Note-1 Loans, debentures and redeemable preference shares
-Cancel the credit balance in one company against the debit balance in the other before adding assets and liabilities line-by-line.
'-Cancel the receivable in one company with the payable in the other.
'-If interest remains unpaid at the year end, this will also need to be removed.
Note-2 Intra-group trading
1. Check that current accounts agree before cancelling
2. They may not agree if goods or cash are in-transit at year end. (At the year end, current accounts may not agree, owing to the existence of in-transit
Step 1 items such as cash):
'- treat the in-transit item as if it was received in the statement of financial position of the recipient
'- once in agreement, cancel the intra-group outstanding balances
Cash in transit Inventories in transit
Dr Cash in transit Dr Inventory
Journal Journal
Cr Receivables current account Cr Payables current account
Step 2 1. Make balances agree by adjusting for in-transit items in the receiving company's books
Step 3 1. Cancel intra-group balances.
Journal Dr Payables current account
Cr Receivables current account
Note-3 Unrealised intra-group profit
Cost 100% Selling price x 20/120
1 If Markup Profit 20%
Selling Price 120%
Cost 80% Selling Price*Profit%
2 Margin Profit 20%
Selling Price 100%
Item-1: Parent sells goods to a subsidiary
Reduce the parent's group RE by deducting extra (PURP) and eventually reduce the same amount from inventories in conso
DR. Seller's (Parent) retained earnings (ie, adjust in group retained earnings working-5)
Journal
CR. Inventories in consolidated statement of financial position
Item-2: Subsidiary sells goods to parent or to another subsidiary
Reduce the Subsidiary's RE in net asset calculation working by deducting extra (PURP) and eventually reduce the same amount from inventories in conso
DR. Seller's (subsidiary) retained earnings (ie, adjust in net asset working-2)
Journal
CR. Inventories in consolidated statement of financial position
Note-4 Non-current asset transfers
The adjustment in the consolidated statement of financial position should be calculated as follows:
Carrying amount of NCA at year end in the transferee's (buyer) financial statements xxxx
Less: carrying amount of NCA at year end if transfer had not been made (xxx)
Unrealised profit xxxx
The adjustment for unrealised profit should then be made as:
DR…... Selling company retained earnings
Journal
CR….... NCA carrying amount in consolidated statement of financial position
Item-1 Parent sells non-current asset to subsidiary
DR….. Seller's (P Ltd's) retained earnings (ie, adjust in retained earnings working-5)
Journal
CR….. Non-current assets in conso (reduce from PPE)
Item-2 Subsidiary sells non-current asset to parent
DR. Seller's (S Ltd) retained earnings (adjust in net assets working-2)
Journal
CR NCA carrying amount in consolidated statement of financial position ( reduce PPE)
Note-5 The goodwill calculation
Types of consideration: Basic Formula of Goodwill
1. Cash Consideration Consideration xxx
2. Deferred consideration Plus: NCI at acquisition xxx 1. Proportional methos
3. Contingent Consideration Less: Net Asset at acquisition (xxx) 2. FV method (NCI amount deya thakbe)
4. Share consideration Goodwill xxx
Less: Impairement (xxx)
Closing balance of goodwill xxx
1. if cash consideration
Cash Consideration xxx Dr Cost of investment
Journal
Plus: NCI at acquisition xxx Cr Cash
Less: Net Asset at acquisition (xxx)
Goodwill xxx
2. Deferred Cash Consideration
Should be included at its Present value (need to discounting)
Cash Consideration xxx Journal Dr Cost of investment
Deferred Consideration (PV) Liabilities* xxx Cr Liabilities*
Plus: NCI at acquisition xxx
Less: Net Asset at acquisition (xxx) Unwind each year (Charge to PnL (Group RE))
Goodwill xxx Dr Finance cost
Cr Liabilities
3. Contingent Consideration
Contingent consideration is an amount which may be payable at a future date in respect of the purchase of an investment, dependent upon certain events.
For example, an extra amount may be paid for an investment in a subsidiary if it achieves a certain level of sales growth over 5 years.
Contingent consideration should be included as part of the cost of the investment and measured at fair value at the date of acquisition. (Need to discounting)
Cash Consideration xxx
Contingent Consideration (PV) Provision* xxx
Plus: NCI at acquisition xxx
Less: Net Asset at acquisition (xxx)
Goodwill xxx
4. Share consideration
Should be included at the market value at acquisition date
Share Consideration (at MV of acquisition date) xxx Dr Cost of investment
Plus: NCI at acquisition xxx Journal Cr Share capital
Less: Net Asset at acquisition (xxx) Cr Share premium
Goodwill xxx
Note-6: Acquisition costs
Professional fees and similar incremental costs incurred directly in making the acquisition must be recognised as expenses in the period in which they are incurred.
Share issue costs, however, are debited to the share premium account.
Note-7 NCI at Fair value
if NCI is given with fairvalue 3 step need to perform.
Step-1: Use FV of given NCI to calculate NCI in working-2
Step-2: If there's any loss in value for goodwill, distribute that loss proportionally among all stakeholders to calculate NCI.
Step 3: Subtract the entire impairment loss amount when calculating goodwill.
Step 4: When figuring out group retained earnings, subtract the proportional share of impairment losses.