Consolidation Assignment:

Case 2

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CONSOLIDATION CASE 2

Push Ltd and Shove Ltd

Statements of Financial Position
31 August X3
Push Ltd Shove Ltd

Thousand Euros Thousand Euros

Assets
Non-Current Assets
Property, Plant and Equipment 110 350
Loans 180
Investment in Shove 295
Current Assets
Inventories 300 190
Trades receivables 270 90
Cash 160 50
Total Assets 1315 680

Equity and Liabilities

Equity
Ordinary Shares (€1) 840 200
Retained Earnings 265 140

Non-Current Liabilities
Long term loans 170
Current Liabilities
Trade payables 210 170
2
Total equity and liabilities 1315 680
CONSOLIDATION CASE 2

Additional information:

1. Push Ltd acquired 150.000 shares in Shove Ltd for €295.000 on 1st
September X1, at which date Shove Ltd had a balance on retained earnings
of €60.000
2. At the date of acquisition the property, plant and equipment of Shove Ltd
had a fair value which exceeded the carrying value by €100.000.
3. Included in Push Ltd’s loans is one of €130.000 to Shove Ltd.
4. Push Ltd supplied goods to the value of €125.000 for which it has not yet
been paid. These goods cost Push Ltd €100.000 and Shove Ltd still had
4/5ths of them in inventory at 31 August X3
5. On 1 September X2, Push Ltd supplied machinery to Shove Ltd at a price of
€198.000. The profit of the transaction for Push was €18.000. The remaining
useful life of the machinery at the time of the transaction is 10 years.

Requirement: Prepare de consolidated statement of financial position of the

Push Ltd group as at 31 August X3

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CONSOLIDATION CASE 2

We will look to point 1 at the end of the exercise because internal adjustment
transactions between acquisition date and consolidation date may affect the equity of
the subsidiary (for example when subsidiary sells products to parent, gaining profit).

If internal transaction adjustment will affect equity of the subsidiary, which element
will also be affected?

1. Good will

2. Non controlling interest (NCI)

Of course, we can immediately calculate the goodwill (because, remember, goodwill is

always calculated at the acquisition date)

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CONSOLIDATION CASE 2

1. Push Ltd acquired 150.000 shares in Shove Ltd for €295.000 on 1st September
X1, at which date Shove Ltd had a balance on retained earnings of €60.000

2. At the date of acquisition the property, plant and equipment of Shove Ltd
had a fair value which exceeded the carrying value by €100.000.

▪ We have to account for FV adjustments in tangible or intangible assets of S

and add them to its Equity.

▪ P → 75% (150/200 shares) S (Subsidiary: Full Consolidation)

▪ Price paid for shares: 295

Equity of S at Acquisition date: (200+60+100) * 0.75 = 270

Goodwill: + 25

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CONSOLIDATION CASE 2

▪ NCI?

Non controlling interests will be → (100% - 75%) = 25%

They have to be calculated at the consolidation date.

So:
1. First, we proceed with all the adjustments for intra-group transactions;

2. As last step, we calculate final NCI and consolidated reserves.

Because it might be that the equity of the subsidiary will change due
to the adjustments

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CONSOLIDATION CASE 2

Additional information:

1. Push Ltd acquired 150.000 shares in Shove Ltd for €295.000 on 1st
September X1, at which date Shove Ltd had a balance on retained earnings
of €60.000
2. At the date of acquisition the property, plant and equipment of Shove Ltd
had a fair value which exceeded the carrying value by €100.000.
3. Included in Push Ltd’s loans is one of €130.000 to Shove Ltd.
4. Push Ltd supplied goods to the value of €125.000 for which it has not yet
been paid. These goods cost Push Ltd €100.000 and Shove Ltd still had
4/5ths of them in inventory at 31 August X3
5. On 1 September X2, Push Ltd supplied machinery to Shove Ltd at a price of
€198.000. The profit of the transaction for Push was €18.000. The remaining
useful life of the machinery at the time of the transaction is 10 years.

Requirement: Prepare de consolidated statement of financial position of the

Push Ltd group as at 31 August X3

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ADJUSTMENT 1. INTERNAL TRANSACTIONS

First, we proceed with all the adjustments for intra-group transactions

3. Included in Push Ltd’s loans is one of €130.000 to Shove Ltd.

So, I have to remove the Loan from Push and Shove Balance Sheet.
Where is the Loan in the Push BS? Asset or Liabilities? And in the Shove BS? How
can I remove it?

