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Group Accounts

Consolidation journal entries

1. INTRODUCTION
When preparing consolidated
financial statements, it can be
easier to use a consolidation
worksheet. The journal entries
referenced in the following
pages can be used with
consolidation worksheets to
produce consolidated financial
statements.
These journal entries do not
influence the individual financial
statements
of
the
group
companies.

Consolidated accounts are prepared for a group of entities under the control of a
parent.
A parent is an entity that has one or more subsidiaries.
A subsidiary is an entity that is controlled by another entity (parent)
An investor (parent) controls an investee (subsidiary) if all the following apply:
Power over the investee

Exposure or rights, to variable returns from its involvement with the investee

The ability to use its power to affect the amount of the investors returns

Control is presumed to exist when the parent owns, directly or indirectly, more than
50% of the voting power of an entity.

> NOTE
Consolidation involves:
Adding assets and liabilities

line by line
Eliminating inter-company

balances
Eliminating parents

investment in subsidiaries

Control may exist when the parent owns 50% or less of the voting power. This may
occur if it would be difficult to co-ordinate the activities of the other shareholders to
exert control over the subsidiary (e.g. small, individual shareholders). Consideration
must be given to the existence and effect of any potential voting rights that may be
currently exercisable or convertible.
Consolidated accounts must be prepared using uniform accounting policies for like
transactions and other events in similar circumstances. If the accounting policies of a
subsidiary differ, an adjustment is required before preparing consolidated accounts.

> G OODWILL/BARGAIN PURCHASE

Partial goodwill method


Identifiable net assets (fair value)
NCI (Identifiable net assets x %)
Net assets acquired
Purchase consideration
Bargain Purchase/(Goodwill)

XX
(XX)
XX
(XX)
XX/(XX)

Full goodwill method


Identifiable net assets (fair value)
NCI (valuation)
Net assets acquired
Purchase consideration
Bargain Purchase/(Goodwill)

XX
(XX)
XX
(XX)
XX/(XX)


2015 All rights reserved, E&OE (v. 1)

Consolidated FS

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2. BASIC J OURNAL ENTRIES AT ACQUISITION


Recognise investment in controlled entities
Date
Description

DR

Investment in subsidiary
XX
Share capital
Bank
Deferred consideration (discount to PV if applicable)
Other consideration

CR
XX
XX
XX
XX

Acquisition costs cannot be capitalised and must be expensed in the period they are
incurred. However, the cost to issue debt or equity for a business combination is
treated as a reduction of equity.
Expense costs of acquisition
Date
Description

DR

Acquisition costs
Cash

CR

XX
XX

Record the cost to issue shares


Date
Description

DR

Share issue costs (Equity)


Cash

CR

XX
XX

> NOTE

> FAIR VALUE ADJUSTMENT AT ACQUISITION

At the date of acquisition, the


subsidiarys net assets are
included in the consolidated
SOFP at fair value.

Revaluation adjustment at the date of acquisition


Date
Description
Net assets
Goodwill (Group %)
NCI (NCI %)

DR

CR

XX
XX
XX

If a depreciable asset is restated to FV, additional depreciation should be charged for


each year up to the date of consolidation.
Date
Description
DR
CR
Retained earnings (Group %)
NCI (NCI %)
Asset

2015 All rights reserved, E&OE

Consolidated FS

XX
XX
XX

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3. JOURNAL ENTRIES FOR SUBSEQUENT YEARS


> FINALISE ACQUISITION ACCOUNTING
An acquirer has a maximum period of 12 months to finalise the acquisition
accounting. If you become aware of an asset after the date of acquisition, but within
12 months of the acquisition, you can recognise it on consolidation.
Recognise asset at the date of acquisition
Date
Description

DR

Asset

CR

XX
Goodwill (Group %)
NCI (NCI %)

XX
XX

Depreciate asset
Date
Description

DR

Amortisation/Depreciation expense
Accumulated Amortisation/Depreciation

CR

XX
XX

> ELIMINATE INVESTMENT I N SUBSIDIARY


Date

Description

DR

Share capital
Reserves/Surplus
Retained earnings (if any)
Goodwill (CR if bargain purchase)
Accumulated losses b/f (if any)
Investment in subsidiary

