1 Chapter 5

 Any profits that are earned by S while being

part of a group (post-acquisition profits),
needs to be split between:
 H
 NCI
2 Example 5.1 Page 55
 H Ltd acquired 70% of the shares in S Ltd
on 1 January 06 for R165 000. At this date,
the retained earnings of S was R40 000.
 At the date of acquisition H Ltd considered
the net assets of S Ltd to be fairly valued in
its SOFP, with the exception of land which
was considered to be worth R50 000 more
than its CA. S Ltd did not adjust the value
of the land in its books. The NCI are
recognised at their share of the net
identifiable assets of S.
 Summarised Statement of Financial
3 Positions of H Ltd and S Ltd at 31
December 09
H Ltd S Ltd
ASSETS
Land, at cost 1 400 000 140 000
Investment in S Ltd 165 000 0
Current Assets 435 000 60 000
2 000 200 000
000
EQUITY AND LIABILITIES
Share Capital 550 000 110 000
Retained Earnings 900 000 70 000
Non-Current Liabilities 550 000 20 000
2 000 200 000
000
4 Proforma Journal entries:
DR Share Capital (SOFP) 110 000
DR Retained Earnings (SOFP) 40 000
DR Land (SOFP) 50 000
CR NCI (30% x 200) (SOFP) 60 000
CR Investment in S (SOFP) 165 000
DR Goodwill (SOFP) 25 000

DR Retained Earnings (SOFP) 9 000

CR NCI (30% x 30) (SOFP) 9 000
 H Ltd Group
5
Consolidated Statement of Financial Position as at
31 December 09
ASSETS R
Non-current assets (1 400 + 50 + 25 + 140) 1 615 000
Current assets 495 000
Total assets 2 110 000
EQUITY AND LIABILITIES
Share capital 550 000
Retained earnings (900 + 21) 921 000
Equity attributable to H 1 471 000
Non-controlling interests 69 000
Total equity 1 540 000
Non-current liabilities 570 000
Total equity and liabilities 2 110 000
 6 Analysis of Equity Worksheet

Date Detai Equity of S Total Analysis of equity

ls
SC RE Land NCI INV (GW) Since
RE
R R R R R R R R
1/1/0 At Acq 110 40 50 200 60 165 (25) 0
6
31/12 Inc in 0 30 0 30 9 0 0 21
/09 RE
110 70 50 230 69 165 (25) 21
7 Chapter 6

 Any retained earnings that are earned

by S while being part of a group (post-
acquisition profits), needs to be split
between:
 H
 NCI
8 Example 6.1 Page 62
 H Ltd acquired 70% of the shares in S Ltd on 1 January
06 for R160 000. At that date H Ltd considered all the net
identifiable assets of S Ltd, with the exception of its land,
to be fairly valued in its Statement of Financial Position.
 H Ltd considered S Ltd’s land to be worth R50 000 more
than its book value. On 1 January 06, S Ltd’s equity was
as follows:
Share Capital 105 000
Other Reserves 15 000
Retained Earnings 30 000
150 000

 Closing inventory:
 H Ltd = R250 000
 S Ltd = R90 000
 Trial Balances as at 31 December H Ltd S Ltd
09
R R
9 Share capital (550 000) (105 000)
Other reserves (70 000) (15 000)
Retained earnings – 1 Jan 09 (180 000) (55 000)
Sales (1 020 000) (465 000)
Purchases 630 000 212 000
Inventory – 1 Jan 09 195 000 73 000
Administration expenses 28 000 14 000
Depreciation – plant 40 000 0
Rent and leasing 48 000 12 000
Other expenses 240 000 165 000
Accounts receivable 95 000 62 000
Accounts payable (63 000) (29 000)
Bank 102 000 24 000
Taxation expense 41 000 32 000
Land, at cost 0 75 000
Plant – Cost 444 000 0
Plant – Accumulated depreciation (140 000) 0
Investment in S Ltd 160 000 0
Total 0 0
10 We need to calculate the profit for
the year but we do not have COS!

