Consolidation Notes
CONSOLIDATION
Lets Recap:
To prepare consolidated accounts, we have to make sure that:
1. Balance date of Parent and Subsidiary are the same – if not, we adjust the subsidiary.
2. Accounting policies of Parent and Subsidiary are the same – if not, we adjust the subsidiary.
So we will prepare journals for our consolidation worksheet. We are not changing the accounts in the books of the Parent, or the books of the Subsidiary. We are coming up with a completely separate set of accounts that is put together by adding the two sets of accounts together, and then making the adjustments so that they reflect the total AS A GROUP.
Parent
Ltd
Subsidiary
Ltd
Accounts
Accounts
ADJUST
Both Parent and Subsidiary continue to prepare their accounts as though nothing has changed
* BCVR
*Pre-acquisition
* Intra-group
Consolidated
Accounts
For Group
Nothing occurring with the adjustments or preparation of group accounts affects the Parent or the Subsidiary accounts
Before Step 1:
The Acquisition Analysis – Calculate the Net Fair Value of Identifiable assets and liabilities acquired, to determine whether there is any Goodwill or Bargain Purchase
FVINA = Equity of Subsidiary acquired + net adjustments to fair values (ie. Fair value of asset less carrying amount – 30% for tax)
Goodwill = Consideration transferred LESS Net Fair Value of Identifiable assets and liabilities
Step 1:
Adjust for Business Combination Valuation Entries
We need to adjust the carrying amount of the subsidiaries assets and liabilities so that they are recognised at Fair Value at the time of the acquisition. Remember, this is for the purposes of the consolidated accounts – the Subsidiary’s books have not changed and still reflect the carrying amounts, which is why we need to make these adjustments.
Step 2:
Adjust for Pre-acquisition Entries
We need to eliminate the carrying amount of the Parent’s investment in the subsidiary, against the pre-acquisition equity of that subsidiary. Upon acquisition, the
Lets Recap:
To prepare consolidated accounts, we have to make sure that:
1. Balance date of Parent and Subsidiary are the same – if not, we adjust the subsidiary.
2. Accounting policies of Parent and Subsidiary are the same – if not, we adjust the subsidiary.
So we will prepare journals for our consolidation worksheet. We are not changing the accounts in the books of the Parent, or the books of the Subsidiary. We are coming up with a completely separate set of accounts that is put together by adding the two sets of accounts together, and then making the adjustments so that they reflect the total AS A GROUP.
Parent
Ltd
Subsidiary
Ltd
Accounts
Accounts
ADJUST
Both Parent and Subsidiary continue to prepare their accounts as though nothing has changed
* BCVR
*Pre-acquisition
* Intra-group
Consolidated
Accounts
For Group
Nothing occurring with the adjustments or preparation of group accounts affects the Parent or the Subsidiary accounts
Before Step 1:
The Acquisition Analysis – Calculate the Net Fair Value of Identifiable assets and liabilities acquired, to determine whether there is any Goodwill or Bargain Purchase
FVINA = Equity of Subsidiary acquired + net adjustments to fair values (ie. Fair value of asset less carrying amount – 30% for tax)
Goodwill = Consideration transferred LESS Net Fair Value of Identifiable assets and liabilities
Step 1:
Adjust for Business Combination Valuation Entries
We need to adjust the carrying amount of the subsidiaries assets and liabilities so that they are recognised at Fair Value at the time of the acquisition. Remember, this is for the purposes of the consolidated accounts – the Subsidiary’s books have not changed and still reflect the carrying amounts, which is why we need to make these adjustments.
Step 2:
Adjust for Pre-acquisition Entries
We need to eliminate the carrying amount of the Parent’s investment in the subsidiary, against the pre-acquisition equity of that subsidiary. Upon acquisition, the