Resa t he r eview s chool of a ccountancy afar 09

ReSA –
T
HE
R
EVIEW
S
CHOOL OF
A
CCOUNTANCY
AFAR-09
Weeks 9-10: SEPARATE & CONSOLIDATED FINANCIAL STATEMENTS
Page 3 of 15
0915-2303213/0908-6567516
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Consolidation Procedures
Worksheet entries at the acquisition date
The consolidation process does not result in any entries being made in the actual records of either the
parent or the subsidiary. The adjustment entries are made in the consolidation worksheet prepared, and
these entries change over time. In the rest of this section, the adjustment entries that would be passed in
a consolidation worksheet prepared immediately after the acquisition date are analyzed.
Pre-acquisition entries
As noted in paragraph 15 of PAS 27, the pre-acquisition are required to eliminate the carrying amount of
the parent’s investment in the subsidiary and the parent’s portion of pre -acquisition equity. The pre-
acquisition entries then involve three areas:
 The investment account, shares in subsidiary, as shown in the financial statements of the parent.
 The equity of the subsidiary at the acquisition date (the pre-acquisition equity). The pre-
acquisition equity is not just the equity recorded by the subsidiary but includes the business
combination valuation reserve recognized on consolidation via the valuation entries. Because
the accounts containing pre-acquisition equity may change over time as a result of dividends
and reserve transfer, more than one pre-acquisition entry may be required in a particular year.
 Recognition of goodwill. Note that, as stated in paragraph 21 of PAS 12 Income Taxes, there is no
recognition of a deferred tax liability in relation to goodwill because goodwill is a residual, and
the recognition of a deferred tax liability would increase its carrying amount.
Calculating the NCI share of equity
Non-controlling interest in the net assets (NCI) consists of:
i. the amount of those non-controlling interests at the date of the original combination calculated in
accordance with PFRS 3 Revised; and
ii. the non- controlling’s share of changes in equity since the date of the combination.
In relation to part (ii), changes in equity since the acquisition date must be taken into account. Note that
these changes are not only in the recorded equity of the subsidiary, but they also relate to other
changes in consolidated equity.
As noted earlier in this chapter, the NCI is entitled to share consolidated equity under the entity concept
of consolidation . This requires taking into account adjustments for profits and losses are not recognized
by the group.
The calculation of the NCI is therefore done in two stages:
1. the NCI share of recorded equity is determined, and
2. this share is adjusted for the effects of intragroup transactions.
Non-controlling share of recorded equity of the subsidiary
The equity of the subsidiary consists of the equity contained in the actual records of the subsidiary as well
as any business combination valuation reserves created on consolidation at the acquisition date, where
the identifiable assets and liabilities of the subsidiary are recorded at amounts different from their fair
values. The NCI is entitled to a share of subsidiary equity at balance date, which consists of the equity on
hand at acquisition date plus any changes in that equity between acquisition date and reporting date.