Inventory H S
O/B 195 000 73 000
Purchases 630 000 212 000
Capitalise Depreciation of 40 000 0
Plant
LESS: C/B (250 000) (90 000)
= COS 615 000 195 000
11 What is the profit for the
year for each company?
H S
Sales 1 020 000 465 000
COS (Previous slide) (615 000) (195 000)
Admin expense (28 000) (14 000)
Rent (48 000) (12 000)
Other expense (240 000) (165 000)
Tax (41 000) (32 000)
Profit for the year 48 000 47 000
12 Proforma Journal entries:
DR Share Capital (SOFP) 105 000
DR Other Reserves (SOFP) 15 000
DR Retained Earnings (SOFP) 30 000
DR Land (given) (SOFP) 50 000
CR NCI (30% x 200) (SOFP) 60 000
CR Investment in S (SOFP) 160 000
DR Goodwill (balancing) (SOFP) 20 000

DR Retained Earnings (SOFP) 7 500

CR NCI (30% x 25) (SOFP) 7 500

DR NCI Share of Profit (P/L) 14 100

CR NCI (30% x 47) (SOFP) 14 100
 13 Analysis of Equity Worksheet

Dat Deta Equity of S Tota Analysis of equity

e ils l
SC OR RE Land NCI INV (GW) Since Since
RE OR
R R R R R R R R R
1/1/ At 105 15 30 50 200 60 16 (20) 0 0
06 Acq 0
31/1 Inc 25 25 7,5 17,5
2/08
105 15 55 50 225 67,5 16 (20) 17,5 0
0
31/1 Profit 47 47 14,1 32,9
2/09
105 15 102 50 272 81,6 16 (20) 50,4 0
0
 H Ltd Group
Consolidated Statement of Profit or Loss and Other
14
Comprehensive Income for the year ended 31
December 09
R
Revenue (1 020 + 465) 1 485 000
Cost of sales (615 + 195) (810 000)
Gross Profit 675 000
Operating expenses (316 + 191) (507 000)
Profit before tax 168 000
Taxation (41 + 32) (73 000)
Profit for the year 95 000

Attributable to:
Equity holders of parent 80 900
(48 000 H ltd + (47 000 S ltd x 70%) )
NCI 14 100
(47 000 x 30%)
95 000
15 Consolidated Statement of Changes in
Equity for the year ended 31 December
09

SC OR RE PAREN NCI TOTAL

(180 + T
17,5)
1 Jan 09 550 70 197,5 817,5 67,5 885

TCI 80,9 80,9 14,1 95

31 Dec 550 70 278,4 898,4 81,6 980

09
 H Ltd Group
16
Consolidated Statement of Financial Position as at
31 December 09
ASSETS R
Non-current assets (20 + 125 [75 + 50] + 304 449 000
[444 – 140])
Current assets (250 + 90 + 95 + 62 + 102 + 623 000
24)
Total assets 1 072 000
EQUITY AND LIABILITIES
Share capital 550 000
Other Reserves 70 000
Retained earnings (180 + 48 + 50,4) 278 400
Equity attributable to H 898 400
Non-controlling interests 81 600
Total equity 980 000
Current liabilities (63 + 29) 92 000
Total equity and liabilities 1 072 000
17 Example 6.2 Page 66
 H Ltd acquired 70% of the shares in S Ltd on 1
January 06 for R160 000. At that date H Ltd
considered all the net identifiable assets of S Ltd,
with the exception of its land, to be fairly valued in its
Statement of Financial Position.
 H Ltd considered S Ltd’s land to be worth R50 000
more than its book value. On 1 January 06, S Ltd’s
equity was as follows:

Share Capital 105 000

Asset Replacement Reserve 15 000
Retained Earnings 30 000
150 000
18 Trial Balances as at 31 December H Ltd S Ltd
09
R R
Share capital (550 000) (105 000)
Other reserves (88 000) (60 000)
Retained earnings – 1 Jan 09 (180 000) (55 000)
Profit before tax (89 000) (79 000)
Tax (expense) 41 000 32 000
Transfer for Asset Replacement Reserve 18 000 10 000
Inventory – 1 Jan 09 250 000 90 000
Accounts receivable 95 000 97 000
Accounts payable (63 000) (29 000)
Bank 102 000 24 000
Land, at cost 0 75 000
Plant – Cost 444 000 0
Plant – Accumulated depreciation (140 000) 0
Investment in S Ltd 160 000 0
Total 0 0
19 Proforma Journal entries:
DR Share Capital (SOFP) 105
000
DR Asset Replacement Reserves 15 000
(SOFP)
DR Retained Earnings (SOFP) 30 000
DR Land (given) (SOFP) 50 000
CR NCI (30% x 200) (SOFP) 60 000
CR Investment in S (SOFP) 160
000
DR Goodwill (balancing) (SOFP) 20 000
20 Proforma Journal entries:
DR Asset Replacement reserve 10 500
(SOFP)
CR NCI (30% x 35) (SOFP) 10 500

