PREPARE CONSOLIDATED BALANCE SHEET IN 9 STEPS


CONSOLIDATED FINANCIAL STATEMENTS

Companies can combine and operate in groups by acquiring control over the resources of the other entities , through the mechanism of subsidiaries

The external shareholders have to be made aware of a) Resource controlled by the parent b) Obligation of the group and c) the performance of the group with using such resources . This objective is possible only through consolidated financial statement 

The companies which are having subsidiaries, Joint ventures and associates shall have to prepare consolidated financial statement, it presents the financial position, operating results and statement of cash flow of a group of companies. Consolidation provides reporting as one single economic entity, the financial position and performance of a parent and its subsidiaries.

The consolidated financial statement shall be presented to the extent possible , in the same format as that adopted by parent company.

The Consolidated financial statement comprises of following :

  1. Balance sheet
  2. Statement of Profit and loss
  3. Notes to accounts
  4. Cash flow statement



IMPORTANT TERMS

SUBSIDIARY:- It is an enterprise that is controlled by another enterprise.
PARENT:- It is an enterprise that has one or more subsidiaries.
CONTROL:-Ownership , directly or indirectly through subsidiaries of more than one half of the voting power of an enterprise.
Control of composition of the board of directors of an enterprise.
MINORITY INTEREST: It is that part of net results of operation and of the net assets of subsidiary, attributable to interest which owned by the external share holders (i.e. Which are not owned directly or indirectly through subsidiaries , by the parent.
consolidated balance sheet





Control important aspects:
It is possible that, though a company is not holding majority of voting power, it may still able to exercise control, for reasons of other shareholders being inactive holders.
Control may be direct or may be indirect . Consider a situation where A ltd has four subsidiaries, each of which have 25% Holding in H ltd . A ltd thus is capable of exercising indirect control . Despite there is no direct investment A ltd will include in its consolidation.

Consolidation procedures

Step 1

Date of acquisition

Ascertain date of acquisition of parent in a subsidiary company
Ex:-X ltd acquired 60% shares on 01st april 2015 in Y ltd, Here date of acquisition is 01st april 2015

Step 2

Shareholding pattern

Determine share holding pattern of the subsidiary company as on the date on which the consolidated balance sheet is to be prepared. This pattern is used for apportionment of subsidiary profits.
SL.NO
Particular
No.of.Shares
Percentage(%)
1
Parent company
60000
60
2
Subsidiary Company
40000
40
3
Total(1+2)
100000
100

Step 3

Analysis of subsidiary reserves and surplus

Analysis of reserves and surplus will include losses also. Subsidiary reserves and surplus are divided into pre acquisition and post-acquisition profits based on acquisition date.


Analysis of profits and reserves

Ex:- A ltd acquired 60% shares at Rs.10 lakhs in B ltd as on 31-09-2015,The B ltd reserves as on 01-04-2014 is 100000 and on 31-03-2015 is 200000 profit for the year is 500000
Consolidated balance sheet is prepared on for the period 2014-15
Here the date of acquisition date is  01-09-2015
Pre-acquisition period is before 01-09-2015 and post-acquisition period is          after is 31-09-2015
 Reserves
 As on 31-03-2015 Rs.2,00,000
 As on 01-04-2014 Rs.1,00,000      
 Profit transferred to reserves For the period 2014-15 is Rs.1,00,000/-                 (2,00,000-1,00,000)
So, here pre-acquisition reserve is Rs.1,00,000 plus Rs.50000(Rs.1,00,000x6/12)=   Rs.1,50,000/- (Capital profit) balance in reserve will be treated as revenue reserve
Profit
 Profit for the year is Rs.5,00,000/-
Pre-acquisition period is 6 months, so the profit will be apportioned between pre-acquisition  period and post-acquisition period. Pre-acquisition period profit is Rs.2,50,000/-(500000x6/12)
Remaining period profit will be Rs.2,50,000/-

Step 4

Apportionment of profits

After analysis of profit and dividing into pre-acquisition and post-acquisition the same will be                       apportioned between parent company and subsidiary company, the pre-acquisition reserve and surplus will be treated as capital profit and the same will be deducted from cost of investment in purchasing company, post-acquisition reserves and surplus will be merged in parent company reserves and surplus.
Sl.no
Particular
Pre-acquisition
Post-acquisition profit
Capital Profit
Revenue Reserves
Revenue
 profits
1
General Reserve
1,50,000
50,000
--
2
Other Reserves
xxxx
Xxxx
--
3
Profit and loss
2,50,000
--
2,50,000
4
Less: Miscellaneous expenditure to the extent not written off/unamortized


