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Simple Groups I
BEA2001 Financial Accounting
(EE20-24, pp. 543-624; iGAAP35-38, pp. 2307-2616)

Dr Petros Vourvachis



p.vourvachis@exeter.ac.uk
Office (STC 200) hours: Tuesdays 13.50-14.50
Fridays 13.00-14.00
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Q1 P Co and S Co
In order to prepare the consolidated balance sheet:
You need to calculate Ps interest in S and, subsequently, the minority
(non- controlling) interest (P owns 12,000 1 shares at cost of the total
20,000 ordinary share capital of S, therefore P owns 60% of Ss share
capital, therefore:
Minority interest: 40% of Ss net assets (=equity) = 40% x (66,000-36,000) = 40%
x 30,000 = 12,000
Then, add assets (both non-current assets and current) and liabilities
(both non-current and current) of the two companies, but part-cancel
the liability component of Ps investment, therefore:
Non-current liabilities: (original <nil> of P +) 26,000 8,000 = 18,000
Finally, calculate the percentage of Ss revaluation reserve and retained
earnings that P owns (i.e. 60% of each)
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Q1 P Co and S Co
Consequently, P Groups consolidated balance sheet would be:
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Q2 Bath, Jankin and Arthur
In order to prepare the consolidated balance sheet:
As in Q1, you need to calculate the minority interest in Jankin and
Arthur (20% and 40% respectively, as per question):
Minority interest: 20% of Js net assets + 40% of As net assets = 20%x137,400 +
40%x610,000 = 27,480 + 244,000 = 271,480.
Since (obviously from question) Bs investments in J and A are not at
cost, youll need to work out goodwill (i.e. the difference between the cost
of acquisition and the value of the subsidiaries net assets). All reserves
prior to the acquisition must be incorporated in the cancellation:
Goodwill, Jankin: 153,000 80% x134,400 (retained earnings for 20X1 [3,000] are
excluded, since acquisition took place 1
st
Jan.) = 153,000-107,520= 45,480.
Goodwill, Arthur: 504,000 60% (556,000 + 54,000x6/12 [since acquisition took
place half-way through the year])= 504,000 60%(556,000 + 27,000) =
504,000 60%x583,000 = 504,000 349,800 = 154,200.
Hence, total goodwill = 45,480 + 154,200 = 199,680.
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Q2 Bath, Jankin and Arthur
Then youll need to aggregate assets, liabilities and cancel out intergroup
components of these. Particularly note:
Group retained earnings: original Bs are 221,000 + 37,000 intergroup profit of
1,840 (=1,600 + 240 ) = 256,160. Add to that 80% of Js 3,000 = 2,400 and
60% of As 27,000 (= 54,000 for the year 27,000 already considered for
goodwill) = 16,200, therefore, total retained earnings = 274,760.
Group inventories: Bs 206,000 + Js 99,000 + As 294,200 = 599,200. Add goods
in transit at cost: 960 (=1,200 240) and deduct Bs 1,600 profit included in
Js inventory figures, therefore, total inventories = 598,560.
Note also how current (intergroup) accounts are cancelled out: Bs 12,700
remittance 1,700 inventory in transit 1,200 = Js 9,800.
Hence, B Groups consolidated balance sheet would be:

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Q2 Bath, Jankin and Arthur
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Q3 On negative goodwill
Goodwill on consolidation is governed by IFRS3 and it should be
capitalised and reviewed for impairment every year. It is the difference
between the cost of acquisition and the value of the subsidiarys net
assets. This is normally positive but can be negative e.g. because:
There have been errors measuring the fair value of either the cost or the
subsidiarys assets or liabilities
Future costs have been taken into account
There has been a bargain purchase.
If goodwill is estimated to be negative, accountants are required to
reassess the amounts at which it was first measured to check for errors.
If negative goodwill remains, it should be recognised immediately in the
income statement [but note that FRS10 requires that it should be
recognised in the Income Statement in the periods expected to benefit
from it].