DR Retained earnings (SOFP) 7 500

CR NCI (30% x 25) (SOFP) 7 500

DR NCI Share of Profit (P/L) 14 100

CR NCI (30% x 47) (SOFP) 14 100

DR Asset Replacement reserve 3 000

(SOFP)
CR Transfer to ARR (30% x 10) (SOFP) 3 000
 21 Analysis of Equity Worksheet

Dat Deta Equity of S Tota Analysis of equity

e ils l
SC ARR RE Land NCI INV (GW) Since Since
RE ARR
R R R R R R R R R
1/1/ At 105 15 30 50 200 60 16 (20) 0 0
06 Acq 0
31/1 Inc 35 25 60 18 17,5 24,5
2/08
105 50 55 50 260 78 16 (20) 17,5 24,5
0
31/1 Profit 47 47 14,1 32,9
2/09
Trans 10 (10) 0 (7) 7
105 60 92 50 307 92,1 16 (20) 43,4 31,5
0
 H Ltd Group
Consolidated Statement of Profit or Loss and Other
22
Comprehensive Income for the year ended 31
December 09
R
Profit before tax (89 + 79) 168 000
Taxation (41 + 32) (73 000)
Profit for the year 95 000

Attributable to:
Equity holders of parent 80 900
(48 000 H ltd + (47 000 S ltd x 70%) )
NCI 14 100
(47 000 x 30%)
95 000
23 Consolidated Statement of Changes in
Equity for the year ended 31 December
09

SC ARR RE PAREN NCI TOTAL

(180 + T
17,5)
1 Jan 09 550 94,5 197,5 842 78 920
(88 – 18
+ 24,5)
TCI 80,9 80,9 14,1 95

Transfer 25 (25)

31 Dec 550 119,5 253,4 922,9 92,1 1 015

09
 H Ltd Group
24
Consolidated Statement of Financial Position as at
31 December 09
ASSETS R
Non-current assets (20 + 125 [75 + 50] + 304 449 000
[444 – 140])
Current assets (250 + 90 + 95 + 97 + 102 + 658 000
24)
Total assets 1 107 000
EQUITY AND LIABILITIES
Share capital 550 000
Other Reserves (88 + 31,5) 119 500
Retained earnings (180 + 89 – 41 - 18 + 43,4) 253 400
Equity attributable to H 922 900
Non-controlling interests 92 100
Total equity 1 015 000
Current liabilities (63 + 29) 92 000
Total equity and liabilities 1 107 000
25 Example 6.3 Page 69
 H Ltd acquired 70% of the shares in S Ltd on 1
January 06 for R160 000. At that date H Ltd
considered all the net identifiable assets of S Ltd,
with the exception of its land, to be fairly valued in its
Statement of Financial Position.
 H Ltd considered S Ltd’s land to be worth R50 000
more than its book value. On 1 January 06, S Ltd’s
equity was as follows:
Share Capital 105 000
Asset Replacement Reserve 15 000
Retained Earnings 30 000
150 000
 Recoverable amount of goodwill:
31 Dec 08 16 000
31 Dec 09 10 000
26 Trial Balances as at 31 December H Ltd S Ltd
09
R R
Share capital (550 000) (105 000)
Other reserves (88 000) (60 000)
Retained earnings – 1 Jan 09 (180 000) (55 000)
Profit before tax (89 000) (79 000)
Tax (expense) 41 000 32 000
Transfer for Asset Replacement Reserve 18 000 10 000
Inventory – 1 Jan 09 250 000 90 000
Accounts receivable 95 000 97 000
Accounts payable (63 000) (29 000)
Bank 102 000 24 000
Land, at cost 0 75 000
Plant – Cost 444 000 0
Plant – Accumulated depreciation (140 000) 0
Investment in S Ltd 160 000 0
Total 0 0
27 Proforma Journal entries:
DR Share Capital (SOFP) 105 000
DR Asset Replacement Reserves 15 000
(SOFP)
DR Retained Earnings (SOFP) 30 000
DR Land (given) (SOFP) 50 000
CR NCI (30% x 200) (SOFP) 60 000
CR Investment in S (SOFP) 160 000
DR Goodwill (balancing) (SOFP) 20 000

