Consolidation Notes: A Comprehensive Guide to Step-by-Step Entries
Consolidation Notes
Step 2 BCVR Entries
Not sold | If Sold – Current Year | If Sold – Prior Year | ||||||
DR Asset | Inventory: | No entry here – BCVR | ||||||
CR BCVR | DR COGS | transferred to RE (Step 3) | ||||||
CR DTL | CR ITE | |||||||
CR Transf. from BCVR** | ||||||||
If Accumulated Deprec: DR Accum. Deprec CR Asset CR DTL CR BCVR | NCA: DR CA ofAsset CR ITE CR Transfer from BCVR** | No entry here – BCVR transferred to RE (Step 3) | ||||||
If Depreciable Asset – following yrs: | ||||||||
DR Deprec Exp (current yr) DR RE (Prior years) CR Acc.Deprec | ||||||||
DR DTL CR ITE (currentyr) CR RE (prioryrs) | ||||||||
Step 3 Pre-Acquisition Entries (adjust for transfers to/from RE or other reserves from Pre-Acq. Equity)
DR All Equity Accts (% Interest) | DR All Equity Accts | DR RE (add BCVR from above |
DR BCVR | DR BCVR | DR Equity Accts |
DR Goodwill (Partial) or | DR Goodwill (Partial) or | DR BCVR |
CR Gain on BargainPurchase | CR Gain on BargainPurchase | DR Goodwill (Partial) or |
CR Shares inSub | CR Shares inSub | CR Gain on BargainPurchase |
(% Interest) | CR Shares inSub | |
(% Interest) | ||
DR Transf. from BCVR ** CR BCVR (%Interest) |
Step 4 NCI (Step 1 – Acq. Date)
DR All Equity Accts (% Interest) DR BCVR CR NCI |
Step 5 NCI (Step 2 – Acq. Date – Beg. Current period)
DR RE CR NCI (increase) |
Change in RE – may need to be adjusted from Step 2 BCVR entries if adj to RE (% Interest)
DR ARS/GR CR NCI (increase) |
Change in ARS/GR (increase) (% Interest)
DR NCI (decrease) CR BCVR |
Change in BCVR due to sale of Asset prior year (% Interest)
Step 6 NCI (Step 3 – Current period)
DR NCI Share of Profit CR NCI (increase) |
Share of Current year profit – may need to be adjusted from Step 2 BCVR entries if adj to profit (% Interest)
DR ARS CR NCI(increase) |
Change in ARS (increase) (% Interest)
DR Transf. from BCVR** CR BCVR (%Interest) |
(See Step 2 above – sale of asset current year) | ||
DR NCI (decrease) CR Interim divpaid (%Interest) | ||
DR NCI (decrease) CR Final Div.Declared (%Interest) | ||
Step 7 Dividends – Parent | ||
DR Div. Revenue CR Interim DivPd (%Interest) | ||
DR Div Payable CR Final DivDeclared (%Interest) | ||
DR Div Revenue CR Div Receivable (%Interest) | ||
Step 8 – Intragroup Transactions | ||
Sale Inv. – Current Year (Profit in closing inventory) | Sale Inv. – Prior Year | |
DR Sales CR COS CR Inventory | DR RE (after tax profit) DR ITE CR COS (profit) | |
DR DTA CR ITE | If Upstream Sale (sub to parent) | |
If Upstream Sale (sub to parent) | DR Share of profit | |
DR NCI | CR RE | |
CR NCI Share of profit | (after tax profit x interest) | |
(after tax profit x Interest) | ||
Sale NCA – Current Year | Sale NCA – Prior Year | |
DR Proceeds onsale CR CA of asset CR Asset | DR RE (after tax profit) DR DTA CR Asset | |
DR DTA CR ITE | ||
If Upstream Sale (sub to parent) | If Upstream Sale (sub to | |
DR NCI | parent) | |
CR NCI Share of profit | DR NCI | |
(after tax profit x Interest) | CR RE | |
(after tax profit x interest) | ||
Adjust depreciation | Adjust depreciation | |
DR Acc. Deprec | DR Acc. Deprec. | |
CR Deprec. Expense | CR RE | |
CR Deprec. Expense | ||
DR ITE | ||
CR DTA | DR ITE | |
DR RE | ||
CR DTA | ||
Adjust NCI – realising profit | Adjust NCI – realising profit | |
DR Share of profit | DR Share of Profit | |
CR NCI | DR RE | |
(Deprec after tax x interest) | CR NCI | |
(Deprec after tax x interest) |
Item | Translation to functional currency | Translation to presentation currency | Differences |
Assets and Liabilities: (a)Monetaryitems (b)Non-Monetaryitems | (a)Exchange rate currentat reportingdate (b)Exchange rate at dateof acquisition or revaluation (historicrate) | (a) & (b) Exchange rate current at reporting date | Exchange rates for non-monetary items |
Pre-acquisition Shareholders’ Equity | Exchange rate at date of acquisition or investment | Exchange rate at date of acquisition or investment | Nil |
Post-acquisition movements in Shareholders’ Equity (except retained profits) | Exchange rate current at the date of recognition in the accounts | Exchange rate current at the date of recognition in the accounts | Nil |
Post-acquisition Dividends | Exchange rate current at date paid or declared | Exchange rate current at date paid or declared | Nil |