XX
XX
XX
XX

CR

XX
XX

> G OODWILL
If goodwill is impaired, the following journal entries are required
Recognise impairment of goodwill in investment in subsidiary
Date
Description
Impairment Loss
Goodwill

DR

CR

XX
XX

Subsequent goodwill reporting/adjustment


Recognise impairment of goodwill in investment in subsidiary
Date
Description
Retained Earnings b/f
Impairment Loss*
Goodwill accumulated impairment loss
*if there is a current impairment loss as well

2015 All rights reserved, E&OE

Consolidated FS

DR

CR

XX
XX
XX

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4. FAIR VALUE ADJUSTMENTS


> DEPRECIABLE ASSET
FV > Carrying amount
Revalue asset of subsidiary to fair value at the date of acquisition
Date
Description
Asset

DR

CR

XX
Goodwill (Group %)
NCI (NCI %)

XX
XX

Adjust depreciation charge to reflect the expense to the group based on the revised
carrying amount
Date
Description
DR
CR
Depreciation expense (Adjustment x months/12)
PPE (Accumulated depreciation)
Adjustment for prior years depreciation up to consolidation
Date
Description
Retained Earnings b/f (Group %)
NCI (NCI %)
PPE (Accumulated depreciation)

2015 All rights reserved, E&OE

Consolidated FS

XX
XX
DR

CR

XX
XX
XX

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5. ELIMINATION OF UNREALISED PROFIT IN I NVENTORY


Where there are intra-group sales and there remains unsold inventory, the selling
entity will recognise a profit. If these assets have not been sold to a third party at
reporting date, there is an unrealised profit. Unrealised profits must be eliminated in
full on consolidation.

> NOTE
1. Eliminate intra-group sales and purchases
Date
Description
Unrealised profit (URP) on
intra-group sales of inventory
must be eliminated on
consolidation.

DR

Sales (intra-group sales)


Purchases/Cost of goods sold

CR

XX
XX

2. Eliminate the increase in inventory value arising from sale.


2(a). When the parent sells inventory to the subsidiary (parent makes profit)
Date
Description
DR
CR
Cost of goods sold (URP) (SOCI)
Inventory (URP) (SOFP)

XX

Cost of goods sold (URP Group %) (SOCI)


NCI (URP NCI %) (SOCI)
Inventory (URP) (SOFP)

XX
XX

XX

2(b). When the subsidiary sells inventory to the parent (subsidiary makes profit)
Date
Description
DR
CR

XX

2015 All rights reserved, E&OE

Consolidated FS

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6. INTRA-GROUP TRANSFER OF ASSETS


> PROFIT ON TRANSFER
> NOTE
Unrealised profit (URP) and
inflated depreciation on
intra-group sales of assets must
be eliminated on consolidation.

Where there are intra-group sales of non-current assets, the selling entity will
recognise a profit. If these assets have not been sold to a third party at reporting
date, there is an unrealised profit. Unrealised profits must be eliminated in full on
consolidation.
1. Eliminate intra-group transfer of asset
Date
Description

DR

Sale of asset (intra-group)


Purchase of asset

CR

XX
XX

2. Eliminate the increase in asset value arising from sale.


2(a). When the parent sells an asset to the subsidiary (parent makes profit)
Date
Description
DR
CR
Retained earnings (URP)
Property, plant and equipment (URP)

XX

Retained earnings (URP Group %)


NCI (URP NCI %)
Property, plant and equipment (URP)

XX
XX

XX

2(b). When the subsidiary sells inventory to the parent (subsidiary makes profit)
Date
Description
DR
CR

XX

Depreciation adjustment
If a non-current asset is sold to a group entity at a profit, the depreciation charge in
the buying entitys accounts will be inflated. This additional depreciation must be
eliminated on consolidation.
Original depreciation charge = Original cost / Original useful life
Revised depreciation charge = Consideration / Revised useful life
Original depreciation charge - Revised depreciation charge = Adjustment
When the parent holds the asset
Date
Description

DR

Property, plant and equipment (accumulated depreciation) XX


Depreciation charge (current year)
Retained earnings (previous years)

