ACCT3011 Lecture 2 - ACCT3011 Financial Accounting B Yang...

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ACCT3011 Financial Accounting B Yang Xu (307198650) WEEK 2 SUMMARY – PRINCIPLES OF CONSOLIDATION AND THE CONSOLIDATION PROCESS < <2.2>> THE CONSOLIDATION PROCESS – AN OVERVIEW Consolidated Financial Statements Objectives of CFS • Objective of CFS is to show the operating results and financial position of a number of business entities related by control as if they were one single accounting entity • Consolidated income statement shows the results of those transactions with parties external to the group • Consolidated balance sheet shows assets controlled by the group, the liabilities owed to external parties and the equity of the collective owners of the group Users • The shareholders of the parent entity? • The shareholders of the subsidiary? (these may be either the parent entity or non- controlling shareholders for <100% owned subsidiaries) • Regulators • Tax department 5 Step Summ ary of Consol idated Proces s • Elimination of Cost of Investment Entries for CFS Elimination of the Parent Entity’s Cost of Investment Step 1) Initial Recording Entry Dr Investment (Parent) $17,000 Cr Cash / Payables (Parent) $17,00 0 Initial Entry for Acquisition of Subsidiary’s Investment Step 2) Elimination Entry: (This consistent entry is adjusted every year) Dr Share Capital (Subsidiary) $9000 Dr Retained Earnings (Subsidiary) $8000 Cr Investment (Parent) $17,000 Elimination of Cost of Investment against equity acquired in subsidiary Page 1 of 5 General Purpose Financial Reports (AASB 101.4) 1. Consolidated Financial Statements (CFS) 2. Parent Entity’s Separate Financial Step 1) Record parent and subsidiary trial balances for aggregation Step 2) Add like account balances across the balance Step 3) Eliminate parent entity’s investment in subsidiary by essentially replacing equity with the net assets of subsidiary ( OE = A – L ) Step 4) Eliminate intra-company transactions and balances Step 5) Re-add across like-balances after adjustments
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ACCT3011 Financial Accounting B Yang Xu (307198650) NB: Only eliminate Pre-Acquisition Equity Note that the balances in the subsidiary at acquisition date represent the pre-acquisition equity acquired by the parent. Therefore, since only pre-acquisition equity is required to be eliminated, the
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This note was uploaded on 08/11/2009 for the course ACCT 3011 taught by Professor Whelan during the Three '09 term at University of Sydney.

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ACCT3011 Lecture 2 - ACCT3011 Financial Accounting B Yang...

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