This article explains how to prepare basic consolidated financial statements for a group with one subsidiary.
Consolidated financial statements were not examined at the equivalent level in the old syllabus.
Entries are: Sundry current assets (bank) 20 Current account with Y 20 Now the current accounts agree, so cancel current accounts on consolidation and ignore in the consolidated financial statements.
The F1 syllabus specifies that you should be able to prepare a consolidated statement of financial position and a consolidated statement of comprehensive income for a group in relatively straightforward circumstances.
Questions could be set requiring either one of these consolidated statements or both of them.
Selling price 90; unrealised profit = 90 x 33⅓% = 30 As all the goods are in closing inventory we need to cancel the unrealised profit of 30 from closing inventory in both the statement of comprehensive income and the statement of financial position.
Debit Credit Consolidated revenue 90 Consolidated cost of sales 90 Consolidated cost of sales 30 Consolidated sundry current assets (inventory) 30 (iii) Interim dividend paid by Y Cancel the other income item in X against the dividend paid by Y.
Pre-acquisition reserves are retained profits and other reserves that exist in a subsidiary’s statement of financial position at the date of acquisition.
Pre-acquisition reserves are capitalised at the date of acquisition by including in the goodwill calculation.
2) Fair value of net assets of Y at acquisition Fair value of the net assets is the same as the total of share capital plus all pre-acquisition reserves.
As buildings are revalued upwards at acquisition it will create a revaluation reserve at the date of acquisition.
They have now been included in F1 as an introduction to consolidated financial statements in preparation for the F2 exam.