Consolidation Notes and Equity Accounting Review
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Consolidation Notes | ||
Step 2 BCVR Entries | ||
Not sold | If Sold – Current Year | If Sold – Prior Year |
DR Asset CR BCVR CR DTL | Inventory: DR COGS CR ITE CR Transf. From BCVR ** | No entry here – BCVR Transferred to RE (Step 3) |
If Accumulated Deprec: DR Accum. Deprec CR Asset CR DTL CR BCVR If Depreciable Asset - following yrs: DR Deprec Exp (current yr) DR RE (Prior years) CR Acc. Deprec DR DTL CR ITE (current yr) CR RE (prior yrs) | NCA: DR CA of Asset CR ITE CR Transfer from BCVR ** | No entry here – BCVR Transferred to RE (Step 3) |
Step 3 Pre-Acquisition Entries (adjust for Transfers to/from RE or other reserves from Pre-Acq. Equity) | ||
DR All Equity Accts (% Interest) DR BCVR DR Goodwill (Partial) or CR Gain on Bargain Purchase CR Shares in Sub | DR All Equity Accts DR BCVR DR Goodwill (Partial) or CR Gain on Bargain Purchase CR Shares in Sub (% Interest) | DR RE (add BCVR from above) DR Equity Accts DR BCVR DR Goodwill (Partial) or CR Gain on Bargain Purchase CR Shares in Sub (% Interest) |
DR Transf. From BCVR ** CR BCVR (% Interest) | ||
Step 4 NCI (Step 1 – Acq. Date) | ||
DR All Equity Accts (% Interest) DR BCVR CR NCI | ||
Step 5 NCI (Step 2 – Acq. Date – Beg. Current Period) | ||
DR RE CR NCI (increase) | ||
Change in RE – may need to Be adjusted from Step 2 BCVR entries if adj to RE (% Interest) | ||
DR ARS/GR CR NCI (increase) | ||
Change in ARS/GR (increase) (% Interest) | ||
DR NCI (decrease) CR BCVR | ||
Change in BCVR due to sale Of Asset prior year (% Interest) | ||
Step 6 NCI (Step 3 – Current period) | ||
DR NCI Share of Profit CR NCI (increase) | ||
Share of Current year Profit – may need to be adjusted from Step 2 BCVR entries if adj to profit (% Interest) | ||
DR ARS CR NCI (increase) | ||
Change in ARS (increase) (% Interest) | ||
DR Transf. From BCVR ** CR BCVR (% Interest) (See Step 2 above – sale of asset current year) | ||
DR NCI (decrease) CR Interim div paid (% Interest) | ||
DR NCI (decrease) CR Final Div. Declared (% Interest) | ||
Step 7 Dividends - Parent | ||
DR Div. Revenue CR Interim Div Pd (% Interest) | ||
DR Div Payable CR Final Div Declared (% Interest) | ||
DR Div Revenue CR Div Receivable (% Interest) | ||
Step 8 – Intragroup Transactions | ||
Sale Inv. – Current Year (Profit in closing inventory) | Sale Inv. – Prior Year | |
DR Sales CR COS CR Inventory | DR RE (after tax profit) DR ITE CR COS (profit) | |
DR DTA CR ITE | If Upstream Sale (sub to parent) | |
If Upstream Sale (sub to parent) DR NCI CR NCI Share of profit (after tax profit X Interest) | DR Share of profit CR RE (after tax profit x Interest) | |
Sale NCA – Current Year | Sale NCA – Prior Year | |
DR Proceeds on sale CR CA of asset CR Asset | DR RE (after tax profit) DR DTA CR Asset | |
DR DTA CR ITE | ||
If Upstream Sale (sub to parent) DR NCI CR NCI Share of profit (after tax profit X Interest) | If Upstream Sale (sub to parent) DR NCI CR RE (after tax profit x Interest) | |
Adjust Depreciation DR Acc. Deprec CR Deprec. Expense DR ITE CR DTA | Adjust Depreciation DR Acc. Deprec. CR RE CR Deprec. Expense DR ITE DR RE CR DTA | |
Adjust NCI – Realising profit DR Share of profit CR NCI (Deprec after tax x Interest) | Adjust NCI – Realising profit DR Share of Profit DR RE CR NCI (Deprec after tax x Interest) | |
B. INVESTMENTS IN ASSOCIATES (EQUITY ACCOUNTING) REVIEW QUESTION - SOLUTION
BONGO LTD – TOM-TOM LTD
