sample consolidated financial statements
DESCRIPTION
financial and reporting on consolidationTRANSCRIPT
![Page 1: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/1.jpg)
Scenario 1: Fair value of the purchase consideration
The cost of the business combination:
The fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree;
Example:
On 1 January 2010, P Bhd acquires a 100% interest in S Bhd paying RM500,000 in cash and the balance by issuing 200,000 P Bhd’ s RM1 ordinary shares with a market value RM2.50 each. The respective statements of financial position of the two companies immediately before the acquisition on that date are as follows:
P Bhd S BhdRM’000 RM’000
Property, plant and equipment Properties 1,000 400 Plant & machinery 300 200Current assets 700 300
2,000 900
Share capital of RM1 each 1,000 400Retained profits 600 200Long-term liabilities 300 200Current liabilities 100 100
2,000 900
(Alternative with revaluation reserve)
In arriving at the purchase consideration, the buyer and seller take into account the following items:
(i) That the fair value of S Bhd’s properties is RM500,000 and(ii) S Bhd owns patent and licences worth RM200,000
Solution without revaluation reserve
1st Step
Compute fair value of purchase consideration (Calculate cost of investment –COI)
RM’000 RM’000Fair value of purchase considerationCash 500Shares issued at fair value 200,000 x RM2.50 500
1,000
1
![Page 2: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/2.jpg)
Journal entry for COI
Dr CrRM’000 RM’000
Investment in subsidiary S Bhd (COI) 1,000 Cash 500 Share capital (200,000 x RM1) 200 Share premium (200,000 x RM1.50) 300
2nd Step
Determine Goodwill (only with subsidiary’s net assets)
Goodwill = COI + NCI – FV of NIARM’000 RM’000
COI (Investment in S Bhd) 1,000Properties 400Plant & machinery 200Current assets 300Long-term liabilities (200)Current liabilities (100)Fair value of Net assets 600Goodwill on consolidation 400
3rd Step
Consolidation adjustment
Dr CrRM’000 RM’000
Share Capital (100% of S Bhd) 400Retained profits 200Goodwill on consolidation 400Investment in Subsidiary (S Bhd) 1,000
2
![Page 3: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/3.jpg)
Solution with revaluation reserve (Revaluation of Subsidiary’s Assets)
1st Step Compute fair value of purchase consideration (Calculate cost of investment –COI)
RM’000 RM’000Fair value of purchase considerationCash 500Shares issued at fair value 200,000 x RM2.50 500
1,000
Journal entry for COI
Dr CrRM’000 RM’000
Investment in subsidiary S Bhd (COI) 1,000 Cash 500 Share capital (200,000 x RM1) 200 Share premium (200,000 x RM1.50) 300
2nd StepJournal entry for revaluation reserve
Dr CrRM’000 RM’000
Properties 100Patent 200 Revaluation Reserve 300
3rd Step
Determine Goodwill (only with subsidiary’s net assets)
Goodwill = COI + NCI – FV of NIARM’000 RM’000
COI (Investment in S Bhd) 1,000Properties (400 +100) 500Plant & machinery 200Patent 200Current assets 300Long-term liabilities (200)Current liabilities (100)Fair value of Net assets 900Goodwill on consolidation 100
3
![Page 4: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/4.jpg)
4th StepConsolidation adjustment
Dr CrRM’000 RM’000
Share Capital (100% of S Bhd) 400Retained profits (S Bhd) 200Revaluation reserves 300Goodwill on consolidation 100Investment in Subsidiary (S Bhd) 1,000
5th StepConsolidation worksheet
P Bhd S Bhd Consolidation Adjustments Consolidated Balances
RM’000 RM’000 RM’000 RM’000 RM’000Properties 1,000 500 1,500Plant & machinery 300 200 500Patent 200 200Investment in S Bhd
1,000 1,000 -
Goodwill on consolidation
100 100
Current asset 200 300 5002,500 1,200 2,800
Share capital 1,200 400 400 1,200Share premium 300 300Revaluation reserve
300 300 -
Retained profit 600 200 200 600Long-term liabilities
300 200 500
Current liabilities 100 100 2002,500 1,200 2,800
4
![Page 5: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/5.jpg)
6th Step
Consolidated Statement of Financial PositionAs at 1 January 2010
RM’000Properties 1,500Plant & machinery 500Goodwill on consolidation 100Patent 200Current assets 500
2,800
Share capital 1,200Share premium 300Retained profit 600Long-term liabilities 500Current liabilities 200
2,800
5
![Page 6: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/6.jpg)
Consolidated Financial Statements
Scenario 2: In this section:
The parent acquires 100% of subsidiary’s issued share capital The net assets of the subsidiary are stated at their respective fair values; and The cost of investment (COI) is equal to the fair value of the net identifiable assets (FV of NIA) of
the subsidiary acquired.
