Group balance sheets

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:27AM in AAT student discussion
Help!

Anyone else struggling with consolidated balance sheets? Anyone have any guidance notes that may help me? My email is kerry_wildman@blueyonder.co.uk Thank you! :shock:

Kerry

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Group balance sheets

    If you follow the 5 steps religiously it makes things easier.
    Step 1- work out the percentage of investment by the parent company based on the nominal share capital of the subsidiary. e.g if the parent buys 60000000 shares in a subsidary which has 100000000 shares then the parent owns 60% of the subsidiary.N.B. Check the nominal value of the shares, if the parent invests £4000000 in 50p shares then the investment would be 8000000 shares i.e.80% of the subsidiary.
    step 2- List the net assets of the subsidiary for two dates. The accquisition date and the balance sheet date. This includes the share capital (nominal + premium) plus retained earnings at each date plus any fair value revaluations.
    Step 3 -goodwill. Find the price paid for investment in the subsidiary from the balance sheets and subtract the value of the investment. e.g. if the parent buys 60% of the subsidiary then the value of the investment is 60% of the net assets (share capital(nominal + premium)+ retained earnings) of the subsidiary at the accquisition date. The difference is the goodwill.
    step 4- minority interest. This is the percentage of the net assets still belonging to the subsidiary at the balance sheet date. e.g. If the parent owns 60%, the minority interest is 40% of the net assets at the balance sheet date.
    Step 5 - The retained profits. This is 100% of the parents profits + the percentage share of the subsidiary's profits after the accquisition date. i.e. the balance sheet profits minus the accquistion dates profits of the subsidiary multiplied by the percentage investment of the parent(in the example given this would be 60%).
    The balance sheet can now be compiled for the group.
    Goodwill is the first figure in the non-current assets. All other figures are added together for the both companies until you reach the net assets figure. for the equity half of the balance sheet, the share capital (and premium) applies to the parent compnay only. The retained profits have been calculated in step 5, this just leaves the minority interest from step 4 to make the balance sheet balance.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Group balance sheets

    Thank you so much for taking the time to reply, ill give that a go. :D

    Kerry
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Group balance sheets

    I agree with the method above - if you learn then you can tackle any question without any problem.

    Just one area to think about though - in step 3 (goodwill) be aware that goodwill may be impaired, so the impairment to date will be deducted. This will mean that goodwill is less in the top half of the balance sheet, so you will also need to reduce the retained earnings by the same amount to get it to balance

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