Preparation of Consolidated Statement of Financial Position
Preparation of Consolidated Statement of Financial Position
1
The consolidation process
• Before consolidating, it may be necessary to adjust
subsidiary’s financial statements where:
1. The subsidiary’s end of reporting period is different to the parent’s. In such cases the subsidiary is required to prepare adjusted financial statements as at the parent’s reporting date.
2. The subsidiary’s accounting policies are different to the parent’s. In such cases the subsidiary is required to prepare adjusted accounts to ensure accounting policies
Eg- 30 June vs. 31 December consistent with the parent.
Eg- cost vs. revaluation methods of accounting for non-current assets
2
1
The consolidation process
Consolidation involves adding together the financial statements of the parent and subsidiaries and making a number of adjustments:
• Business combination valuation entries – required to
adjust the carrying amounts of the subsidiary’s assets and liabilities to fair value
• Pre‐acquisitions entries – required to eliminate the
carrying amount of the parents investment in each subsidiary against the pre‐acquisition equity of that subsidiary • Transactions between entities within the group
subsequent to acquisition date
3
Consolidation worksheets
Consolidation journals are posted into the consolidation worksheet in
“adjustment” columns as follows:
Parent
Parent
Extract only
Subsidiary
Subsidiary
P Ltd.
$’000
S Ltd.
$’000
Land
Invt in S Ltd
Receivables
Cash
400
120
200
40
760
150
Share capital
Share capital
Retained earnings
Creditors
500
500
160
100
760
100
20
50
170
Adjustments
DR
XX
XX
CR
XX
20
170
XX
XX
XX
Cons.
Balances
XX
XX
XX
XX
XXX
XX
XX
XX
XXX
DR balance
Add down for sub-totals CR balance
CR balance
-All consol. journals recorded in these DR/CR columns
- Where there are a large number of journals it is
1
The consolidation process
• Before consolidating, it may be necessary to adjust
subsidiary’s financial statements where:
1. The subsidiary’s end of reporting period is different to the parent’s. In such cases the subsidiary is required to prepare adjusted financial statements as at the parent’s reporting date.
2. The subsidiary’s accounting policies are different to the parent’s. In such cases the subsidiary is required to prepare adjusted accounts to ensure accounting policies
Eg- 30 June vs. 31 December consistent with the parent.
Eg- cost vs. revaluation methods of accounting for non-current assets
2
1
The consolidation process
Consolidation involves adding together the financial statements of the parent and subsidiaries and making a number of adjustments:
• Business combination valuation entries – required to
adjust the carrying amounts of the subsidiary’s assets and liabilities to fair value
• Pre‐acquisitions entries – required to eliminate the
carrying amount of the parents investment in each subsidiary against the pre‐acquisition equity of that subsidiary • Transactions between entities within the group
subsequent to acquisition date
3
Consolidation worksheets
Consolidation journals are posted into the consolidation worksheet in
“adjustment” columns as follows:
Parent
Parent
Extract only
Subsidiary
Subsidiary
P Ltd.
$’000
S Ltd.
$’000
Land
Invt in S Ltd
Receivables
Cash
400
120
200
40
760
150
Share capital
Share capital
Retained earnings
Creditors
500
500
160
100
760
100
20
50
170
Adjustments
DR
XX
XX
CR
XX
20
170
XX
XX
XX
Cons.
Balances
XX
XX
XX
XX
XXX
XX
XX
XX
XXX
DR balance
Add down for sub-totals CR balance
CR balance
-All consol. journals recorded in these DR/CR columns
- Where there are a large number of journals it is