        ---


        ---


        ---
5
Total
4,00,000
50,000
2,50,000
6
Parent(60%)
2,40,000
30,000
1,50,000
7
Minority Interest(40%)
1,60,000
20,000
1,00,000


Step 5

Minority interest

Compute Minority Interest
Sl.no
Particular
Note
Amount
1
Share capital
Step-2
4,00,000
2
Capital profit
Step-4
1,60,000
3
Revenue reserve
Step-4
20,000
4
Revenue profits
Step-4
1,00,000
5
Equity dividend

--
6
Preference share capital
Held by outsiders
--
7
Preference dividend

--
8
Less:-Stock Reserve
Minority share(upstream)
---
9
Total

6,80,000


Step 6

Determine cost of control

Sl.no
Particular
Amount
Amount
a
Cost of investment
 Amount invested- carrying amount as per parent’s balance sheet
Less: Dividend received from pre-acquisition profits of subsidiary
Adjusted cost of Investment

10,00,000

NIL





10,00,000
b
Value of investment-
Aggregate of parent’s share :
Share capital
Pre-acquisition profits
Total


6,00,000
2,40,000




8,40,000

Cost of control-(Goodwill/Capital reserve)

1,60,000

    Note:-Capital Reserve= If value of investment is more than the cost of              investment  Here in this case it is goodwill = 1,60,000/-

  Goodwill= If Cost of Investment is more than the value of investment.

Step 7

Inter company transaction- Elimination/Adjustment

Inter company owing or debts
Usual items like debtors/Creditors , Bills payable/Bills receivable, Loans given/loans taken, dividend payable/dividend receivable etc
Adjustments for above items will lead to reduction in both companies
Assets comprising goods or machinery purchased from other company
For the inter company transaction we need to ascertain unrealised profits left over in the balance of stock or Instalment payable for machinery.

 
In transactions between companies involving fixed assets, eliminate unrealized profit by applying downstream and upstream concepts


Inter company owing



 
Particulars
Downstream
Upstream
Transaction flow
From Parent to subsidiary
From Subsidiary to parent
Total of unrealized profit
To be eliminated from asset
100 percent
100 percent
Adjustment
Parents reserve

Minority Interest

100 percent

Nil

Respective share in subsidiary
Step 2

Step 8

Reserves for consolidated balance sheet

Particulars
Capital reserve
Revenue reserve
Profit and loss
Reserves as appearing in parents balance sheet
100000
200000
400000
Less:
Dividend received from subsidiary company out of pre-acquisition profits transferred to investment

(XXXX)
(XXXX)
Add:Parents share of post acquisition reserves and profits of subsidiary(step 4)

20000
100000
Less: Reserve for unrealized profits


(xxxx)
Add: Capital Reserve (step 6)
Xxxx


The net result is the value of reserves to be shown in consolidated balance sheet
100000
220000
500000

Step 9

Preparation of consolidated Balance sheet

  Liabilities
Share capital
Only parent company
Reserves
Step-8
Minority Interest
Step-5
Other liabilities ,loans, current liabilities and provisions
Total of both companies
Less: Inter company owing
  
  Assets 

Fixed assets
Total of both companies
And goodwill in step 6
Investment
Total outside investment of parent and subsidiary company
Current assets,Loans and advances
Total of both companies
Less: Inter company owing
Miscellaneous expenditure to the extent of not written off
Only parent company
Subsidiary amount will be net off during process of analysis of profits Step -4

To download excel format click below link

Comments

  1. Thanks Dear .......... Its Fabulous job...... Allah Bless You.

    ReplyDelete
  2. Rally great, it would more helpful, if the dividend part included in the example,

    ReplyDelete
  3. What will happen in case of 20% acquisition of shares

    ReplyDelete

Post a Comment

Popular posts from this blog

AMALGAMATION :- JOURNAL ENTRIES IN THE BOOKS OF TRANSFEROR AND TRANSFEREE COMPANY

SOLVE AMALGAMATION PROBLEM IN 7 STEPS