2013?
A. $141,000
B.$82,500
C. $58,500
D. $112,500
Assume that on January 1, 2011, an investor company purchased 100% of the outstanding voting common stock of the investee. On the date of the acquisition, the investee's identifiable net assets had fair values that approximated their historical book values, except for tangible fixed assets, which had fair value that was $150,000 higher than the investee's recorded book value. The tangible fixed assets had a remaining useful life of 10 years. In addition, the acquisition resulted in goodwill in the amount of $300,000 recognized in the consolidated financial statements of the investor company. Assuming that the investor company uses the equity method to account for its investment in the investee, what is the balance in the "income from investee" account in the investor company's pre-consolidation income statement for the year ended December 31, 2013?
A. $126,000
B. $82,500
C. $67,500
D. $141,000
