EXAMPLE ONE: Basic Consolidation

EXAMPLE ONE: Basic Consolidation
Balance Sheet
H Ltd
H
S Ltd
Fixed Assets
Tangible
60,000
40,000
Investments:
50,000 ordinary shares in S at cost
50,000
110,000
Current Assets
Stock
Debtors:
20,000
15,000
10,000
15,000
5,000
S Ltd: 4,000
Other: 6,000
Bank
6,000
Creditors Amount Due Within One Year

Due to H Ltd.
Creditors (others)
(4,000)
(7,000)
28,000
(7,000)
25,000
138,000
65,000
Ordinary Share Capital @ 1
100,000
50,000
Reserves
38,000
15,000
138,000
65,000
Above are the individual balance sheets for H (the holding company) and S its 100% subsidiary. H has
owned S since S was incorporated.
Required:
Prepare the consolidated balance sheet for the H Group.
SOLUTION ONE:
H & S GROUP
Fixed Assets
Tangible
Current Assets
Stock
Drs
Bank
100,000
35,000
21,000
11,000
Creditors (Current due within one year)
Ordinary Share Capital

Reserves
(60 + 40)
(20 + 15)
(10 - 4 + 15)
(5 + 6)
67,000
(14,000)
153,000
100,000
53,000
153,000
(7 + 11 - 4)
(Share capital is holding co. only)

(38 + 15)
Groups share of post
acquisition retained profits
of subsidiary.
(1)
Investment in subsidiary in H books cancels with share

capital of S in subsidiary books
(2)
Cancel - inter company Debtors / Creditors.
(3)
Add together uncancelled items.
(4)
No cost of control arises so there is no goodwill.
(5)
H had owned S since incorporation therefore no pre acquisition period.
(6)
No minority interest arises as H owns 100% of S.
EXAMPLE TWO: Inter-Company Loan & Goods in Transit

Balance Sheet as at 31st December 95
H
Fixed Assets:
Tangible
200,000
150,000
Investments:
Investment in S at cost
90,000 1 ordinary shares
30,000 10%
loan stock in S
90,000
30,000
Current Assets:
Stock
Debtors
Current
Account with S
Cash
60,000
50,000
40,000
35,000
20,000
5,000
7,000
135,000
Creditors Within One Year:
Current Account
with H
Creditors
55,000
Taxation
20,000
13,000
25,000
15,000
(75,000)
380,000
Creditors After One Year:

10% loan stock
12% loan stock
Capital & Reserves:
Ordinary shares 1
Reserves
82,000
(53,000)
179,000
50,000
80,000
200,000
100,000
380,000
90,000
39,000
179,000
Above are the individual balance sheets for H (holding company) and its subsidiary S.
H has invoiced S for goods to the value of 7,000 which S has not yet received.
H has owned 100% of S since S was incorporated.
Required:
SOLUTION TWO:
Fixed Assets:
Tangible
350,000
(200 + 150)
Current Assets:
Stock
Goods in Transit
Debtors
Cash
100,000
7,000
85,000
12,000
(60 + 40)
(20 - 13)
(50 + 35)
(5 + 7)
204,000
Creditors Within One Year:

Creditors
Taxation
80,000
35,000
(55 + 25)
(20 + 15)
(115,000)
439,000
Creditors After One Year:

10% loan stock
12% loan stock
20,000
80,000
(Amount Owed outside group only)

100,000
339,000
Capital & Reserves:

Ordinary shares 1 200,000 (H only)
Reserves (H + S post acquisition retained reserves)
200,000
139,000
339,000
EXAMPLE THREE: Basic Consolidation Rules to Date

Balance Sheet:
H
Fixed Assets:
Tangible
Investment in S:
12% Loan stock:
250,000
150,000
100,000
75,000
Current Assets:
Stock
Debtors
Current account
with S
Cash
75,000
40,000
80,000
40,000
30,000
10,000
8,000
155,000
128,000
Liabilities Within One Year:

Creditors
Taxation
Current account
with H
40,000
20,000
30,000
10,000
24,000
(60,000)
(64,000)
Liabilities After One Year:

10% Loan stock

Reserves
(100,000)
420,000
12% loan stock
300,000
120,000
420,000
H has invoiced S for 6,000 of goods which S has not yet received.
H has owned S since incorporation.
Required:
(90,000)
124,000
100,000
24,000
124,000
SOLUTION THREE:
Consolidated Balance Sheet:
Fixed Assets
Current Assets :
400,000
Stock (incl. goods in transit) 161,000

Debtors
80,000
Cash
18,000
259,000
Creditors amounts due within 1 yr
Trade Creditors
(70,000)
Taxation
(30,000)
(100,000)
Creditors amounts due after 1 yr
12% Loan Stock
(15,000)
10% Loan Stock
(100,000)
(115,000)
444,000
Ordinary Share Capital (H only)
300,000
Reserves *
144,000
444,000
Reserves *
(H reserves plus groups shares of the post acquisition retained reserves of S)
EXAMPLE FOUR: Minority Interest

Balance Sheet as at 31/12/1995
H Ltd.
S Ltd.
Tangible
70,000
40,000
20,000 1 ordinary
shares in S
(At cost)
20,000
Fixed Assets:
Current Assets:
30,000
20,000
120,000
60,000
100,000
Reserves
20,000
35,000
120,000
60,000
Above are the balance sheets of H (holding company) and its subsidiary S.
H has owned 80% of S since S was incorporated.
Required:
25,000
SOLUTION FOUR:
Consolidated Balance Sheet:
Fixed Assets
Tangible
(70 + 40)
110,000
- (100% H + 100% S)
Current Assets
(30 + 20)
50,000
- (100% H + 100% S)
160,000
Long Term Liabilities
Minority Interests
12,000
148,000
[20,000 + .8 x 35,000]
Share Capital
100,000
- 100% H only
Reserves
48,000
- (100% H + 80% S)
148,000
Workings:
The total assets and liabilities of S are included in the consolidated balance sheet even when
only part of S is owned by H - provided there is control / dominant influence (FRS 2).
Minority Interest
amount of net assets as represented by ordinary share capital

and reserves attributable to the minority.
20% of shares
25,000 x 20%
5,000
20% of reserve
35,000 x 20%
7,000
12,000
Group Reserves - H reserves plus groups shares (80%) of the post acquisition retained
reserves of S
EXAMPLE FIVE: Total Minority Interest and Allocation of Reserves Between the Group and
Minority Interest
H Ltd.
S Ltd.
Fixed Assets
Fixed Assets
Tangible
70,000
Tangible
60,000
Net Current Assets:
30,000
Investment in S Ltd.
20,000 1 ordinary Shares
6,000 1 Preference Shares
7,000 12% Debentures
20,000
6,000
7,000
33,000
Net Current Assets:
20,000
Creditors after one year

12% Debentures
70,000
123,000
Capital and Reserves
(20,000)
Ord. Share Capital 1
25,000
Ord Share Capital
70,000
Preference Share Capital
12,000
Revenue Reserves
53,000
Capital Reserve
10,000
Revenue Reserve
23,000
123,000
70,000
Required:
Prepare the consolidated balance sheet of the H Group. H acquired its interest in S when the company was
incorporated.
SOLUTION FIVE:
Prepare separate working for minority interest and each reserve.
Minority interest in reserves is based on minority share of ordinary share capital.
The ownership of ordinary share capital decides ownership of reserves.
(1)
(2)
Minority Interest ( 5,000

25,000

Reserves
Capital
Revenue
20% x 25,000
20% x 10,000
20% x 23,000
5,000
2,000
4,600
11,600

6,000 =
12,000
50% x 12,000
6,000
17,600 - Total Minority Interest
Capital Reserves:
H Ltd.
S Ltd (Hs share)
(3)
20%):
10,000 x 80%
8,000 - Post Acquisition Only

8,000 - Total Capital Reserve
23,000 x 80%
53,000
18,400 - Post Acquisition Only
71,400 - Total Revenue Reserve
Revenue Reserve:
H Ltd.
S Ltd (Hs share)
Consolidated Balance Sheet of H Group:

Tangible fixed assets
Net current assets
Creditors After 1 Year
12% debentures
Minority Interest
130,000
50,000
(70 + 60)
(20 + 30)
(13,000)
(17,600)
149,400
External liability only
70,000
8,000
71,400
149,400
H only
Capital & Reserves

Capital reserve
Revenue reserve
EXAMPLE SIX: Dividends Receivable Payable; Working off up to date information for the purposes
of consolidation
H Ltd.
S Ltd.
Fixed Assets
Tangible
10,000
Tangible
8,000
Investment in S
6,000 ordinary shares @ 1 6,000
16,000
Current Assets
5,000
Current Assets
Current Liabilities (2,000)
6,000
Current Liabilities
Creditors
(1,000)
3,000
Proposed Div.(1,000) 4,000
19,000
12,000
10,000
Ordinary Share Capital 10,000
Revenue Reserve
9,000
Revenue Reserve
19,000
2,000
12,000
H has not taken credit for dividends receivable from S. H has owned 60% of S, since S was incorporated.
Required:
If H has not taken credit for dividends receivable from S the following entries are required:
H:
Dr Debtors - with Hs share of the dividend

Cr Reserves - with Hs share of the dividend
The debtors in H will cancel with part of the creditors in S (for dividends payable) leaving only the dividend
payable outside the group i.e. the amount of proposed dividend which is attributable to the minority interest.
This figure will appear as a current liability in the consolidated balance sheet.
SOLUTION SIX:
(1)
Bring Hs individual balance sheet up to date for the dividends receivable from S (60% of
1,000) / Adjust H balance sheet for dividends receivable. The revenue reserves of H also have
to be updated.
(2)
Debit Debtors in H
600
Credit Reserves in H
600
Minority Interest in S
40% of O.S.C.
4,000
40% of Revenue Reserve
800
4,800
(3)
Group Revenue Reserves

H (adjusted)
9,600
Share of S
1,200
(9,000 + 600)
(60% of 2,000) Post acquisition
element
10,800
Fixed Assets
Current Assets
18,000
11,000
(5,000 + 6,000
Debtor in H of 600 cancels with
creditor in S of 600)
Current Liabilities
Proposed Dividend
(3,000)
(400)
2,000 + 1,000
7,600
(1,000 - 600) Amount payable to

minority only
25,600
Long Term Liabilities
4,800
Minority Interest
20,800
Ordinary Share Capital (H only)
10,000
Revenue Reserves
10,800
20,800
EXAMPLE SEVEN: Dividend Adjustments and Working Off Up To Date Information
Provide for:
(a)
preference dividend of S Ltd.
(b)
proposed ordinary dividend of 10% by S Ltd.
(c)
proposed ordinary dividend of 15% by H Ltd.
H Ltd
Tangible Assets
100,000
S Ltd
Tangible Assets
120,000
Investment in S
60,000 1 O.S.C.
60,000
10,000 1 12%
preference shares
10,000
Current Assets
70,000
50,000
Current Assets
Creditors within one year

(24,000) 26,000
196,000
Revenue Reserves
100,000
96,000
196,000
Required:
Prepare the consolidated balance sheet of the H Group.
40,000
Creditors within one year

(16,000)
24,000
144,000
Ordinary S/C
100,000
Pref. 1 12%
20,000
Revenue Reserve
24,000
144,000
SOLUTION SEVEN:
(1)
Adjust both H and S for dividends payable and receivable