P Bhd acquired 100% of the issued share capital of S Bhd on 31 December 2010 for a total consideration of RM150,000. The statements of financial position of P Bhd and S Bhd as at that date reflects the fair value of the respective net assets and are as follows:
P Bhd S BhdRM’000 RM’000
Land 500 100Investment in S Bhd 150Accounts Receivable 100Bank 50
800 200
Share Capital 500 100Retained Profit (Pre-acquisition profit – S) 200 50Long-term Loan 50Accounts Payable 100
800 200
Required:
Prepare the consolidated statement of financial position for P Bhd and its subsidiary as at 31 December 2010.
Solution
(1) Consolidation Adjustment Journal Entry
Consolidation journal entry Dr CrRM RM
Share capital (S) 100,000Retained profit (S) 50,000 Investment in S 150,000
6
![Page 7: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/7.jpg)
(2)
Consolidation worksheet
P Bhd S Bhd Consolidation Adjustments Consolidated Balances
RM’000 RM’000 RM’000 RM’000 RM’000Land 500 100 600Investment 150 - 150 -Accounts receivable
100 - 100
Bank 50 100 150800 200 850
Share capital 500 100 100 500Retained profit 200 50 50 200Long-term loan - 50 50Accounts payable 100 - 100
800 200 850
(3)
Consolidated Statement of Financial PositionAs at 31 December 2010
RM’000Land 600Accounts receivable 100Bank 150
850
Share capital 500Retained profit 200Long-term loan 50Accounts payable 100
850
7
![Page 8: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/8.jpg)
Scenario 3: In this section:
The parent acquires 100% of subsidiary’s issued share capital The net assets of the subsidiary are stated at their respective fair values; and The cost of investment (COI) is more to the fair value of the net identifiable assets (FV of NIA) of
the subsidiary acquired.
E Bhd acquired 100% of the issued share capital of F Bhd on 31 December 2010 for a total consideration of RM200,000. The statement of financial position of E Bhd and F Bhd as at that date which reflect the fair values of the respective net assets are as follows:
E Bhd F BhdRM’000 RM’000
Land 400 150Investment in F Bhd 200Accounts receivable 100 20Bank 60 30
760 200
Share capital 500 100Reserves(Pre-acquisition reserves – F) 100 20Retained profit (Pre-acquisition profit – F) 60 50Accounts payable 100 30
760 200
Required
Prepare goodwill on consolidation.Solution:Goodwill = COI + NCI – FV of NIAGoodwill (200[investment in F] – 100[Share capital F] -20 [Reserves F]-50 [ Retained Profit]= 30,000
Prepare the consolidate statement of financial position for E Bhd and its subsidiary as at 31 December 2010.Solution(1) Consolidation Adjustment Journal Entry
Consolidation journal entry Dr CrRM’000 RM’000
Share capital (F) 100Reserves (F) 20Retained profit (F) 50
8
![Page 9: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/9.jpg)
Goodwill on consolidation 30 Investment in F 200
(2)
Consolidation worksheet
E Bhd F Bhd Consolidation Adjustments Consolidated Balances
RM’000 RM’000 RM’000 RM’000 RM’000Goodwill 30 30Land 400 150 550Investment 200 - 200 -Accounts receivable
100 20 120
Bank 60 30 90760 200 790
Share capital 500 100 500 500Reserves 100 20 20 100Retained profit 60 50 50 60Accounts payable 100 30 130
760 200 790
(3)
Consolidated Statement of Financial PositionAs at 31 December 2010
RM’000Land 550Goodwill 30Accounts receivable 120Bank 90
790
Share capital 500Reserves 100Retained profit 60Accounts payable 130
790
9
![Page 10: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/10.jpg)
Non-controlling Interest (NCI)
ExampleS Bhd acquired 80% of the share capital of T Bhd on 31 December 2008 for a total consideration of RM180,000. The statement of financial position of S Bhd and T Bhd as at that date is as follows:
S Bhd T BhdRM’000 RM’000
Land 200Investment in T Bhd 180Accounts receivable 100 10Bank 60 10
340 220
Share capital (RM 1 each) 200 100Retained profit 60 50Accounts payable 80 70
340 220
Share capital of T Bhd comprises 100,000 shares, which are deemed to have a fair value of RM 2.20 per share.