DR Asset Replacement reserve (SOFP) 10 500

CR NCI (30% x 35) (SOFP) 10 500
28 Proforma Journal entries:
DR Retained earnings (SOFP) 4 000
CR Goodwill (SOFP) 4 000

DR Retained earnings (SOFP) 7 500

CR NCI (30% x 25) (SOFP) 7 500

DR NCI Share of Profit (P/L) 14

100
CR NCI (30% x 47) (SOFP) 14
100

DR Asset Replacement reserve (SOFP) 3 000

CR Transfer to ARR (30% x 10) (SOFP) 3 000

DR Profit before tax (P/L) 6 000

 29 Analysis of Equity Worksheet

Dat Deta Equity of S Tota Analysis of equity

e ils l
SC ARR RE Land NCI INV (GW) Since Since
RE ARR
R R R R R R R R R
1/1/ At 105 15 30 50 200 60 16 (20) 0 0
06 Acq 0
31/1 Inc 35 25 60 18 4 13,5 24,5
2/08
105 50 55 50 260 78 16 (16) 13,5 24,5
0
31/1 Profit 47 47 14,1 6 26,9
2/09
Trans 10 (10) 0 (7) 7
105 60 92 50 307 92,1 16 (10) 33,4 31,5
0
 H Ltd Group
Consolidated Statement of Profit or Loss and Other
30
Comprehensive Income for the year ended 31
December 09
R
Profit before tax (89 + 79 - 6) 162 000
Taxation (41 + 32) (73 000)
Profit for the year 89 000

Attributable to:
Equity holders of parent 74 900
(Balancing) (42 000 H + 32 900 [70% of
47])
NCI 14 100
(47 000 x 30%)
89 000
31 Consolidated Statement of Changes in
Equity for the year ended 31 December
09

SC ARR RE PAREN NCI TOTAL

T

1 Jan 09 550 94,5 193,5 838 78 916

(88 – 18 (180 +
+ 24,5) 13,5)
TCI 74,9 74,9 14,1 89

Transfer 25 (25)

31 Dec 550 119,5 243,4 912,9 92,1 1 005

09
 H Ltd Group
32
Consolidated Statement of Financial Position as at
31 December 09
ASSETS R
Non-current assets (10 + 125 [75 + 50] + 304 439 000
[444 – 140])
Current assets (250 + 90 + 95 + 97 + 102 + 658 000
24)
Total assets 1 097 000
EQUITY AND LIABILITIES
Share capital 550 000
Other Reserves (88 + 31,5) 119 500
Retained earnings (180 + 89 – 41 - 18 + 33,4) 243 400
Equity attributable to H 912 900
Non-controlling interests 92 100
Total equity 1 005 000
Current liabilities (63 + 29) 92 000
Total equity and liabilities 1 097 000
33 Example 6.4 Page 72
 H Ltd acquired 70% of the shares in S Ltd on 1
January 06 for R160 000. At that date H Ltd
considered all the net identifiable assets of S Ltd,
with the exception of its land, to be fairly valued in its
Statement of Financial Position.
 H Ltd considered S Ltd’s land to be worth R50 000
more than its book value. On 1 January 06, S Ltd’s
equity was as follows:

Share Capital 105 000

Asset Replacement Reserve 15 000
Retained Earnings 30 000
150 000
34 Trial Balances as at 31 December H Ltd S Ltd
09
R R
Share capital (550 000) (105 000)
Other reserves (88 000) (60 000)
Retained earnings – 1 Jan 09 (180 000) (55 000)
Profit before tax (89 000) (79 000)
Tax (expense) 41 000 32 000
Transfer for Asset Replacement Reserve 18 000 10 000
Inventory – 1 Jan 09 250 000 90 000
Accounts receivable 125 000 97 000
Accounts payable (63 000) (29 000)
Bank 102 000 24 000
Land, at cost 0 75 000
Plant – Cost 444 000 0
Plant – Accumulated depreciation (140 000) 0
Investment in S Ltd 130 000 0
Total 0 0
35 Proforma Journal entries:
DR Share Capital (SOFP) 105
000
DR Asset Replacement Reserves 15 000
(SOFP)
DR Retained Earnings (SOFP) 30 000
DR Land (given) (SOFP) 50 000
CR NCI (30% x 200) (SOFP) 60 000
CR Investment in S (SOFP) 130
000
CR Retained earnings (balancing) 10 000
(SOFP)
36 Proforma Journal entries:
DR Asset Replacement reserve 10 500
(SOFP)
CR NCI (30% x 35) (SOFP) 10 500