Balance Sheet Dr Cr
Loans group companies (Loan P) 130
Loans group companies (Loan S) 130

These adjustments will cancel “Loan Assets” for 130 and “Loans liability” for 130 from
the Consolidated Statement of Financial Position
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 CONSOLIDATION CASE 2

Push Ltd Shove Ltd P+S Adjustments

Debit Credit
Assets
Non-Current Assets
Property, Plant and Equipment 110 350 460 3
Loans 180 180 130
Investment in S 295 295

Current Assets
Inventories 300 190 490
Trades receivables 270 90 360
Cash 160 50 210
Total Assets 1315 680 1995

Equity and Liabilities

Equity
Ordinary Share capital 840 200 1040
Retained Earnings 265 140 405

Non-Current liabilities 3
Long term loans 170 170 130

Current liabilities
Trade Payables 210 170 380
Total equity and liabilities 1315 680 1995
CONSOLIDATION CASE 2

Additional information:

1. Push Ltd acquired 150.000 shares in Shove Ltd for €295.000 on 1st
September X1, at which date Shove Ltd had a balance on retained earnings
of €60.000
2. At the date of acquisition the property, plant and equipment of Shove Ltd
had a fair value which exceeded the carrying value by €100.000.
3. Included in Push Ltd’s loans is one of €130.000 to Shove Ltd.
4. Push Ltd supplied goods to the value of €125.000 for which it has not yet
been paid. These goods cost Push Ltd €100.000 and Shove Ltd still had
4/5ths of them in inventory at 31 August X3
5. On 1 September X2, Push Ltd supplied machinery to Shove Ltd at a price of
€198.000. The profit of the transaction for Push was €18.000. The remaining
useful life of the machinery at the time of the transaction is 10 years.

Requirement: Prepare de consolidated statement of financial position of the

Push Ltd group as at 31 August X3

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ADJUSTMENT 2. INTERNAL TRANSACTIONS

4. Push Ltd supplied goods to the value of €125.000 for which it has not yet been
paid. These goods cost Push Ltd €100.000 and Shove Ltd still had 4/5ths of them
in inventory at 31 August X3

4a. Removing receivables and payables. How?

Balance Sheet Dr Cr
Trade Receivables (P) 125
Trade Payables (S) 125

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ADJUSTMENT 2. INTERNAL TRANSACTIONS

4.b Removing the internal (unrealized) profit

“Push Ltd supplied goods to the value of €125.000 for which it has not yet been paid.
These goods cost Push Ltd €100.000 and Shove Ltd still had 4/5ths of them in
inventory at 31 August X3”

Initial unrealized profit of P = 125 – 100 = 25. Then:

25 * 1/5= 5 (realized profit with third party, therefore no problem)
25 * 4/5 = 20 (unrealized profit that must be cancelled)
25 * 4/5 = 20 (inventories still in the subsidiary)

Balance Sheet Dr Cr
Inventories (S) 20
Ret. Earnings (P) 20

The first adjustment (4.a) will cancel “Trade receivables” for 125 and “Trade Payables” for 125
from the Consolidated Statement of Financial Position. The second adjustment (4.b) will reduce
inventories by 20 and eliminate the unrealized profit of 20 from the Retained Earnings of P.

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 CONSOLIDATION CASE 2

Push Ltd Shove Ltd P+S Adjustments CSoFP

Debit Credit
Assets
Non-Current Assets
Property, Plant and Equipment 110 350 460
Loans 180 180 130
Investment in S 295 295

Current Assets
Inventories 300 190 490 20 4b
Trades receivables 270 90 360 125 4a
Cash 160 50 210
Total Assets 1315 680 1995

Equity and Liabilities

Equity
Ordinary Share capital 840 200 1040
Retained Earnings 265 140 405 20 4b

Non-Current liabilities
Long term loans 170 170 130

Current liabilities
Trade Payables 210 170 380 125 4a
Total equity and liabilities 1315 680 1995
CONSOLIDATION CASE 2

Additional information:

1. Push Ltd acquired 150.000 shares in Shove Ltd for €295.000 on 1st
September X1, at which date Shove Ltd had a balance on retained earnings
of €60.000
2. At the date of acquisition the property, plant and equipment of Shove Ltd
had a fair value which exceeded the carrying value by €100.000.
3. Included in Push Ltd’s loans is one of €130.000 to Shove Ltd.
4. Push Ltd supplied goods to the value of €125.000 for which it has not yet
been paid. These goods cost Push Ltd €100.000 and Shove Ltd still had
4/5ths of them in inventory at 31 August X3
5. On 1 September X2, Push Ltd supplied machinery to Shove Ltd at a price of
€198.000. The profit of the transaction for Push was €18.000. The
remaining useful life of the machinery at the time of the transaction is 10
years.

