Dfs - Consolidation
Caroline B
Registered Posts: 2 New contributor 🐸
Help - I'm getting in a pickle with this - mixing up Subsidary workings and associate - my notes are not making sense - I've read the osbourne book and am now more confused - is there a simple way to remember what you do to what in the income statement and balance sheet.
0
Comments
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You may have done too much revision in one period and that's why your notes no longer make any sense. Take time out regularly - that will help you digest the information more effectively.
In terms of the income statement/balance sheet the key here is to remember the fundamental principle of what you are actually doing. Remember, consolidation is the process of 'grouping' together parent and subsidiary financial statements to report the group as a single entity. It is therefore a combination of cancelling some items (intra group transactions) and combining others. Remember, you only consolidate where you have a subsidiary (51% or more of the shares). You have an associate when you have between 20% - 50% of the shares. For the consolidated balance sheet:- Draw a diagram of the group structure; then
- calculate the goodwill; then
- calculate the minority interest; then
- calculated the retained reserves; then
- consolidate the two balance sheets line by line.
In terms of the income statement, these are slightly less complicated. Remember that when you have intra group sales, cancel the sale in the parent/subsidiary making the sale and don't forget to cancel the purchase in the parent/subsidiary.
Remember your URP adjustments (un-realised profit in inventory). If you do not eliminate this, the stock figure in the consolidated financial statements will be overstated. If you have 1,000 units at a mark up on cost of 25% that were sold by the entity at £10, remember to calculate the URP adj as 1,000 x £10 x 25/125. If you are doing a consolidated income statement, take this figure out of cost of sales. If you are doing a balance sheet, take it out of inventories.
The only final bit of advice I can give you in terms of consolidation is to practice as many exam standard questions as you possibly can between now and the exam to develop your technique in this area.
Kind regards
Steve0 -
Thank you - After completing some past papers, I think I was trying to make things more complicated than they needed to be.0
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