H Ltd
Tangible Assets
100,000
S Ltd
Tangible Assets
120,000
Investment in S
60,000 1 O.S.C.
60,000
10,000 1 12% pref. 10,000 70,000
Current Assets
Current Liabilities
57,200
(39,000) 18,200
188,200
O.S.C.
Revenue Reserves
Current Assets
40,000
Current Liabilities
(16,000)
Proposed Pref Div ( 2,400)
Ord Div. (10,000)
11,600
131,600
100,000
O.S.C.
Revenue Reserves
88,200
188,200
(24,000 - 2,400 - 10,000)
(96,000 + 1,200
+ 6,000 - 15,000)
131,600
Workings:
Current Assets (H Ltd)
Opening Balance
Adjustments:
Preference Dividend receivable
50% of 2,400
Ordinary Dividend receivable
50,000
1,200
6,000
57,200
Minority Interest
Ordinary share capital 40% of 100,000 40,000
40% of 11,600
4,640
Revenue Reserve
50% of 20,000 10,000
54,640
Revenue Reserves
Revenue Reserves H Ltd (adjusted balance)
Share of S Ltds adjusted reserve (11,600 x 60%)
Minority Interest: Current Liability

Preference Dividend (2,400 x 50%)
Ordinary Dividend (10,000 x 40%)
SOLUTION SEVEN:
100,000
20,000
11,600
88,200
6,960
95,160
1,210
4,000
5,200
Tangible Fixed Assets
220,000
Current Assets
90,000
(57,200 + 40,000 - 1,200 - 6,000)

Current Liabilities
Creditors
40,000
Proposed Dividend
15,000
Minority Proposed Div.

(1,200 + 4,000)
5,200
(60,200)
29,800
247,800
Less Minority Interest
54,640
195,160
Ordinary S.C.
100,000
Reserves
95,160
195,160
The inter company debtors in H will cancel with the creditors in S leaving only the dividends payable to the
minority. The reserves of H and S reflect the up to date figures for consolidation purposes.
EXAMPLE EIGHT: Goodwill Calculation Arising on Consolidation
Assets
Investment in S 75,000 1 Shares
Net Current Assets
O.S.C. 1
P & L Reserve
H
250,000
125,000
100,000
475,000
S
150,000
Assets
300,000
175,000
475,000
Net Current Assets
70,000
220,000
O.S.C. 1
Reserves
100,000
120,000
220,000
Cost of Investment
125,000
H purchased shares in S when S reserves were 50,000.

Goodwill:
Acquired:
O.S.C.
Reserves
100,000 x 75%
50,000 x 75%
75,000
37,500
112,500
(difference between the cost of the investment

and the fair value of net assets acquired)
Goodwill
12,500
Minority Interest:
Group Reserves:
acquisition reserves of S
25% of 100,000
25% of 120,000
=
=
25,000
30,000
H Ltd
175,000
55,000
(120,000 - 50,000) 70,000 x 75% 52,500

227,500
Consolidated B/S H Group:

Fixed Assets
Intangible Asset (Goodwill)
Net Current Assets
400,000
12,500
170,000
582,500
O.S.C.
Reserves
Minority Interest
300,000 (H only)
227,500
55,000
582,500
Goodwill will be capitalised and amortised to the P & L account over a defined period normally 20 years on a
systematic basis.
EXAMPLE NINE: Acquisitions of Subsidiaries during the year
H ACQUIRED 80% OF S ON 31ST MARCH 1995. The share premium and revenue reserves of S at the
31/12/1994 were 12,000 and 20,000 respectively. From the information provided below you are required to
prepare the consolidated balance sheet of the H Group.
Draft Balance Sheet of H & S at 31st Dec 1995
H Ltd
S Ltd
Tangible fixed assets
70,000
50,000
32,000 1 ord. shares in S
80,000
Net Current Assets
40,000
34,000
190,000
84,000
100,000
40,000
Fixed Assets
Capital and Reserves:

Ordinary Shares 1
Share Premium account
20,000
Revenue Reserves
70,000
12,000
90,000
190,000
32,000
44,000
84,000
SOLUTION NINE:
Revenue Reserves calculation:
S Profit for year
32,000 - 20,000
Pre Acq.
12,000 x
Pre Acq. Revenue Reserves 20,000 + 3,000
=
=
=
12,000
3,000
23,000
Share Premium All Pre Acquisition

Minority Interest:
20% (40,000 + 12,000 + 32,000)
16,800
(Note breakdown between pre and post acquisition reserves is irrelevant for the
minority interest.)
Goodwill:
Cost of Investment
Less group share of assets at date of acquisition:
O.S.C.
40,000
Pre acq. share premium
12,000
Pre acq. revenue reserves
23,000
75,000
Groups share 80%
Goodwill
80,000
(60,000)
20,000
Consolidated Revenue Reserves:

H Ltd.
S Ltd
80% of (32000 - 23000)
70,000

acquisition reserves 7,200
Total
77,200
H Consolidated
Fixed Assets
Intangible Assets
Net Current Assets
Minority Interest
Share Premium A/C
Revenue Reserves
120,000
20,000
74,000
(16,800)
197,200
(50 + 70)
100,000
20,000
57,200
177,200
H only
(40 + 34)
EXAMPLE TEN: Pre Acquisition Losses of Subsidiary

H acquired 100% of S for 180,000 on 1st Jan 19X1.
S revenue reserves had a debit balance of 60,000 at this date.
In 19X1 S made a profit of 75,000.
31 December 19X1
H
Assets
Invest in S
100,000 1 osc
Current Assets
O.S.C.
Revenue Reserve
190,000
Assets
30,000
Current Assets 20,000
50,000
400,000
115,000
475,000
200,000
200,000
400,000
O.S.C.
100,000
Revenue Res. 15,000
115,000
200,000
275,000
475,000
Goodwill:
Cost of Investment
O.S.C.
Losses
180,000
100,000
(60,000)
40,000
40,000
Goodwill
140,000
H
Share of post Acq.
75000 x 100%
200,000
Reserves:
75,000
275,000
95,000
Consol.
425,000 (190+95+140)
EXAMPLE ELEVEN: - Revaluation of Assets of Subsidiary to Fair Value (FRS 7) on Consolidation

H acquired 80% of OSC of S on 1 January 19X5.
Fair value of S assets was 40,000, higher than book value.
Balance on revenue reserves of S were 30,000 at 31st December 19X4.
S did not incorporate any revaluation into its own financial statements. S depreciates its fixed assets
at 10% per annum.
Balance Sheets of H and S as at 31 December 19X5
H Ltd:
Fixed Assets
Tangible assets:
Invest in S at cost:
Net Current Assets:

Ordinary Share Capital:
Reserves:
90,000
80,000
20,000
190,000
100,000
90,000
190,000
S Ltd:
Fixed Assets:
Net Current Assets:

Ordinary Share Capital:
Retained Profit:
50,000
12,000
62,000
25,000
37,000
62,000
Required:
SOLUTION ELEVEN:
Additional depreciation / Debit P&L 40,000 @ 10% =
Credit Accumulated Depreciation
Assets of S at Fair Value - Book Value

Fair Value Adjustment
Less Additional Depreciation
4,000
4,000
50,000
+40,000
- 4,000
86,000
S Ltd adjusted retained reserves.

Balance per accounts at 1 Jan X5
30,000
Profit for year ended 31 Dec 19X5

Per accounts (37,000 - 30,000)
7,000
Less additional Depreciation

40,000 x 10%
(4,000)
Adjusted retained reserves at 31 Dec 19X5
3,000
33,000
Revaluation reserve (All pre acquisition)
40,000
Minority Interest:
O.S.C.
20%
Reserves
20%
Revaluation Reserve 20%
25,000
33,000
40,000
5,000
6,600
8,000
19,600
Goodwill:
Cost of Investment
Share of Net Assets represented by:
25,000
Reserves on Acq.
30,000
Revaluation Res.
40,000
95,000 @ 80%
Goodwill
80,000
76,000
4,000
SOLUTION ELEVEN (contd):

Consolidated Revenue Reserves:
H Ltd.
90,000
Share of S post Acq. retained

profits 3,000 @ 80%
2,400 (after S has charged additional depreciation)