DR Retained earnings (SOFP) 7 500

CR NCI (30% x 25) (SOFP) 7 500

DR NCI Share of Profit (P/L) 14 100

CR NCI (30% x 47) (SOFP) 14 100

DR Asset Replacement reserve 3 000

(SOFP)
CR Transfer to ARR (30% x 10) (SOFP) 3 000
 37 Analysis of Equity Worksheet

Dat Deta Equity of S Tota Analysis of equity

e ils l
SC ARR RE Land NCI INV (GW) Since Since
RE ARR
R R R R R R R R R
1/1/ At 105 15 30 50 200 60 13 10 0
06 Acq 0
31/1 Inc 35 25 60 18 17,5 24,5
2/08
105 50 55 50 260 78 13 27,5 24,5
0
31/1 Profit 47 47 14,1 32,9
2/09
Trans 10 (10) 0 (7) 7
105 60 92 50 307 92,1 13 53,4 31,5
0
 H Ltd Group
Consolidated Statement of Profit or Loss and Other
38
Comprehensive Income for the year ended 31
December 09
R
Profit before tax (89 + 79) 168 000
Taxation (41 + 32) (73 000)
Profit for the year 95 000

Attributable to:
Equity holders of parent 80 900
(48 000 H ltd + (47 000 S ltd x 70%) )
NCI 14 100
(47 000 x 30%)
95 000
39 Consolidated Statement of Changes in
Equity for the year ended 31 December
09

SC ARR RE PAREN NCI TOTAL

T

1 Jan 09 550 94,5 207,5 852 78 930

(88 – 18 (180 +
+ 24,5) 27,5)
TCI 80,9 80,9 14,1 95

Transfer 25 (25)

31 Dec 550 119,5 263,4 932,9 92,1 1 025

09
 H Ltd Group
40
Consolidated Statement of Financial Position as at
31 December 09
ASSETS R
Non-current assets (125 [75 + 50] + 304 [444 – 429 000
140])
Current assets (250 + 90 + 125 + 97 + 102 + 688 000
24)
Total assets 1 117 000
EQUITY AND LIABILITIES
Share capital 550 000
Other Reserves (88 + 31,5) 119 500
Retained earnings (180 + 89 – 41 - 18 + 53,4) 263 400
Equity attributable to H 922 900
Non-controlling interests 92 100
Total equity 1 025 000
Current liabilities (63 + 29) 92 000
Total equity and liabilities 1 117 000
41 Example 6.5 Page 74
 H Ltd acquired 60% of the shares in S Ltd on 31
December 02 for R65 000. At that date H Ltd
considered all the net identifiable assets of S Ltd,
with the exception of its land, to be fairly valued in its
Statement of Financial Position.
 H Ltd considered S Ltd’s land to be worth R20 000
more than its book value. On 1 January 03, S Ltd’s
equity was as follows:

Share Capital 50 000

Asset Replacement Reserve 20 000
Retained Earnings 10 000
80 000
42 Trial Balances as at 31 December H Ltd S Ltd
03
R R
Share capital (200 000) (50 000)
Asset replacement reserves (40 000) (23 000)
Retained earnings (30 000) (10 000)
Non-current liabilities (20 000) (5 000)
Profit before tax (35 000) (15 000)

Land and buildings 185 000 60 000

Investment in S Ltd 65 000 0
Current assets 61 000 37 000
Taxation 9 000 3 000
Transfer to ARR 3 000
Dividends paid – 31 Dec 03 5 000

Total 0 0
43 Proforma Journal entries:
DR Share Capital (SOFP) 50 000
DR Asset Replacement Reserves 20 000
(SOFP)
DR Retained Earnings (SOFP) 10 000
DR Land (given) (SOFP) 20 000
CR NCI (40% x 100) (SOFP) 40 000
CR Investment in S (SOFP) 65 000
DR Goodwill (Balancing) (SOFP) 5 000

DR Asset Replacement reserve 1 200

(SOFP)
CR NCI (40% x 3) (SOFP) 1 200
44 Proforma Journal entries:
DR NCI Share of Profit (P/L) 4 800
CR NCI (40% x 12) (SOFP) 4 800
 45 Analysis of Equity Worksheet