30%
Bongo Ltd Tom-Tom Ltd
At 1 July 2010:
Net fair value of identifiable assets
and liabilities of Tom-Tom Ltd = $100,000 + $50,000 + $20 000 (equity)
+ $5,000 (1 – 30%) (machinery)
+ $2,000 (1 – 30%) (inventory)
= $174,900
Net fair value acquired = 30% x $174,900
= $52,470
Cost of investment = $60,000
Goodwill = $7,530
Depreciation of machinery p.A. = 1/5 X ($5,000 [1 – 30%])
= $700
Inventory = $2,000 [1 – 30%]
= $1,400
1 July 2010 – 30 June 2012
Increase in retained earnings ($40,000 - $20,000) $20,000
Adjustments:
Increase in general reserve ($10,000 – Nil) 10,000
Pre-acquisition adjustments:
Depreciation of machinery – 2 Years x $700 (1,400)
Inventory (1,400)
$27,200
Investor’s Share – 30% $8,160
Increase in asset revaluation reserve ($60,000 - $50,000) $10,000
Investor’s Share – 30% $3,000
1 July 2012 – 30 June 2013
Profit for the period $32,000
Adjustments:
Unrealised profit on sale of Inventory (a)
(1/4 x $2,000) (1 – 30%) (350)
Unrealised profit on sale of non-current Asset (b):
Profit on sale $10,000 (1 - 30%) (7,000)
less profit realised based on depreciation
(1/2 yr. X 12% x $7,000) 420 (6,580)
Pre-acquisition adjustment:
Depreciation of machinery (700)
24,370
Investor’s Share – 30% $7,311
The entries in the consolidation worksheet at 30 June 2013 Are:
Investment in Tom-Tom Ltd Dr 8,160
Retained earnings (1/7/09) Cr 8,160
Investment in Tom-Tom Ltd Dr 3,000
Asset revaluation reserve Cr 3,000
Investment in Tom-Tom Ltd Dr 7,311
Share of profit or loss of associates Cr 7,311
OR
Investment in Tom-Tom Ltd Dr 18,471
Retained earnings (1/7/09) Cr 8,160
Asset revaluation reserve Cr 3,000
Share of profit or loss of Associates Cr 7,311
Dividend revenue Dr 3,000
Investment in Tom-Tom Ltd Cr 3,000
(30% x [$5,000 interim + $5,000 final])
Item | Translation To functional currency | Translation To presentation currency | Differences |
Assets and Liabilities: (a) Monetary Items (b) Non-Monetary Items | (a) Exchange rate current at reporting Date (b) Exchange rate at date of acquisition or Revaluation (historic rate) | (a) & (b) Exchange rate current at reporting date | Exchange rates for non-monetary items |
Pre-acquisition Shareholders' Equity | Exchange rate at date of acquisition or investment | Exchange rate at date of acquisition or investment | Nil |
Post-acquisition Movements in Shareholders' Equity (except retained profits) | Exchange rate current at the date of recognition in The accounts | Exchange rate current at the date of recognition in The accounts | Nil |
Post-acquisition Dividends | Exchange rate current at date paid or declared | Exchange rate current at date paid or declared | Nil |
Item | Translation To functional currency | Translation To presentation currency | Differences |
Income and Expense Items (except allocations of Non-monetary items such as depreciation) | Exchange rate current at the dates items recognised in The accounts (or average exchange Rate for year) | Exchange rate current at the dates items recognised in The accounts (or average exchange Rate for year) | Nil |
Allocations of Non-Monetary items (depreciation, amortisation) | Exchange rate used to translate related non-monetary Items (historic rate) | As above | Exchange rates for allocations of non-monetary items |
Exchange Differences (gains Or losses) | Foreign exchange gain/loss (Income Statement) | Foreign currency translation reserve (Balance Sheet) | Either recognised in the Income Statement or in equity In the Balance Sheet |