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Title: CONSOLIDATIONS

1
CONSOLIDATIONS WEEK 4 TEXT CHAP 17 18
2
Partial Ownership in Subsidiary

Ownership interest in a subsidiary other than the
parent company is referred to as
Outside Equity Interest (OEI)
80
OEI 20

H LTD
S LTD
3
Consolidation entries

Pre-acquisition entry only adjust proportion
Dividends only proportion
Other entries (e.g. transfers. inventory
depreciable assets no change)
O.E.I. adjustments - additional entries
1. at acquisition
2. between acq date and beginning of
current period
3. current period

4
Goodwill adjustments to Fair Values

On 1 July 2000, Vanity Ltd acquired 60 of the
issued capital of Fair Ltd for 46,600 when the
shareholders equity of fair was
Capital
40,000
General Reserve
2,000
Retained Profits
2,000
Liabilities included Provision for Dividend 1000
At 1 July 19x0 fair value of Fair Ltd assets
Equipment (cost 250,000 acc depn 70,000
)
Fair value 200,000
Inventory (fair values 10,000 )
Equipment further 5 year life goodwill 5 yrs

5
Goodwill adjustments to Fair Values
F.V. ASSETS ACQ 60(40,0002,0002,000.7(20,000
10000)
39,000 COST OF ACQ
46,600-.61000
46 000 GOODWILL
7,000 AMORTISATION per annum 1400

On 1 July 2000, Vanity Ltd acquired 60 of the
issued capital of Fair Ltd for 46,600 when the
shareholders equity of fair was
Capital
40,000
General Reserve
2,000
Retained Profits
2,000
Liabilities included Provision for Dividend 1000
At 1 July 19x0 fair value of Fair Ltd assets
Equipment (cost 250,000 acc depn 70,000
)
Fair value 200,000
Inventory (fair values 10,000 )
Equipment further 5 year life goodwill 5 yrs

6
Goodwill adjustments to Fair Values
F.V. ASSETS ACQ 60(40,0002,0002,000.7(20,000
10000)
39,000 COST OF ACQ
46,600-.61000
46 000 GOODWILL
7,000 AMORTISATION per annum 1400

On 1 July 2000, Vanity Ltd acquired 60 of the
issued capital of Fair Ltd for 46,600 when the
shareholders equity of fair was
Capital
40,000
General Reserve
2,000
Retained Profits
2,000
Liabilities included Provision for Dividend 1000
At 1 July 19x0 fair value of Fair Ltd assets
Equipment (cost 250,000 acc depn 70,000
)
Fair value 200,000
Inventory (fair values 10,000 )
Equipment further 5 year life goodwill 5 yrs

On 1 July 2000, Vanity Ltd acquired 60 of the
issued capital of Fair Ltd for 46,600 when the
shareholders equity of fair was
Capital
40,000
General Reserve
2,000
Retained Profits
2,000
Liabilities included Provision for Dividend 1000
At 1 July 19x0 fair value of Fair Ltd assets
Equipment (cost 250,000 acc depn 70,000
)
Fair value 200,000
Inventory (fair values 10,000 )
Equipment further 5 year life goodwill 5 yrs

1. REVALUATION ENTRY DR ACC. DEPN
70,000 CR EQUIPMENT 50,000
CR DTL 6,000
CR A.R.R.
14,000 2.PRE-ACQ ENTRY DR CAPITAL
24,000 DR GR 1,200 DR
R.P. 1,200 DR A.R.R.
8,400 DR GOODWILL
7,000 DR INVENTORY 6,000 DR PROV FOR DIV
600 CR D.T.L.
1,800 CR DIVIDEND REC
600 CR SHARES IN S 46,000
1. OEI ENTRY 40 DR CAPITAL 16
000 DR GENERAL RESERVE 800 DR R P
800 DR ARR
5 600 CR OEI
23 200
8
Goodwill adjustments to Fair Values
1. REVALUATION ENTRY after 3 years DR ACC. DEPN
70,000 CR EQUIPMENT
50,000 CR DTL
6,000 CR A.R.R.
14,000 DR Depreciation Expense 4 000 DR
Retained Profits 8 000 CR Acc
Depreciation 12 000 DR DTL
3,600 CR Income Tax
Expense 1,200 CR R P
2,400 2.PRE-ACQ
ENTRY DR Goodwill expense 1,400 DR CAPITAL
24,000 DR GR
1,200 DR R.P.
8,200 DR A.R.R. 8,400 DR
GOODWILL 7,000 CR Acc
Amortisation 4,200 CR SHARES IN
S 46,000
F.V. ASSETS ACQ 60(40,0002,0002,000.7(20,000
10000)
39,000 COST OF ACQ
46,600-.61000
46 000 GOODWILL
7,000 AMORTISATION per annum 1400