Dat Deta Equity of S Tota Analysis of equity

e ils l
SC ARR RE Land NCI INV (GW) Since Since
RE ARR
R R R R R R R R R
1/1/ At 50 20 10 20 100 40 65 (5)
03 Acq
31/1 Profit 12 12 4,8 7,2
2/03
Trans 3 (3) 0 (1,8) 1,8
50 23 19 20 112 44,8 65 (5) 5,4 1,8
 H Ltd Group
Consolidated Statement of Profit or Loss and Other
46
Comprehensive Income for the year ended 31
December 03
R
Profit before tax (35 + 15) 50 000
Taxation (9 + 3) (12 000)
Profit for the year 38 000

Attributable to:
Equity holders of parent 33 200
(Balancing) (H [35 – 9] + portion of S
[60% of 12]
NCI 4 800
(12 000 x 40%)
38 000
47 Consolidated Statement of Changes in
Equity for the year ended 31 December
03

SC ARR RE PAREN NCI TOTAL

T

1 Jan 03 200 40 30 270 40 310

TCI 33,2 33,2 4,8 38

Transfer 1,8 (1,8)

Dividend (5) (5) (5)

31 Dec 200 41,8 56,4 298,2 44,8 343

03
 H Ltd Group
48
Consolidated Statement of Financial Position as at
31 December 03
ASSETS R
Non-current assets (5 + 185 + 60 + 20) 270 000
Current assets (61 + 37) 98 000
Total assets 368 000
EQUITY AND LIABILITIES
Share capital 200 000
Other Reserves (40 + 1,8) 41 800
Retained earnings (30 + 33,2 – 1,8 - 5) 56 400
Equity attributable to H 298 200
Non-controlling interests 44 800
Total equity 343 000
Non-current liabilities (20 + 5) 25 000
Total equity and liabilities 368 000
49 Example 6.6 Page 77
 H Ltd acquired 60% of the shares in S Ltd on 31
December 02 for R65 000. At that date H Ltd
considered all the net identifiable assets of S Ltd,
with the exception of its land, to be fairly valued in its
Statement of Financial Position.
 H Ltd considered S Ltd’s land to be worth R20 000
more than its book value. S Ltd did not revalue the
land and sold it on 31 May 04. On 1 January 03, S
Ltd’s equity was as follows:
Share Capital 50 000
Asset Replacement Reserve 20 000
Retained Earnings 10 000
80 000
50 Trial Balances as at 31 December H Ltd S Ltd
04
R R
Share capital (200 000) (50 000)
Asset replacement reserves (45 000) (25 000)
Retained earnings (52 200) (16 000)
Non-current liabilities (20 000) (5 000)
Profit before tax (45 000) (45 000)

Land and buildings 185 000 0

Investment in S Ltd 65 000 0
Net current assets 87 200 133 000
Taxation 12 000 6 000
Transfer to ARR 5 000 2 000
Dividends paid – 31 Dec 04 8 000

Total 0 0
51 Proforma Journal entries:
DR Share Capital (SOFP) 50 000
DR Asset Replacement Reserves 20 000
(SOFP)
DR Retained Earnings (SOFP) 10 000
DR Land (given) (SOFP) 20 000
CR NCI (40% x 100) (SOFP) 40 000
CR Investment in S (SOFP) 65 000
DR Goodwill (Balancing) (SOFP) 5 000

DR Asset Replacement reserve 1 200

(SOFP)
CR NCI (40% x 3) (SOFP) 1 200
52 Proforma Journal entries:
DR Retained earnings (SOFP) 2 400
CR NCI (40% x 6) (SOFP) 2 400

DR Profit before tax (P/L) 20 000

CR Land (SOFP) 20 000

DR NCI Share of Profit (P/L) 7 600

CR NCI (40% x 19) (SOFP) 7 600

DR Asset Replacement reserve 800

(SOFP)
CR Transfer to ARR (40% x 2) (SOFP) 800
 53 Analysis of Equity Worksheet

Dat Deta Equity of S Tota Analysis of equity

e ils l
SC ARR RE Land NCI INV (GW) Since Since
RE ARR
R R R R R R R R R
1/1/ At 50 20 10 20 100 40 65 (5)
03 Acq
Inc 3 6 9 3,6 3,6 1,8
31/1 50 23 16 20 109 43,6 65 (5) 3,6 1,8
2/03
31/1 Profit 39 (20) 19 7,6 11,4
2/04
Trans 2 (2) 0 (1,2) 1,2
50 25 53 0 128 51,2 65 (5) 13,8 3
 H Ltd Group
Consolidated Statement of Profit or Loss and Other
54
Comprehensive Income for the year ended 31
December 03
R
Profit before tax (45 + 45 - 20) 70 000
Taxation (12 + 6) (18 000)
Profit for the year 52 000

