Group means the group of companies consisting of holding company and its subsidiary companies.Parent company means the company which holds the majority of shares of other companies, i.e. subsidiary companies.Subsidiary company means the company whose majority of shares are held by the parent company. In other words, subsidiary is owned and controlled by the parent company.
No. of parent companies in a group
A group can have unlimited number of parent companies. But the ultimate parent company will be 1 only. For instance, A Ltd is the holding of B Ltd. and C Ltd. Similarly, Z Ltd is the holding of A Ltd. In this case, the group has two parent companies, i.e. A Ltd. which is the parent of B and C, and Z ltd. which is the parent of A Ltd. But the ultimate parent company will be 1 only i.e. Z Ltd.
Requirement of Intragroup transactions
Intra group transactions are notional from a group point of view because the income of one company is the expense of the other company having no effect on the profit and loss of the group. Hence, these transactions are required to be eliminated from the groups consolidated financial statements else it leads to incorrect view of the financial position of the group. (“Intra-group transactions: identifying differences | Sigma Conso”, 2018)
Realisation of profit on inventories transfers within the group
On inventories transferred within the group, the profit is realised when the inventories are sold to the external parties.
Accountant of Palvidia Ltd.
|
(a) |
Acquisition Analysis as at 1 July, 2019 |
|
Particulars |
|
Amount |
||
|
Net fair value of assets and liabilities acquired |
||||
|
Share Capital |
$ 650,000 |
|||
|
General Reserve |
$ 20,000 |
|||
|
Retained earnings |
$ 250,000 |
|||
|
Fair valuation of assets/liabilities |
||||
|
Fair valuation of Equipment (50000*(1-30%)) |
$ 35,000 |
|||
|
Fair valuation of Contingent Liability (-40000*(1-30%)) |
$ (28,000) |
$ 7,000 |
||
|
Total value |
$ 927,000 |
|||
|
Consideration paid |
$ 1,000,000 |
|||
|
Goodwill on acquisition |
$ 73,000 |
|||
|
(b) |
Consolidated Worksheet Entries as at 1 July, 2019 |
|||
|
Particulars |
Amount |
|
Accumulated Depreciation |
$ 80,000 |
|
To Equipment |
$ 30,000 |
|
To Deferred tax liability |
$ 15,000 |
|
To Business combination valuation reserve |
$ 35,000 |
|
Business combination valuation reserve |
$ 28,000 |
|
Deferred tax liability |
$ 12,000 |
|
To Provision for lawsuit |
$ 40,000 |
|
Goodwill |
$ 73,000 |
|
To Business combination valuation reserve |
$ 73,000 |
|
Pre-Acquisition Entry |
|
|
Share Capital |
$ 650,000 |
|
General Reserve |
$ 20,000 |
|
Retained earnings |
$ 250,000 |
|
Business combination valuation reserve |
$ 80,000 |
|
To Shares in Soletta Ltd |
$ 1,000,000 |
Sol-3
|
Consolidated Worksheet Entries as at 30 June, 2019 |
||
|
Sr. No. |
Particulars |
Amount |
|
(a) |
Elimination of profit from opening inventory |
|
|
Retained earnings (1/7/18) |
$ 175 |
|
|
Income tax expense |
$ 75 |
|
|
To Cost of Sales (6000/120%*20%/4) |
$ 250 |
|
|
(b) |
Sale of inter-company asset |
|
|
Retained earnings (1/7/18) |
$ 2,800 |
|
|
Deferred tax asset |
$ 1,200 |
|
|
To Tractor |
$ 4,000 |
|
|
Accumulated depreciation (refer WN-1) |
$ 580 |
|
|
To Depreciation expenses |
$ 380 |
|
|
To Retained earnings (1/7/18) |
$ 200 |
|
|
Income tax expense |
$ 114 |
|
|
Retained earnings (1/7/18) |
$ 60 |
|
|
To Deferred tax asset |
$ 174 |
|
|
(c) |
Elimination of profit from closing inventory |
|
|
Sales revenue |
$ 400 |
|
|
To Cost of sales |
$ 300 |
|
|
To Inventory |
$ 100 |
|
|
Deferred tax asset |
$ 30 |
|
|
To Income tax expense |
$ 30 |
|
|
Payable to Salto Ltd. |
$ 100 |
|
|
To Receivable from Patagonia Ltd |
$ 100 |
|
|
(e) |
Inter-company loan elimination |
|
|
Loan from Salto Ltd. |
$ 50,000 |
|
|
To Loan to Patagonia Ltd |
$ 50,000 |
|
|
Interest income (50,000*6%) |
$ 3,000 |
|
|
To Interest expenses |
$ 3,000 |
|
|
Interest payable (50,000*6%/2) |
$ 1,500 |
|
|
To Interest receivable |
$ 1,500 |
|
|
Consolidated Worksheet Entries as at 30 June, 2020 |
||
|
Tran. No. |
Particulars |
Amount |
|
(b) |
Sale of inter-company asset |
|
|
Retained earnings (1/7/19) |
$ 2,800 |
|
|
Deferred tax asset |
$ 1,200 |
|
|
To Tractor |
$ 4,000 |
|
|
Accumulated depreciation (refer WN-1) |
$ 922 |
|
|
To Depreciation expenses |
$ 342 |
|
|
To Retained earnings (1/7/19) |
$ 580 |
|
|
Income tax expense |
$ 103 |
|
|
Retained earnings (1/7/19) |
$ 174 |
|
|
To Deferred tax liability |
$ 277 |
|
|
(c) |
Elimination of profit from closing inventory |
|
|
Retained earnings (1/7/19) |
$ 70 |
|
|
Income tax expense |
$ 30 |
|
|
To Cost of Sales |
$ 100 |
|
|
(d) |
Inter-company elimination of management fee |
|
|
Management fee |
$ 3,000 |
|
|
To Management expense |
$ 3,000 |
|
|
Payable to Patagonia Ltd |
$ 3,000 |
|
|
To Receivable from Salto Ltd |
$ 3,000 |
|
|
(e) |
Inter-company loan elimination |
|
|
Loan from Salto Ltd. |
$ 50,000 |
|
|
To Loan to Patagonia Ltd |
$ 50,000 |
|
|
Interest income (50,000*6%) |
$ 3,000 |
|
|
To Interest expenses |
$ 3,000 |
|
|
Interest payable (50,000*6%/2) |
$ 1,500 |
|
|
To Interest receivable |
$ 1,500 |
|
|
(f) |
Dividend by subsidiary |
|
|
Dividend income |
$ 1,500 |
|
|
To Interim dividend paid |
$ 1,500 |
|
|
(g) |
Dividend by subsidiary |
|
|
Dividend payable |
$ 3,000 |
|
|
To Final dividend declared |
$ 3,000 |
|
|
Dividend revenue |
$ 3,000 |
|
|
To Dividend receivable |
$ 3,000 |
|
|
WN-1 |
Calculation of depreciation & WDV of tractor sold |
|
|
Depreciation for the period 01/01/18 to 30/06/18 (4000*10%) |
$ 200 |
|
|
WDV as on 30/06/18 (4000-200) |
$ 3,800 |
|
|
Depreciation for the year ended on 30/06/19 (3800*10%) |
$ 380 |
|
|
WDV as on 30/06/19 (3800-380) |
$ 3,420 |
|
|
Depreciation for the year ended on 30/06/20 (3420*10%) |
$ 342 |
|
|
WDV as on 30/06/20 (3420-342) |
$ 3,078 |
References:
Intra-group transactions: identifying differences | Sigma Conso. (2018).
Staff, I. (2018). Consolidated Financial Statements.
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