AC330 Financial Accounting, Analysis and Valuation (AC330)
Summary
Summary Consolidated Financial Statements
18 views 0 purchase
Course
AC330 Financial Accounting, Analysis and Valuation (AC330)
Institution
London School Of Economics (LSE)
Detailed, condensed and complete notes for consolidated financial statements. Extremely helpful when doing these types of questions and preparing for your AC330 exams. The creator of this document obtained a First (89%).
AC330 Financial Accounting, Analysis and Valuation (AC330)
All documents for this subject (3)
Seller
Follow
leoniedong
Reviews received
Content preview
Consolidated Financial Statements Steps Page 1
Paper-for-paper consideration
P issues sharesP worth A to acquire sharesS of S
exchange ratio = sharesP / sharesS
Each new share issued is worth = A / sharesP
Consideration = new shares issued by P * value of new share * %acq
Share premium = sharesP * (value of new share - nominal value)
Adjustments in the equity of P
Open new account in P: Investment in S = A
Share capital of P increases by sharesP * nominal value (usually 1)
Share premium of P increases by sharesP * (value of new share - nominal value) = A - increase in share capital
check against investment in S on B/S
Shareholder’s equity should only be those of P’s
Adjustments
Fair value
Increase in fair value of net assets (=TA-TL)
Dr Revaluation increases
Increases group by revaluation * %CI
Increases NCI by revaluation * %NCI
Cr Goodwill decreases
Goodwill impairment
Dr Goodwill impairment (Increase expense on I/S)
Cr reduce goodwill
Goodwill impairment is deducted after operating profit, since it’s not an operating expense
Intercompany transactions
Provision for unrealised profit (PURP) = remaining stock*mark-up%/(100 + markup%)
Upstream sale (S sells to P)
Dr increase COGS by PURP (whole amount)
Cr Reduce inventory by PURP
Reduce consolidated RE by %acq*PURP
Reduce NCI by %NCI*PURP
Dr Reduce sales revenue by post-acq inventory at cost * (1+markup%)
Cr reduce COGS by post-acq inventory at cost * (1+markup%),
Downstream sale (P sells to S)
Do the same thing
Intercompany balances
Dr reduce trade payables/increase S's cash if banked
Cr reduce trade receives
they cancel out with each other
Dr Cash in transit (if the two above don't cancel out)
Excess depreciation
Dr depreciation expense
Cr item that's depreciated
Dr reduces NCI by %NCI*dep
Cr reduces profit attributable to NCI by %NCI*dep
, Consolidated Financial Statements Steps Page 2
If acquisition happens in the middle of the financial year (think consolidation example)
Net profit needs to be adjusted for expenses that happen pre/post-acquisition
E.g. needs to remove finance cost that only happens post-acquisition
Pre-acquisition profit = net profit * pre-acq-portion +/- things that only occur pre-acq
Post-acquisition profit = net profit * post-acq-portion +/- things that only occur post-acq
post-acquisition P advanced a loan to S and S paid interest (finance cost)
cancel finance cost and finance income by the same amount
before split profit: increase profit for the year by interest paid (finance cost)
after split profit: reduce post-acq profit by interest paid (finance cost)
post-acquisition S advanced a loan to P and P paid interest (finance income)
cancel finance cost and finance income by the same amount
before split profit: reduce profit for the year by interest received (finance income)
after split profit: increase post-acq profit by interest received (finance interest)
Dividends
Dividends proposed but not declared
Dr Dividend Proposed
Cr Retained earnings
Dividends paid by S from pre-acquisition profits
on analysis of S's equity
Dr after split profit for the year (e.g. S's profit*pre-acq portion), reduce by dividend paid
Cr (these will be reflected automatically)
Dividends from pre-acquisition profits (S to P)
turning assets acquired by P to P (like cashback!)
Dr S’s pre-acquisition reserves (split between group and NCI)
Cr Consideration = original consideration - dividends*%acq
Net effect on goodwill = 0
Dividends paid - Need to be eliminated (restating S’s accounts)
Dr Dividend Income (P)
Cr Retained earnings (S)
Profit attributable to NCI
NCI% * S’ profit after tax post-acquisition
* note: NCI%*profit after tax post-acq is c in analysis of equity
- NCI%*PURP (only if it's upstream sale)
- NCI% * Excess Depreciation
- NCI% * other accounting policy adjustments)
Full goodwill recognition
Fair value of NCI = S’s share price x NCI% x S’s total number of shares
fair value of S's total net assets = share capital + revaluation + RE b/f + pre-acq profit
OR: = share capital + revaluation + RE c/f - post-acq profit
Fully recognised goodwill =
price of consideration
+ fair value of NCI
- fair value of S's total net assets (d on analysis of equity)
= Goodwill arising on acquision
- impairment
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller leoniedong. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.18. You're not tied to anything after your purchase.