Attributable to:
Equity holders of parent 44 400
(Balancing) (H [45 – 12] + Portion of S
[60% of 19])
NCI 7 600
(19 000 x 40%)
352 000
55 Consolidated Statement of Changes in
Equity for the year ended 31 December
04

SC ARR RE PAREN NCI TOTAL

T

1 Jan 04 200 41,8 55,8 297,6 43,6 341,2

(45 – 5 (52,2 +
+ 1,8) 3,6)
TCI 44,4 44,4 7,6 52

Transfer 6,2 (6,2)

Dividend (8) (8) (8)

31 Dec 200 48 86 334 51,2 385,2

04
 H Ltd Group
56
Consolidated Statement of Financial Position as at
31 December 04
ASSETS R
Non-current assets (5 + 185) 190 000
Current assets (87,2 + 133) 220 200
Total assets 410 200
EQUITY AND LIABILITIES
Share capital 200 000
Other Reserves (45 + 5 - 2) 48 000
Retained earnings 86 000
Equity attributable to H 334 000
Non-controlling interests 51 200
Total equity 385 200
Non-current liabilities (20 + 5) 25 000
Total equity and liabilities 410 200
57 Chapter 7
 EACH individual company prepares it’s own financial
statements which does not reflect any relationship
between companies within the same group.
 If one company in the group sells inventory or PPE to
another company in the group, the selling company would
eliminate the asset from it’s books and recognise any profit
from sale of the asset.
 However, when preparing consolidated financial
statements, the group companies are treated as if they are
one single entity and we thus have to adopt the ethos that
“a company cannot make a profit out of oneself” – due
to this – intercompany transactions (or rather the
intercompany profit) must be eliminated when
preparing consolidated / group financial statements.
 Dividends
58

 Dividends paid / declared by S and received by H

are not included as dividend income in the
consolidated statement of profit or loss and other
comprehensive income.
 No portion of the dividends paid by S is paid to H’s
shareholders themselves – these dividends are
only payable to company H and NCI shareholders.
 The dividends paid / declared which should
be included in the consolidated statement of
changes in equity are only H’s dividends
paid / declared.
 59 Dividends
 How would dividends be recognised in the books
of S?
 DR Dividend Expense (SOFP)
 CR Bank (SOFP)

 How would dividends be recognised in the books

of H?
 DR Bank (SOFP)
 CR Dividend Income (P/L)

 How would dividends be eliminated in the group

books?
 DR Dividend income (P/L)
 CR Dividend Expense (SOFP)
 60 How would this differ if dividends
were NOT paid at year end?
 How would dividends be recognised in the books of S?
 DR Dividend Expense (SOFP)
 CR Shareholders for dividends (SOFP)
 How would dividends be recognised in the books of H?
 DR Dividend Receivable (SOFP)
 CR Dividend Income (P/L)
 How would dividends be eliminated in the group
books?
 DR Dividend income (P/L)
 CR Dividend Expense (SOFP)

 DR Shareholders for dividends (SOFP)

 CR Dividend Receivable (SOFP)
 61 Loans

 Often companies within the same group would

assist one another when working capital
becomes tight for one of the companies. This
would result in one company granting a
loan to another company within the same
group.
 Upon consolidation of companies within the
same group, it would make sense that these
companies are seen as a single entity and as
such, a company would not have a loan with
itself – this means we need to eliminate this
loan on consolidation.
 62 Loans (H grants S a loan)
 How would a loan be recognised in the
books of S?
 DR Bank (SOFP)
 CR Loan from H Ltd (liability) (SOFP)
 How would a Loan be recognised in the
books of H?
 DR Loan to S Ltd (Asset) (SOFP)
 CR Bank (SOFP)
 How would a loan be eliminated in the
group books?
 DR Loan from H Ltd (liability) (SOFP)
 CR Loan to S Ltd (Asset) (SOFP)
 63 Interest on an
intercompany loan

 How would the interest be recognised in the books of S?

