Summary FinAcc 278 notes: GROUP STATEMENTS 5-8

FinAcc: Group
2020


Statements 5-8
292
by: Alexandra Shtein

, Table of Contents:

CHAPTER 5: Intragroup Balances............................................................ 2
CHAPTER 6: Adjustments & Sundry Aspects of Group Statements ...... 59
CHAPTER 7: Complex Groups ............................................................... 71
CHAPTER 8: Interim Acquisition ........................................................... 78
GROUP STATEMENTS SUMMARY: JOURNAL ENTRIES .......................... 85
GROUP STATEMENTS SUMMARY: STATEMENTS ................................. 90




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,GROUP STATEMENTS

CHAPTER 5: Intragroup Balances


o Intragroup balances

- All intragroup balances must be eliminated
e.g. Loan accounts / Current accounts between group companies / interest received / paid / any other
intragroup transactions eg. rent
- This would include both long- and short-term balances


Example:
Dr Loan from parent
Cr Loan to subsidiary These journals have NO effect
or on group profit! Therefore also
NO effect on NCI
Dr Loan from subsidiary
Cr Loan to parent




o Transaction Costs

— Transaction cost (TC)= e.g. commissions paid to agents, levies of regulatory services, transfer duties/taxes
— Transaction costs are capitalised against the investment in subsidiary in the separate financial statements of
parent

— On consolidation:
o Write BACK the TC
o Through expense in current year or Retained Earnings in prior year
o Use “clean” cost price (excluding TC) in AOE




Example: P Ltd. obtained 75% in S Ltd. on 1 Jan 2018 at R75 000 and incurred
transfer duties of R500.

In the separate records of P Ltd. the journal on 1 Jan 2018:
include transaction costs when
Dr Investment in S Ltd (SFP) 75 500
investing
Cr Bank (SFP) 75 500

Pro-forma consolidation journal 31 Dec 2018:
Dr Transaction cost (P/L) 500
Cr Investment in S Ltd (SFP) 500 reverse the transaction costs

Pro-forma consolidation in subsequent years:
Dr Retained earnings (SCE)/(SFP) 500
Cr Investment in S Ltd (SFP) 500




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, o Intra group transactions involving contingent liabilities

o Bank overdrafts and guarantees (par 5.4)

• SET OFF FAVOURABLE V NON-FAVOURABLE BALANCES:
Bank overdraft of entity in group can only be set off against favourable bank balance of another entity in
the group if:
1) Both entities have their accounts at the same bank AND
2) ALL of the following 3 conditions has been met:
» Both entities have bank accounts at the same financial institution
» Bank itself would set off the two accounts against each other i.t.o an agreement
between the two entities concerned and the bank,
» The group has the intention to settle the amounts on a net basis

• Bank overdrafts and guarantees - Note concerning contingent liabilities in respect of a guarantee falls away. Both the
item guaranteed and the net assets backing the guarantee will now appear in the consolidated statements of the
group.



o Intra group sales of trading inventory and other assets

Inventory:
— Unrealised profit in closing inventory
— Unrealised profit in opening inventory

Property plant and equipment:
— Non-depreciable PPE
— Depreciable PPE


o Inventory sales– most common transaction



Example: Recording of intragroup sales of inventory in separate records of P and S (P sells to S)

P
Dr Cost of sales (purchases) (P/L) 80 000
Cr Bank (SFP) 80 000
Dr Bank (SFP) 100 000
Cr Revenue (P/L) 100 000
S
Dr Cost of sales (purchases) (P/L) 100 000
Cr Bank (SFP) 100 000
Dr Inventory (SFP) 100 000
Cr Cost of sales (Closing Inv) (P/L) 100 000




o IFRS 10
- Unrealised profit in closing inventory are eliminated in the determination of net profit / loss for the year
of the group.
- Entity concept:
Each line item (eg Revenue and COS) in SCI should be corrected and not only the profit of the selling
company

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