Item | Translation to functional currency | Translation to presentation currency | Differences |
Income and Expense items (except allocations of non- monetary items such as depreciation) | Exchange rate current at the dates items recognised in the accounts (or average exchange rate for year) | Exchange rate current at the dates items recognised in the accounts (or average exchange rate for year) | Nil |
Allocations of Non-Monetary items (depreciation, amortisation) | Exchange rate used to translate related non-monetary items (historic rate) | As above | Exchange rates for allocations of non- monetary items |
Exchange Differences (gains or losses) | Foreign exchange gain/loss (Income Statement) | Foreign currency translation reserve (Balance Sheet) | Either recognised in the Income Statement or in equity in the Balance Sheet |
What is an operating segment? AASB 8 defines an operating segment as: … a component of an entity: (a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), (b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available. (AASB 8, Appendix A) Briefly explain how we determine an entity’s operating segments. The first step is to apply the ‘definition’ in AASB 8. Some activities may not relate to an operating segment (AASB 8.6). In contrast, operating segments includes those in the start-up phase for which there may be minimal or no revenues (AASB 8.5). Application of the definition can be problematic due to the possibility of apparently overlapping operating segments (AASB 8.10) or when there are multiple internal reporting process indicating differing operating segments AASB 8.8). What is a reporting segment? A reportable segment is an operating segment that, under AASB 8, must be included in a particular entity’s segment report (AASB 8.11). AYB340 Practice exam solutions Page 3 of 12 Briefly explain how we determine an entity’s reporting segments. The rules for determining which segments are reportable segments are found in AASB 8.13-19. These requirements, summarised on pages 946–947, are reproduced below: 1 A segment must be classified as a reportable segment if any of the following conditions is satisfied: (a) its reported revenue – including both sales to external customers and inter-segment sales or transfers – is 10% or more of the combined revenue (internal and external) of all operating segments; or (b) the absolute amount of its reported profit or loss is 10% or more of the greater of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported losses of all operating segments reporting a loss; or (c) its assets are 10% or more of total assets for all operating segments (AASB 8.13). 2 If ‘total external revenues reported by the operating segments’ constitutes less than 75% of the ‘entity’s revenue’, additional reportable segments must be identified, even though they do not meet the test in 1 above, until at least 75% of the entity’s revenue is included in the reportable segments (AASB 8.15). 3 Internally reported segments that are ‘substantially similar’, that is they meet the requirements of AASB 8.12 discussed above, may be combined (AASB 8.14). 4 An internally reported segment that is not classified as reportable under 1 above is treated in one of three ways: (a) it is designated as reportable despite its size because management believes information about the segment will be useful to users (AASB 8.13); or (b) it is combined, in accordance with 3 above, into a separately reportable segment with one or more ‘substantially similar’ segments that do not satisfy 1; or (c) information about other non-reportable segments and that relating to other business activities are combined and reported as ‘all other segments’ and is distinguished from the items in the reconciliation required by AASB 8.28 (AASB 8.16). 5 If the management judges that an operating segment that was a reportable segment in the prior reporting period ‘is of continuing significance’, information about that segment must be reported separately in the current period. Despite test 1 not being satisfied it must be classified as a reportable segment in the current reporting period (AASB 8.17). If, in the current reporting period, a segment is now reportable under 1, prior-period segment data are restated to reflect this newly reportable segment, unless it is impracticable to do so (AASB 8.18)