GROUP STATEMENTS: INTERIM ACQUISITIONS
Group Statements Vol 1: Chap 8
− Purchase of interest in subsidiary on a different date than the first day of financial period
− Retained earnings value not given on the acquisition date.
− Profit/loss of subsidiary for the period should be allocated between before- and after acquisition profit/loss.
Pre-acquisition profits. B/Y → Acquisition date = RE-AT
Post-acquisition profits. Acquisition date → Y/E = PROFIT FOR THE YEAR
ALLOCATION – ITEMS IN SCI
− General approach
o Apportion based on available information, if not possible, treat as if accrue from day to day
(EVENLY ACCRUED)
− Therefore, examine each item to determine basis of apportionment
o Depreciation: day to day
o Profit on sale of asset: specific day
o Interest: different rates/tariffs
o Normal tax: in ratio of the taxable income for the periods before and since acquisition
Distribution of profits
8/12 4/12
Total Pre-Acq Post-Acq
Income
CoS
Expenses
Profit before tax 180 100 80
Tax (30) 30 x 100/180 30x 80/180
− Method (par 9.06) to prepare the income statement
o Only include post-acquisition profit of subsidiary in group profit
o Alternative method in text book - not supported by IAS27 – include the pre and post acq profits BUT
then take out the pre- acq again.
Prepare the Income Statement
H 100% + S 100% [12/12]- jrnl (to take out part when not a S) [9/12]
THUS effectively H 100% + 3/12
THUS only the post-acq profits are included
ALLOCATION – SCE
− Preference dividends:
o term cost on time basis
o Accrue over time (esp. if cumulative)
− Year-end items:
o post-acquisition period (eg transfers to/from reserves and dividends declared)
o Include S and adjs
− Adjustments in respect of previous years:
o pre-acquisition period (eg correction of prior period errors)
− Special items:
o when transaction took place (eg interim ordinary dividends)
Beginning → No S (Thus opening balances = H)
End → Including the S
NOTE: SFP – 100%
QUESTION 1:
The following represents the financial statements of the H Ltd. group of companies for the year ended 31 December 20.7
1
, H Ltd. obtained its investment in T Ltd. on 1 July 20.7. The operating profit of T Ltd. accumulated evenly throughout the year except for
the interest to H Ltd. paid from 1 July 20.7.
H Ltd. sold inventories to T Ltd. from 1 July 20.7 – the sales taking place at cost price plus 50%. Included in the net current assets of T
Ltd. on 31 December 20.7 are R300 000 regarding such inventories. The total sales of H to T amounted to R1 500 000 for the period.
H = seller → Does not affect the analysis
Accept a tax rate of 40%.
No impairment of goodwill has taken place.
REQUIRED
Prepare the consolidated financial statements of die H Ltd.-group for the year ended 31 December 20.7.
Do apportionment of profit without taking intergroup transactions into account.
2
Group Statements Vol 1: Chap 8
− Purchase of interest in subsidiary on a different date than the first day of financial period
− Retained earnings value not given on the acquisition date.
− Profit/loss of subsidiary for the period should be allocated between before- and after acquisition profit/loss.
Pre-acquisition profits. B/Y → Acquisition date = RE-AT
Post-acquisition profits. Acquisition date → Y/E = PROFIT FOR THE YEAR
ALLOCATION – ITEMS IN SCI
− General approach
o Apportion based on available information, if not possible, treat as if accrue from day to day
(EVENLY ACCRUED)
− Therefore, examine each item to determine basis of apportionment
o Depreciation: day to day
o Profit on sale of asset: specific day
o Interest: different rates/tariffs
o Normal tax: in ratio of the taxable income for the periods before and since acquisition
Distribution of profits
8/12 4/12
Total Pre-Acq Post-Acq
Income
CoS
Expenses
Profit before tax 180 100 80
Tax (30) 30 x 100/180 30x 80/180
− Method (par 9.06) to prepare the income statement
o Only include post-acquisition profit of subsidiary in group profit
o Alternative method in text book - not supported by IAS27 – include the pre and post acq profits BUT
then take out the pre- acq again.
Prepare the Income Statement
H 100% + S 100% [12/12]- jrnl (to take out part when not a S) [9/12]
THUS effectively H 100% + 3/12
THUS only the post-acq profits are included
ALLOCATION – SCE
− Preference dividends:
o term cost on time basis
o Accrue over time (esp. if cumulative)
− Year-end items:
o post-acquisition period (eg transfers to/from reserves and dividends declared)
o Include S and adjs
− Adjustments in respect of previous years:
o pre-acquisition period (eg correction of prior period errors)
− Special items:
o when transaction took place (eg interim ordinary dividends)
Beginning → No S (Thus opening balances = H)
End → Including the S
NOTE: SFP – 100%
QUESTION 1:
The following represents the financial statements of the H Ltd. group of companies for the year ended 31 December 20.7
1
, H Ltd. obtained its investment in T Ltd. on 1 July 20.7. The operating profit of T Ltd. accumulated evenly throughout the year except for
the interest to H Ltd. paid from 1 July 20.7.
H Ltd. sold inventories to T Ltd. from 1 July 20.7 – the sales taking place at cost price plus 50%. Included in the net current assets of T
Ltd. on 31 December 20.7 are R300 000 regarding such inventories. The total sales of H to T amounted to R1 500 000 for the period.
H = seller → Does not affect the analysis
Accept a tax rate of 40%.
No impairment of goodwill has taken place.
REQUIRED
Prepare the consolidated financial statements of die H Ltd.-group for the year ended 31 December 20.7.
Do apportionment of profit without taking intergroup transactions into account.
2