On 1 July 2000, Vanity Ltd acquired 60 of the
issued capital of Fair Ltd for 46,600 when the
shareholders equity of fair was
Capital
40,000
General Reserve
2,000
Retained Profits
2,000
Liabilities included Provision for Dividend 1000
At 1 July 19x0 fair value of Fair Ltd assets
Equipment (cost 250,000 acc depn 70,000
)
Fair value 200,000
Inventory (fair values 10,000 )
Equipment further 5 year life goodwill 5 yrs

1. OEI ENTRY 40 DR CAPITAL 16
000 DR GENERAL RESERVE 800 DR R P
800 DR ARR
5 600 CR OEI
23 200
9
OEI Subsequent to acquisition

Pre-acquisition profits (done)
Current profits
Profits from acquisition to beginning of current
period

10
Example OEI

Over the next 3 years FAIR Ltd recorded the
following
19x1 19x2 19x3
O.P. (after tax) 8,000
12,000 15,000
R.P. (begin) 2,000
7,800 17,000
10,000 19,800 32,000
Dividend Paid 1,000
1,200 1,500
Dividend Provided 1,200
1,600 2,000
Retained Profits (end) 7,800
17,000 28,500

11
Example OEI

Over the next 3 years FAIR Ltd recorded the
following
19x1 19x2 19x3
O.P. (after tax) 8,000
12,000 15,000
R.P. (begin) 2,000
7,800 17,000
10,000 19,800 32,000
Dividend Paid 1,000
1,200 1,500
Dividend Provided 1,200
1,600 2,000
Retained Profits (end) 7,800
17,000 28,500

Year 3 1. Current profits 40 15 000- depn
adjustment revaluation entry 4000- 1200 ie 40
(15 000-(4 000-1 200)) DR OEI Share of Profit
4 880 CR OEI
4 880
12
Example OEI

Over the next 3 years FAIR Ltd recorded the
following
19x1 19x2 19x3
O.P. (after tax) 8,000
12,000 15,000
R.P. (begin) 2,000
7,800 17,000
10,000 19,800 32,000
Dividend Paid 1,000
1,200 1,500
Dividend Provided 1,200
1,600 2,000
Retained Profits (end) 7,800
17,000 28,500

Year 3 1. Pre-acq profits (excluding current
year) 17 000 - _at_acq 2 000 - preac entry( 8 000
- 2400) 40 3 760 DR Retained Profits 3
760 CR OEI 3 760

13
OEI Post Acquisition Dividend

Dividends paid by Subsidiary 10 000
dr Dividend revenue 8,000
cr Dividends paid 8,000
(adjust based 80 10,000)
OEI adjustment
dr OEI 2,000
cr Dividends paid 2,000
(20 10,000)

14
OEI Post Acquisition Dividend

Dividends declared by Subsidiary 15 000
dr Dividend payable 12,000
cr Dividends declared 12,000
(adjust based 80 15,000)
dr Dividend revenue 12,000
cr Dividends receivable 12,000
(adjust based 80 15,000)
OEI adjustment
dr OEI 3,000
cr dividends declared 3,000
(20 15,000)

15
Interentity eliminations- oei ?

Inter company adjustments covered previously
eliminate the total unrealised profit. However if
there is OEI then any adjustment has to take this
into consideration
ie
Opening Stock adjustment
Closing Stock Adjustment
Unrealised Profit on sale of Non-current Assets

16
Down stream adjustments

If asset sold down stream ie Holding coy sells to
subsidiary gt any adjustment to unrealised profit
would be profit in the Holding Coy. OEI have no
interest in this. No further adjustment.
80
OEI 20

H LTD
S LTD
17
Up stream adjustments

If asset sold up stream ie Subsidiary Coy sells
to Holding Coy gt any adjustment to unrealised
profit would be profit in the Subsidiary Coy. OEI
do have any interest ie they own of company.
Further adjustment required.
80
OEI 20

H LTD
S LTD
18
OEI Inter-entity transactionclosing stock

Exercise in text Gum buys 80 of Tree OEI 20
Inventory (assume Tree sold to Gum Ltd)
dr Sales 23 000
cr Cost of Sales 21 500
cr Inventory 1 500
dr DTA 450
cr Tax expense 450
(these entries still done as before on 100)
OEI entry adjustment
dr OEI 210
cr OEI share profit 210
(20 1 050)
Note if Gum had sold to Tree no OEI adjustment

19
OEI Inter-entity transaction

Opening stock adjustment
Inventory (assume Tree sold to Gum Ltd)
dr R.P. 4 000
cr Cost of Sales 4,000
dr Tax expense 1 200
cr R.P.
1,200
(these entries still done as before on 100)
OEI entry adjustment
dr OEI share profit 560
cr R.P.
560
(20 (4,000-1,200)
note if Gum had sold to Tree no OEI adjustment

20
OEI Inter-entity transaction

Transfer depreciable asset
Assume that on 1 July 200X the Subsidiary sells a
depreciable asset to the Holding Company for 50
000, the written down value of the asset being
40 000. Assume that the non current asset has a
further 5 year life.
Because this is an upstream transaction the OEI
is affected. At 30 June 200Y the consolidation
journal entries would be

21
OEI Inter-entity transaction