Consolidation of Financials and Calculation of Depreciation - Desklib

MEMORANDUM
DATE: 2 September 2018
TO: Jane Penfold
FROM: Accountant
SUBJECT: Consolidation of financials of Palvidia Ltd and Soletta Ltd
The memorandum is prepared to clarify the issues regarding consolidation of holding and
subsidiary. The issues and their responses are as below:
Purpose of consolidated financial statements
Consolidated financial statements are prepared to present the group’s financial numbers to
the owners of the group companies. It helps them to understand the overall profitability of
the companies in the groups. (Staff, 2018)
Meaning of group, a parent and a subsidiary
Group is the combination of all the holding and subsidiary companies.
Parent company is the one who holds more than 51% shares of the other company or has
controlling power of the other company.
Subsidiary company is one whose shares are held by the other company or is controlled by
the holding company.

No. of parent companies in a group
A group can have any number of parent companies. However, the ultimate parent company
will be one only. In case of multiple holding, the shares of one company is held by other
company, hence the situation of multiple holding in a group arises. The ultimate parent
holding is the one who owns the shares of all the parent companies of the group.
Requirement of Intragroup transactions
Intra group transactions are notional transactions since the profit earned or loss incurred is
within the group only. Hence, these transactions needs to be eliminated, so that the
financials of group companies reflect the true and fair view. ("Intra-group transactions:
identifying differences | Sigma Conso", 2018)
Realisation of profit in relation to inventories transfers within the group
In relation to inventories transfer within the group, the profit is realised when the inventories
are sold to the external or third parties.
Accountant
References:
Staff, I. (2018). Consolidated Financial Statements. Retrieved from
https://www.investopedia.com/terms/c/consolidatedfinancialstatement.asp
Intra-group transactions: identifying differences | Sigma Conso. (2018). Retrieved from
https://www.sigmaconso.com/en/intra-group-transactions-identifying-differences

Solution 2
In the absence of any instruction, tax rate has been assumed to be 30%.
(a)
Acquisition Analysis as at 1 July, 2019
Particulars Amount ($)
Share Capital 650,000
General Reserve 20,000
Retained earnings 250,000
Fair value of equipment (50000 x (1-30%)) 35,000
Lawsuit (-40000 x (1-30%)) (28,000)
Net fair value of assets and liabilities acquired 927,000
Amount paid as consideration 1,000,000
Goodwill 73,000
(b)
Consolidated Worksheet Entries as at 1 July, 2019
Particulars
Dr./
Cr. Amount ($)
Accumulated Depreciation Dr. 80,000
Equipment Cr. 30,000
Deferred tax liability Cr. 15,000
Business combination valuation reserve Cr. 35,000
(Equipment recorded at fair value)
Business combination valuation reserve Dr. 28,000
Deferred tax liability Dr. 12,000