Advanced financial accounting - Lecture 45

Advanced Financial
Accounting
Lec-45
Main Ahmad Farhan


Working-1
Holding % = No. of ordinary shares of S Co. acquired by P Co. X 100
Total No. of shares of ordinary shares in S Co.
Minority % = 100% - Holding %


Working-2
Cost of investment
Less Fair value of net assets of
subsidiary Co. accrued by P Co.

xxx
xxx
xxx


Fair Value
This is the value at which assets can be exchanged and liabilities
can be settled between two knowledgeable willing in an arms length
transactions.


Working-2
Cost of investment
Less Fair value of net assets of

subsidiary Co. accrued by P Co.
Net assets
+/- Fair value adjustment
Fair value of net assets of subsidiary Co. x
Holding %
Goodwill

xxx

xxx
xxx
xxx
xxx
xxx


Working-3
Preacquisition

Postacquisition

Ordinary
share
capital

All

---

Reserves

On the date After the
of acquisition date of
acquisition

Fair value of All
adjustment

---

Total

xxx

Xxx

Holding %
of total

Parent’s
share

Parent’s
share

Minority %
of total

Minority
share

Minority
share


Working-3
Cost of investment in S Co.
Less Dividend out of pre-acquisition profits
Less Parent’s Co. share in pre-acquisition equity of S Co.
Goodwill
Less Impairment loss

xxx
xxx
xxx
xxx
xxx
xxx


Working-4
All reserves of parent Co.
Add Parent’s share in post acquisition equity of S Co.
Less Parent’s share in depreciation effect on fair
value adjustment
Less Impairment loss of goodwill

xxx
xxx
xxx

xxx
xxx


Working-5
All owner’s equity of S Co.
Add Fair value adjustment
Less Unrealized profit (In case of stop inter Co. trading)
Less Depreciation effect on fair value adjustment
Total
Total x Minority % = Minority interest

xxx
xxx
xxx
xxx
xxx


Working-5
MI share in pre-acquisition
MI share in post-acquisition
MI share in unrealized profit
Less MI share in Depreciation effect on fair value adjustment

xxx
xxx
xxx
xxx
xxx

Specific Scenario
Intra group loans

That will be cancelled.

Intra group current accounts

That will be cancelled and balance if any to
shown in good or cash in transit.

Intra group dividend

That will be cancelled to the extent of
holding % balance to be shown in the
consolidated balance-sheet as payable to
minority interest.

Negative goodwill

To be added in the group reserves.

During the year acquisition of S Co. and
calculation of pre-acquisition reserve

Reserves as on opening date of the year in
which the S Co. was acquired
xxx
Add Profit for the year in which S Co.

was acquired x Pre-acquisition
months
12 months
xxx
Pre-acquisition reserves
xxx


Working

Holding %
Minority %


Working
All opening balance of parent Co.
Add Post acquisition opening balance of
retained profit of subsidiary Co. to the extent of
holding %
Less Impairment of goodwill

xxx

xxx
xxx
xxx


Working
Profit after tax of subsidiary Co.

Less Unrealized profit
Total amount
Minority % = Total amount x MI %

xxx
xxx
xxx


Specific Scenario
1.
2.
3.

Intra group dividend
Intra group trading
Unrealized profit