 DR Interest expense (P/L)
 CR Loan from H Ltd (SOFP)
 How would the interest be recognised in the books of H?
 DR Loan to S Ltd (SOFP)
 CR Interest income (P/L)
 How would the interest be eliminated in the group books?
 DR Interest income (P/L)
 CR Interest expense (P/L)
64 Rental
 When H purchases S, it would make
sense to use group resources which
could include office space,
administration building, warehouses etc.
This may result in S paying rental for
such space to H.
 In terms of group financial statements, it
stands to reason that a company
cannot rent from itself – that just
doesn’t make sense – as such we would
need to eliminate the rental expense and
the rental income upon consolidation.
 65 Rental (H rents to S)
 How would rental be recognised in the books of
S?
 DR Rental Expense (P/L)
 CR Bank (SOFP)

 How would rental be recognised in the books of

H?
 DR Bank (SOFP)
 CR Rental Income (P/L)

 How would rental be eliminated in the group

books?
 DR Rental Income (P/L)
 CR Rental Expense (P/L)
 66 Example 7.1 Page 83
 H ltd acquired 80% of S Ltd’s shares on 2
January 2006. all identifiable assets were
considered to be fairly valued. NCI is valued at
it’s proportionate share of net identifiable
assets.

 Required: Prepare the consolidated financial

statements of H Ltd and its subsidiary for the
06 financial year.
Trial balances extracted from the books of H Ltd and
S67Ltd at 31 December 2006
H Ltd S Ltd
R R
Share capital (10 000) (5 000)
Retained earnings (18 000) (12 000)
Profit before tax (20 000) (15 000)
Current liabilities (4 000) (9 000)
Property, plant and equipment 8 000 7 000
Investment in S 14 000 0
Current assets 15 000 23 000
Taxation 8 000 6 000
Dividends declared – 30/12/06 7 000 5 000
Total 0 0
 68 Example 7.1 Page 85
 Analysis of equity worksheet

Date Detail Equity of S Total Analysis of equity

s
SC RE NCI INV (GW) Since
RE
R R R R R R R
2/1/06 At Acq 5 000 12 000 17 3 400 14 (400) 0
000 000
31/12/ Profit 0 9 000 9 000 1 800 0 0 7 200
06
Divide 0 (5 000) (5 (1 0 0 (4 000)
nds 000) 000)
5 000 16 000 21 4 200 14 (400) 3 200
000 000
69 Example 7.1 Page 85
 Pro-forma journal entries

DR Share Capital (SOFP) 5 000

DR Retained Earnings (SOFP) 12 000

DR Goodwill (SOFP) 400

CR NCI (SOFP) 3 400

CR Investment in S (SOFP) 14
000
Example 7.1 Page 85
70

DR NCI Share of Profit (P/L) 1 800

CR NCI (SOFP) 1 800

DR Dividend Income (P/L) 4 000

DR NCI (SOFP) 1 000
CR Dividend Expense (SOFP) 5 000

DR Shareholders for Dividends 4 000

(SOFP)
CR Dividend Receivable (SOFP) 4 000
 Example
71
7.1 Page 84
 H Ltd Group
 Consolidated Statement of Profit or Loss and Other
Comprehensive Income for the year ended 31 December
2006
 Profit before tax (20 000 + 15 000 – 4 000)
31 000
 Taxation (8 000 + 6 000)
(14 000)
 Profit for the year
17 000
 Attributable to:
 Equity holders of parent (balancing figure) 15 200
 Non-controlling interests ([15 000 – 6 000] x 20%) 1 800
 Total 17 000
 72 Example 7.1 Page 84
 Consolidated Statement of Changes in Equity for the year
ended 31 December 2006

Share Retaine Attributab NCI Total

capital d le to H Equity
earning
s
R R R R R
Balance 1 Jan 06 10 000 18 000 28 000 0 28 000
Acq of S 0 0 0 3 400 3 400
Comprehensive 0 15 200 15 200 1 800 17 000
income
Dividends 0 (7 000) (7 000) (1 000) (8 000)
Balance 31 Dec 10 000 26 200 36 200 4 200 40 400
06
 Example
73 7.1 Page 84
 Consolidated Statement of Financial Position as at 31 December 2006

ASSETS R
Non-current assets
Property, plant and equipment (8 000 + 7 000) 15 000
Goodwill 400
Current assets (15 000 + 23 000 – 4 000) 34 000
Total assets 49 400
EQUITY AND LIABILITIES
Share capital 10 000
Retained earnings 26 200
Equity attributable to H 36 200
Non-controlling interests 4 200
Total equity 40 400
Current liabilities (4 000 + 9 000 – 4 000) 9 000
Total equity and liabilities 49 400