When the subsidiary holds the asset
Date
Description

DR

Property, plant and equipment (accumulated depreciation) XX


Retained earnings (Group % of extra depreciation)
NCI (NCI % of extra depreciation)

2015 All rights reserved, E&OE

Consolidated FS

CR
XX
XX

CR
XX
XX

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7. DIVIDEND E LIMINATION
Ordinary dividends are not accrued until approved by the shareholders at the AGM.
Proposed ordinary dividends are not recognised as a liability in the financial
statements of the parent, subsidiary or group.
Preference dividends are recognised as a liability in the financial statements:
Payable by parent no further adjustments required

Payable by subsidiary:

Eliminate amount payable to parent in consolidated FS.

Dividend payable to NCI is liability in consolidated SOFP.

> NOTE

> DIVIDENDS PAID FROM PRE-ACQUISITION PROFITS

If dividends have already been


paid (by the parent or
subsidiary) no adjustments are
required to the SOFP.
Adjustments are still required
for the SOCI.

Eliminate pre-acquisition dividend paid by subsidiary


Date
Description
Investment in subsidiary
Dividends paid
Subsequent periods
Eliminate pre-acquisition dividend paid by subsidiary
Date
Description
Investment in subsidiary
Retained earnings b/f

DR

CR

XX
XX

DR

CR

XX
XX

> DIVIDENDS PAID FROM POST-ACQUISITION PROFITS

Eliminate dividend paid by subsidiary


Date
Description
Dividend revenue (parent interest) (SOCI)
Dividend paid (SOCIE)

2015 All rights reserved, E&OE

Consolidated FS

DR

CR

XX
XX

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8. OTHER INTRA-GROUP TRANSACTIONS AND BALANCES ELIMINATIONS


> LOAN ELIMINATION
Eliminate intercompany loan recognised in the individual financial statements
Date
Description
DR
CR
Loans payable
Loans receivable

XX
XX

> I NTEREST ELIMINATION


Eliminate intercompany interest in relation to the loan during the year
Date
Description
DR
Interest revenue
Interest expense

CR

XX
XX

> M ANAGEMENT FEES


Eliminate of management fees
Date
Description
Management fee income
Management fee expense

2015 All rights reserved, E&OE

Consolidated FS

DR

CR

XX
XX

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GROUP ACCOUNTS CONSOLIDATION M ETHODS ( SUBSIDIARY)

Parent
Others

Group

70%
30%
Subsidiary

Parent equity interest


Non-controlling interest (NCI)
Total

Subsidiary
70%
30%
100%

Share Capital
Share capital of subsidiary
Revaluation Reserve (pre-acquisition)
Pre-acquisition revaluation reserve of the subsidiary
Revaluation Reserve (post-acquisition)
Any FV adjustments
Other Reserves (pre-acquisition)
Pre-acquisition other reserves of the subsidiary
Retained Earnings b/f (pre-acquisition)
Pre-acquisition retained earnings of the subsidiary
Retained Earnings b/f (post-acquisition)
Less: Unrealised profit in prior year re sale of inventory
Less: URP in prior year re sale of non current assets
Adjusted earnings b/f
Current year dividends
Dividends declared by subsidiary during year
Current year operating profits
Add: Adj. re depreciation of transferred non-current asset
Adjusted current year operating profits
Total Non-controlling Interest

(XX)
(XX)
XX

XX
XX

Recognise the non-controlling interests entitlement in subsidiary


Date
Description
Share Capital (A)
Revaluation Reserve (B + C)
Other Reserves (D)
Retained earnings b/f (E + F)
NCI share of current year profit (SOCI) (H)
Dividends paid (G)
NCI (SOFP) (I)

2015 All rights reserved, E&OE

Consolidated FS

DR

Total ()

NCI (X%)(Ref.)

XX

Total x X% (A)

XX

Total x X% (B)

XX

Total x X% (C)

XX

Total x X% (D)

XX

Total x X% (E)

XX

Total x X% (F)

(XX)

Total x X% (G)

XX

Total x X% (H)
Sum (I)

CR

XX
XX
XX
XX
XX
XX
XX

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