Consolidated Balance Sheet Key Components NCI can be measured in two ways: o Measured as share of the net assets

s of the Sub o At fair value Method #1: Share of net assets at reporting date + NCI goodwill share of goodwill impairment loss Method #2: FV of NCI at acquisition + share of post-acquisition change in net assets share of goodwill impairment loss Goodwill = Cost of investment + NCI at acquisition FV of net assets of Sub at acquisition o If NCI is measured as share of net assets of sub, the goodwill calculated is just the goodwill attributed to the parents share. There is no goodwill attributed to the NCIs share. o If NCI is measured at fair value, a portion of the goodwill is attributed to the parent, and a portion is attributed to the NCI.

URP is only calculated for items that are still remaining within the group, not items that have been further sold to external parties. o URP for non-current assets at a reporting date is the difference between (A) the carrying value of the asset by the buyer, and (B) the carrying value of the asset by the seller had it not been sold. Intra-group receivables and payables need to be cancelled out and they should be matching. Intra-group loans o The matching asset and liability for the loan needs to be removed. o Accrued interest payable at the borrower needs to be cancelled out with the matching interest receivable at the lender. o NCI is calculated as per normal in both Consolidated Balance Sheet and Consolidated Income Statement (i.e. both loan amount and loan interest are still included as it is from the perspective of the Sub). Dividends are handled in Consolidated Income Statement, no adjustment in Consolidated Balance Sheet required because the full Consolidated Income Statement (without dividends) matches the accounts in the Consolidated Balance Sheet. o

Details on Cost of Investment Professional fees are expensed to P&L in the period the acquisition occurs. Changes in the value of contingent consideration after the acquisition would result in any liability being remeasured, with the change recognised in P&L. Goodwill and the cost of investment remain unchanged.

Preparing Consolidated Balance Sheet Make any fair value adjustments required (note that Retained Earnings need not be adjusted even if the FV of assets increased because any change in FV is matched and cancelled out by Goodwill within Assets, because Goodwills less net assets would have included that additional FV). Make adjustments for intra-group transactions per above. Adjust the Investments line o Subtract from Investments (under Parent), the original cost of investment in the Sub. o Note that any loan notes that the Parent bought from the Sub should be included as part of the original cost of investment in the Sub, and is already part of the Investments line in the Parents separate balance sheet. o Note that the Investments (under Parent) does not increase when the sub makes profits, the benefits only show up when the statements are consolidated. Add a Goodwill item

Adjustments for Intra-Group Transactions Cash-in-transit and inventory-in-transit can cause group receivables and payables not to balance. To fix, adjust the recipient companys accounts as though the cash / inventory has been received. For example, o For cash in transit, Dr Cash, Cr Receivables o For inventory in transit, Dr Inventory, Cr Payables Profits made from intra-group transactions need to be reversed since you cant make profits from yourself. o Reduce inventory / non-current assets of buyer by the amount of URP embedded in goods sold by group entities. o Reduce retained earnings of seller by the amount of URP.

Under Non-Current Assets which either shows the Parents goodwill (if NCI is measured as share of net assets) or the full goodwill (if NCI is measured at FV). Share capital o Note that only the Parents share capital is included if the share capital of the Subs have not changed. This is because the conversion of Investments to Goodwill would have eliminated the Subs share capital that existed at acquisition. Compute Retained Earnings o Equals to Parents retained earnings + Parents share of post acquisition change in net assets Parents share of goodwill impairment (which is full if NCI is measured as share of net assets, or proportionate if NCI is measured at FV). o Note that Parents share of Subs net assets at acquisition is cancelled out with the Parents Investments item, with the excess classified as Goodwill. o Note that any increase in net assets post acquisition is proportionately split between the Parents retained earnings and the NCI. Add a NCI item o Under Equity. Value is based on how NCI is measured (see above). o Note that this NCI item includes the NCIs share of Subs net assets at acquisition. o

Dividends from the Sub to the Parent are reversed because that is an intra-group transfer.

Preparing Consolidated Income Statement Only the Subs results after acquisition should be included in the Consolidated Income Statement. Make adjustments for intra-group transactions. Make adjustments for FV changes to non-current assets. Depreciation charge needs to be adjusted to correspond with the new FV. The change in the FV goes into the revaluation surplus account in Consolidated Other Comprehensive Income. Goodwill impairment is charged to P&L, can be put under Admin Expenses of the Parent. Tax charges remain unchanged despite goodwill impairment or adjustments in depreciation because tax is assessed on the individual companies. Profits attributable to NCI = NCI share * Subs profit [note: the Sub's profit

here does not take into account adjustments to Revenue or COGS due to elimination of intra-group sales/purchases, BUT it does take into account reduced Sub's profits due to reversal of URP. It is not consistent treatment I know.]
Profits attributable to Owners of the Parent = Parents profit + Parents share * Subs profit (or the balancing figure if lazy)

Consolidated Income Statement Adjustments for Intra-Group Transactions Eliminate sales and purchases (reverse the sellers revenue and the buyers COGS by the same amount) Eliminate interest paid and received (reverse the payers interest paid and the payees interest received) For the URP of goods that remain within the group, increas e the sellers COGS by the URP to reverse the profit. For URP due to non-current assets transferred o The depreciation charge needs to be adjusted if the depreciation charge after transfer is different from depreciation charge had it not been transferred. o If the transfer occurred in the current period, reverse any profit/loss on transfer.

Preparing Consolidated Statement of Comprehensive Income Total comprehensive income attributable to NCI = NCI share * Subs total comprehensive income Total comprehensive income attributable to Owners of Parent = Parents total comprehensive income + Parents share * Subs total comprehensive income (or balancing figure)