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
1
,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
2
, 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
3
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
1
,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
2
, 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
3
