cancel out items
which appear as an asset in one company and a liability in another.
(b)
Add together
all the uncancelled assets and liabilities throughout the group on a line by line basis.
Items requiring cancellation may include the following.
(a)
The asset 'investment in subsidiary companies' which appears in the parent company's accounts
will be matched with the liability 'share capital' in the subsidiaries' accounts.
(b) There may be intra-group trading within the group. For example, Subsidiary Co may sell goods on
credit to Parent Co. Parent Co would then be a receivable in the accounts of Subsidiary Co, while
Subsidiary Co would be a payable in the accounts of Parent Co.
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CHAPTER 24
//
THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
419
1.2 Example: cancellation
Parent Co has just bought 100% of the shares of Subsidiary Co. Below are the statements of financial
position of both companies just before consolidation.
PARENT CO
SUBSIDIARY CO
STATEMENT OF FINANCIAL POSITION
STATEMENT OF FINANCIAL POSITION
$'000
$'000
Assets
Investment in subsidiary*
50
Receivables
20
Receivables
30 Cash
30
80
50
Equity and liabilities
Share capital
80 Share
capital*
50
80
50
* Cancelling items
The consolidated statement of financial position will appear as follows.
PARENT AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
$'000
Receivables (30 + 20)
50
Cash
30
80
Share capital**
80
80
**
Note
. This is the parent company's share capital only. The subsidiary's has been cancelled.
1.3 Example: cancellation with intra-group trading
P Co regularly sells goods to its one subsidiary company, S Co. The statements of financial position of the
two companies on 31 December 20X6 are given below.
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20X6
P Co
S Co
$
$
Assets
Non-current assets
Property, plant and equipment
35,000
45,000
Investment in 40,000 $1 shares in S Co at cost
40,000
–
75,000
45,000
Current assets
Inventories
16,000
12,000
Receivables: S Co
2,000 –
Other
6,000
9,000
Cash at bank
1,000
–
25,000
21,000
Total assets
100,000
66,000
Equity and liabilities
Equity
$1 ordinary shares
70,000
40,000
Retained earnings
16,000
19,000
86,000
59,000
Current liabilities
Bank overdraft
–
3,000
Payables: P Co –
2,000
Payables: other
14,000
2,000
14,000
7,000
Total equity and liabilities
100,000
66,000
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