92,400
H Group Consolidated Accounts:
Tangible Fixed Assets
176,000
Intangible Fixed Assets
4,000
Net Current Assets
32,000
Minority Interest
19,600
212,000
100,000
Revenue Reserves
92,400
212,000
(90 + 50 + 40 - 4)
(20 + 12)
EXAMPLE TWELVE: Inter Company Trading
Balance Sheet 31/12/95:
Tangible Assets
Investment in S at cost
Current Assets
Current Liabilities
O.S.C.
Reserves
60,000
(35,000)
H Ltd
S Ltd
120,000
80,000
80,000
25,000
225,000
40,000
(30,000)
150,000
75,000
225,000
10,000
90,000
40,000
50,000
90,000
During year S sold goods to H for 70,000. S had a 25% mark-up on cost.
At year end H had goods received from S to the value of 20,000 in stock.
H Ltd. owed S 18,000 included in creditors of H and debtors of S.
H Ltd. acquired all the shares in S Ltd., when S reserves were 20,000.
Required:
SOLUTION TWELVE:
Current Assets:
Current Assets in H
Less unrealised profit on stock
20,000 x 25
125
60,000
( 4,000)
56,000
Current Assets in S
Less debt with H
40,000
(18,000)
56,000
Current Assets
22,000
78,000
Current Liabilities
(47,000)
Current Liabilities:
In H
Less debt with S
35,000
(18,000)
17,000
30,000
In S
Goodwill:
Cost of Investment
80,000
Share of Net Assets Represented By:

Share Capital
Reserves at Acq.
(40,000)
(20,000)
Goodwill
20,000
Reserves:
H Ltd
75,000
S Ltd Post acquisition retained profits
50,000 - 20,000 30,000
Less unrealised profit
(4,000)
101,000
Balance Sheet H & S Group:
Tangible Assets
Intangible Assets
Current Assets
Current Liabilities
200,000
20,000
(H & S)
78,000
(47,000)

Reserves
31,000
251,000
150,000 (H only)
101,000
251,000

EXAMPLE ONE: Basic Consolidation

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EXAMPLE ONE: Basic Consolidation

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EXAMPLE ONE: Basic Consolidation

Creditors Amount Due Within One Year

Ordinary Share Capital @ 1

Creditors (Current due within one year)

Ordinary Share Capital

(Share capital is holding co. only)

Investment in subsidiary in H books cancels with share

Cancel - inter company Debtors / Creditors.

Add together uncancelled items.

No cost of control arises so there is no goodwill.

H had owned S since incorporation therefore no pre acquisition period.

No minority interest arises as H owns 100% of S.

EXAMPLE TWO: Inter-Company Loan & Goods in Transit

Creditors After One Year:

Creditors Within One Year:

Creditors After One Year:

(Amount Owed outside group only)

Capital & Reserves:

EXAMPLE THREE: Basic Consolidation Rules to Date

Liabilities Within One Year:

Liabilities After One Year:

Ordinary Share Capital

12% loan stock

Stock (incl. goods in transit) 161,000

Creditors amounts due within 1 yr

Creditors amounts due after 1 yr

12% Loan Stock

10% Loan Stock

Ordinary Share Capital (H only)

(H reserves plus groups shares of the post acquisition retained reserves of S)

EXAMPLE FOUR: Minority Interest

100,000 1 ordinary shares

25,000 1 ordinary shares

Prepare the consolidated balance sheet for the H Group.

Consolidated Balance Sheet:

amount of net assets as represented by ordinary share capital

Net Current Assets:

Net Current Assets:

Creditors after one year

Capital and Reserves

Ord. Share Capital 1

Ord Share Capital

Preference Share Capital

Minority Interest ( 5,000

Ordinary Share Capital

Preference Share Capital

8,000 - Post Acquisition Only

Consolidated Balance Sheet of H Group:

External liability only

Capital & Reserves

Current Liabilities (2,000)

Proposed Div.(1,000) 4,000

Ordinary Share Capital

Ordinary Share Capital 10,000

Dr Debtors - with Hs share of the dividend

40% of Revenue Reserve

Group Revenue Reserves

Consolidated Balance Sheet of H Group:

(1,000 - 600) Amount payable to

Ordinary Share Capital (H only)

EXAMPLE SEVEN: Dividend Adjustments and Working Off Up To Date Information

preference dividend of S Ltd.

proposed ordinary dividend of 10% by S Ltd.