question archive 1)Consolidated Financial Statements You have been asked by a friend, Elsa, who is new to the approaches of consolidated accounting to review her workings for the consolidation of the Ham Group
1)Consolidated Financial Statements You have been asked by a friend, Elsa, who is new to the approaches of consolidated accounting to review her workings for the consolidation of the Ham Group
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1)Consolidated Financial Statements You have been asked by a friend, Elsa, who is new to the approaches of consolidated accounting to review her workings for the consolidation of the Ham Group. Ham plc acquired 70% of the ordinary shares of Sam Ltd and 30% of the ordinary shares of Adam Ltd during the financial year. All three companies prepared financial statements at 31 December 2020 as follows: Statements of Financial Position as Ham Sam Adam at 31 December 2020 £'000 £'000 £'000 Non-Current Assets 500 200 100 Investment in Sam 220 Investment in Adam 80 Other net assets 100 50 50 900 250 150 Ordinary Share Capital 200 100 100 Retained Earnings 700 150 50 900 250 150 The retained earnings of Sam and Adam at the date of acquisition were £120,000 and £40,000, respectively. Elsa has produced the following draft Consolidated Statement of Financial Position (including her workings): Draft Consolidation workings: £'000 Non-Current Assets [500 + (70% x 200) + (30% x 100)] 670 Goodwill (Sam) [220 - (100 + 120) x 70%)] 66 Goodwill (Adam) [80 - (100 + 40) X 30%)] 38 Other net assets (100 + (70% x 50) + (30% x 50)] 150 924 Ordinary Share Capital 200 Retained Earnings: Ham 700 - share of Sam's profit [70% (150 - 120)] 21 - share of Adam's profit [30% (50 - 40)] 3 924 Required: Explain how the acquisitions of Sam and Adam should be accounted for by Ham plc in accordance with applicable IASB accounting standards, and why the approach adopted by Elsa above does not accord with the Conceptual Framework's concept of "Substance". Your answer should also include the correct consolidated statement of financial position (and associated workings) in accordance with IASB accounting standards. However, the answer should focus on an explanation of the consolidation process in terms of the conceptual framework and applicable accounting standards, and the application of "substance". Recommended word count: 375 words (Total 25 marks)
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Solution :
According to IFRS 10, a controlled investor who controls the investor must agree to the investor. IAS 27 states that an investor who has a significant influence on the investor must explain his investment using the equity method. The investment in the drug is 70%, which gives you control over the US, and the investment in a person of 30% only provides a significant impact. The United States must combine and invest human investments as a kind of capital.
The correct calculation is shown below:
| Working | Amount | |
| Non Current assets | 500+200 | 700.00 |
| Investment in Adam | 80+ (50-40)*30% | 83.00 |
| Goodwill | 220-(100+120)*70% | 66.00 |
| Other net assets | 100+50 | 150.00 |
| Total Assets | 999.00 | |
| Ordinary share capital | 200.00 | |
| Retained earnings | 700+150- {(150-120}*30%)-120+ (50-40)*30% | 724.00 |
| Non controlling interest | 150*30%+100*30% | 75.00 |
| Total Liability and Equity | 999.00 |
Consolidation approach:
1. All assets and liabilities of the S.A. and if they were online.
2. Adjusted interest is calculated at 30%.
Per capita profit sharing was added at a rate of 30% to investment and retained earnings.