Required :Prepare the consolidated statement of financial position for S Bhd and its subsidiary as at 31 December 2008.
10
![Page 11: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/11.jpg)
Solutions:Scenario 1Non-controlling interest (NCI) is measured based on the fair value of the sharesConsolidation adjustment journal entry
Dr CrRM RM
Share capital (100,000 x80%) 80,000Retained profit (50,000 x 80%) 40,000Goodwill on consolidation 224,000 (180,000+44,000[100,000 shares x RM2.2 x20%-NCI]-150,000 [200,000 (Land)+10,000 (Acc Rec)+10,000 (Bank)-70,000 (Creditors)] x 80% = 74,000
60,000
Investment in T Bhd 180,000
Share capital (100,000 x20%) 20,000Retained profit (50,000 x 20%) 10,000Goodwill on consolidation (180,000+44,000[100,000 shares x RM2.2 x20%-NCI]-150,000 [200,000 (Land)+10,000 (Acc Rec)+10,000 (Bank)-70,000 (Creditors)] x 20% = 74,000 [74,000-60,000]
14,000
NCI (100,000 x RM2.20 X 20%) 44,000
Consolidated Statement of Financial PositionAs at 31 December 2008
RM’000Land 200Goodwill (60,000 + 14,000) 74Accounts receivable (100,000 + 10,000) 110Bank (60,000 + 10,000) 70
454
Share capital (RM 1 each) –only parent portion 200Retained profit -only parent portion 60Non-controlling interest 44Accounts payable (80,000 + 70,000) 150
454
11
![Page 12: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/12.jpg)
Scenario 2Non-controlling interest (NCI) is measured based on the fair value of net identifiable assetsConsolidation adjustment journal entry
Dr CrRM RM
Share capital (100,000 x80%) 80,000Retained profit (50,000 x 80%) 40,000Goodwill on consolidation 210,000 (180,000+30,000[Net assets x 20% NCI ]-150,000 [200,000 (Land)+10,000 (Acc Rec)+10,000 (Bank)-70,000 (Creditors)]
60,000
Investment in T Bhd 180,000
Share capital (100,000 x20%) 20,000Retained profit (50,000 x 20%) 10,000 NCI (Net assets x 20%) 200+10+10-70 =150 X20% 30,000
Consolidated Statement of Financial PositionAs at 31 December 2008
RM’000Land 200Goodwill 60Accounts receivable (100,000 + 10,000) 110Bank (60,000 + 10,000) 70
440
Share capital (RM 1 each) –only parent portion 200Retained profit -only parent portion 60Non-controlling interest 30Accounts payable (80,000 + 70,000) 150
440
12
![Page 13: Sample Consolidated Financial Statements](https://reader035.vdocuments.site/reader035/viewer/2022081803/5695d2981a28ab9b029b0686/html5/thumbnails/13.jpg)
Note:Consolidation Process: to combine the accounts of the parent and subsidiary together in one set of accounts.
Combination of accountsStep 1: Cost of acquisitionStep 2: Journal Entry for cost of acquisitionStep 3: Assets & liabilities of the subsidiary acquired must be stated at fair values – overvalued or
undervalued charge to revaluation reserve.Step 4: Journal entries for acquisition expenses. Step 5: Goodwill on consolidation: COI + NCI – FV of NIA
NCI at % of net assets (b) NCI at fair value (a)
Step 6: Consolidation Adjustment Journal EntriesStep7: Consolidation Financial Statement
13