Advanced Consolidation Accounting and Equity Methods
Consolidation Notes and BCVR Entries
Step 2: BCVR Entries
| Asset Status | Not Sold | If Sold – Current Year | If Sold – Prior Year |
|---|---|---|---|
| Inventory / General Assets |
Debit (DR) Asset Credit (CR) BCVR Credit (CR) Deferred Tax Liability (DTL) |
Inventory: DR Cost of Goods Sold (COGS) CR Income Tax Expense (ITE) CR Transfer from BCVR | No entry here – BCVR transferred to Retained Earnings (Step 3) |
| Depreciable Assets |
If Accumulated Depreciation: DR Accumulated Depreciation CR Asset CR DTL CR BCVR Following Years: DR Depreciation Expense (Current Year) DR Retained Earnings (Prior Years) CR Accumulated Depreciation DR DTL CR ITE (Current Year) CR Retained Earnings (Prior Years) |
Non-Current Assets (NCA): DR Carrying Amount (CA) of Asset CR ITE CR Transfer from BCVR | No entry here – BCVR transferred to Retained Earnings (Step 3) |
Step 3: Pre-Acquisition Entries
Adjust for transfers to/from Retained Earnings (RE) or other reserves from Pre-Acquisition Equity.
- Standard Entry: DR All Equity Accounts (% Interest), DR BCVR, DR Goodwill (Partial) OR CR Gain on Bargain Purchase, CR Shares in Subsidiary.
- With Current Year Sale: DR All Equity Accounts, DR BCVR, DR Goodwill (Partial) OR CR Gain on Bargain Purchase, CR Shares in Subsidiary (% Interest). Also: DR Transfer from BCVR, CR BCVR (% Interest).
- With Prior Year Sale: DR Retained Earnings (add BCVR from above), DR Equity Accounts, DR BCVR, DR Goodwill (Partial) OR CR Gain on Bargain Purchase, CR Shares in Subsidiary (% Interest).
Step 4: NCI (Acquisition Date)
DR All Equity Accounts (% Interest), DR BCVR, CR Non-Controlling Interest (NCI).
Step 5: NCI (Post-Acquisition to Beginning of Period)
- Retained Earnings: DR RE, CR NCI (Increase). Note: Change in RE may need adjustment from Step 2 BCVR entries.
- Reserves: DR Asset Revaluation Surplus (ARS) / General Reserve (GR), CR NCI (Increase).
- Prior Year Asset Sale: DR NCI (Decrease), CR BCVR. (Change in BCVR due to sale of asset in prior year % Interest).
Step 6: NCI (Current Period)
- Profit Share: DR NCI Share of Profit, CR NCI (Increase). (Adjust for Step 2 BCVR entries if profit is affected).
- ARS Change: DR ARS, CR NCI (Increase).
- Current Year Sale: DR Transfer from BCVR, CR BCVR (% Interest).
- Dividends: DR NCI (Decrease), CR Interim Dividend Paid; DR NCI (Decrease), CR Final Dividend Declared (% Interest).
Step 7: Parent Dividends
- DR Dividend Revenue, CR Interim Dividend Paid (% Interest).
- DR Dividend Payable, CR Final Dividend Declared (% Interest).
- DR Dividend Revenue, CR Dividend Receivable (% Interest).
Step 8: Intragroup Transactions
Inventory Sales
- Current Year: DR Sales, CR Cost of Sales (COS), CR Inventory. Also: DR Deferred Tax Asset (DTA), CR ITE. If Upstream: DR NCI, CR NCI Share of Profit (After-tax profit x Interest).
- Prior Year: DR Retained Earnings (After-tax profit), DR ITE, CR COS (Profit). If Upstream: DR Share of Profit, CR RE (After-tax profit x Interest).
Non-Current Asset (NCA) Sales
- Current Year: DR Proceeds on Sale, CR CA of Asset, CR Asset. Also: DR DTA, CR ITE. If Upstream: DR NCI, CR NCI Share of Profit.
- Prior Year: DR Retained Earnings (After-tax profit), DR DTA, CR Asset. If Upstream: DR NCI, CR RE.
- Depreciation Adjustments: DR Accumulated Depreciation, CR Depreciation Expense, DR ITE, CR DTA.
- NCI Realizing Profit: DR Share of Profit, CR NCI (Current); DR Share of Profit, DR RE, CR NCI (Prior).
Investments in Associates: Equity Accounting Solution
Bongo Ltd – Tom-Tom Ltd (30% Interest)
At 1 July 2010:
- Net Fair Value of Identifiable Assets and Liabilities = $100,000 + $50,000 + $20,000 (Equity) + $3,500 (Machinery net of tax) + $1,400 (Inventory net of tax) = $174,900.
- Net Fair Value Acquired (30%) = $52,470.
- Cost of Investment = $60,000.
- Goodwill = $7,530.
- Annual Depreciation of Machinery = 1/5 x ($5,000 x 70%) = $700.
- Inventory Adjustment = $2,000 x 70% = $1,400.
Period: 1 July 2010 – 30 June 2012
Increase in Retained Earnings: $20,000. Adjustments: General Reserve Increase ($10,000), Depreciation (2 years x $700 = -$1,400), Inventory (-$1,400). Total = $27,200. Investor’s Share (30%) = $8,160.
Increase in ARS: $10,000. Investor’s Share (30%) = $3,000.
Period: 1 July 2012 – 30 June 2013
Profit for the period: $32,000. Adjustments: Unrealized profit on inventory (-$350), Unrealized profit on NCA sale (-$6,580), Depreciation of machinery (-$700). Total = $24,370. Investor’s Share (30%) = $7,311.
Consolidation Worksheet Entries (30 June 2013)
- DR Investment in Tom-Tom Ltd $18,471
- CR Retained Earnings (1/7/12) $8,160
- CR Asset Revaluation Reserve $3,000
- CR Share of Profit or Loss of Associates $7,311
- DR Dividend Revenue $3,000, CR Investment in Tom-Tom Ltd $3,000 (30% of $10,000 total dividends).
Foreign Currency Translation Procedures
| Item | Translation to Functional Currency | Translation to Presentation Currency | Differences |
|---|---|---|---|
| Assets and Liabilities | (a) Monetary: Current Rate; (b) Non-Monetary: Historic Rate | Current Rate at reporting date | Exchange rates for non-monetary items |
| Pre-acquisition Equity | Historic Rate at date of acquisition | Historic Rate at date of acquisition | Nil |
| Post-acquisition Equity | Rate at date of recognition | Rate at date of recognition | Nil |
| Dividends | Rate at date paid or declared | Rate at date paid or declared | Nil |
| Income and Expenses | Rate at date of recognition (or average rate) | Rate at date of recognition (or average rate) | Nil |
| Non-Monetary Allocations | Historic Rate (related to asset) | Historic Rate | Exchange rates for allocations |
| Exchange Differences | Foreign exchange gain/loss (Income Statement) | Foreign currency translation reserve (Equity) | Recognized in Income Statement vs. Balance Sheet |