Requirement: Prepare de consolidated statement of financial position of the

Push Ltd group as at 31 August X3
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ADJUSTMENT 3. INTERNAL TRANSACTIONS

5. On 1 September X2, Push Ltd supplied machinery to Shove Ltd at a price of

€198.000. The profit of the transaction for Push was €18.000. The remaining
useful life of the machinery at the time of the transaction is 10 years.
Two issues: The profit from the transactions and overstated value of PPE that will
influence Depreciation

▪ Unrealized profit of P: 198 – 180 = 18 (this is also the overstated value of PPE)

▪ Initial depreciation in P: 180 / 10 = 18

Depreciation in S: 198 / 10 = 19.8
Overstated Depreciation = (19.8 – 18) = 1.8
Balance Sheet Dr Cr
PPE 18
Acc. Depreciation 1.8
NI (Retained Earnings) P 16.2
These adjustments will reduce overstated PPE by 18 and eliminate the unrealized profit of
18 from Retained Earnings of P. It will also eliminate the excess of depreciation that the
buyer S has recorded (1.8). Therefore the Retained Earnings adjusted of P will be 16.2 15
 CONSOLIDATION CASE 2

Push Ltd Shove Ltd P+S Adjustments CSoFP

Debit Credit
Assets
Non-Current Assets
Property, Plant and Equipment 110 350 460 18 5
Loans 180 180 130
Investment in S 295 295
5
Acc depreciation 1.8

Current Assets
Inventories 300 190 490 20
Trades receivables 270 90 360 125
Cash 160 50 210
Total Assets 1315 680 1995

Equity and Liabilities

Equity
Ordinary Share capital 840 200 1040 5
Retained Earnings 265 140 405 20+16.2
Consolidated Reserves

Non-Current liabilities
Long term loans 170 170 130

Current liabilities
Trade Payables 210 170 380 125
Total equity and liabilities 1315 680 1995
CONSOLIDATION CASE 2

1. Push Ltd acquired 150.000 shares in Shove Ltd for €295.000 on 1st September
X1, at which date Shove Ltd had a balance on retained earnings of €60.000

2. At the date of acquisition the property, plant and equipment of Shove Ltd
had a fair value which exceeded the carrying value by €100.000.

▪ We have to account for FV adjustments in tangible or intangible assets of S

and add them to its Equity.

▪ P → 75% S (Subsidiary: Full Consolidation)

▪ Price paid for shares: 295

Equity of S at Acquisition date: (200+60+100) * 0.75 = 270

Goodwill: + 25

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ADJUSTMENT 4.

Now we calculate final NCI and Consolidated Reserves Subsidiary

▪ Given that we have to consolidate at the post-acquisition date 31.08.X3, we

are calculating NCI on the equity of S AFTER the intra-group transactions
adjustments.

Did any of the previous adjustments affect the Equity of S??

→ NO

Then we can proceed to calculate NCI and consolidated reserves:

NCI = (capital S + Ret. Earn. S post-acquisition + FV increase – adj.) * 0.25

= (200 + 140 + 100 – 0) * 0.25
= 110

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ADJUSTMENT 4. CONSOLIDATION ADJUSTMENT

▪ Consolidated Reserves:

Initial Equity S = (capital S + Ret. Earn. S + FV increase)

(1/9/X1) = (200 + 60 + 100)
= 360

Final Equity S = (capital S + Ret. Earn. S postacq. + FV increase – adj.)

(31/08/X3) = (200 + 140 + 100 – 0)
= 440

440 – 360 = 80 (Eq. S has increase by 80!)

80 * 0.75 = 60
Balance Sheet Debit Credit
Consolidated Reserves Subsidiary 60

We will credit this item. It will represent positive consolidated reserves in the final
consolidate SoFP

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FULL CONSOLIDATION ADJUSTMENT

Balance Sheet Debit Credit

Investment in S 295
Capital S Consolidation Date 200
Ret. Earn. S Consolidation Date 140
Goodwill 25
NCI 110
Consolidated Reserves Subsid. 60
PPE FV Increase. 100

• Full consolidation cornerstone: we replace the investment in S with the assets

and liabilities of S

• Finally, we account for goodwill, FV increases, NCI and Consolidated Reserves.

• The items in bold will show up in the final consolidated SoFP, while the rest
will be canceled out as per full consolidation cornerstone.
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 CONSOLIDATED STATEMENT OF FIN. POS. 31/8/20X3

Push Ltd Shove Ltd P+S Adjustments CSoFP

Debit Credit
Assets
Non-Current Assets
Property, Plant and Equipment 110 350 460 100 18 542
Loans 180 180 130 50
Investment in S 295 295 295 0
Acc depreciation +1.8 1.8
Goodwill 25 25
Current Assets
Inventories 300 190 490 20 470
Trades receivables 270 90 360 125 235
Cash 160 50 210 210
Total Assets 1315 680 1995 1533.8

Equity and Liabilities

Equity
Ordinary Share capital 840 200 1040 200 840
Retained Earnings 265 140 405 20+16.2+140 228.8
Consolidated Reserves 60 60
Non Controlling Interests 110 110
Non-Current liabilities
Long term loans 170 170 130 40

Current liabilities
Trade Payables 210 170 380 125 255
Total equity and liabilities 1315 680 1995 758 758 1533.8