Amt in Economic: recognise | Amt in Legal: De-recognise
CJE for: (FV-BV) Asset recognised during acquisition:  CJE1: every year re-enact the recognition Dr Asset @
(FV-BV)  “FV INA” | Inventory: If sold, re-enact every year to bring down the (FV-BV) of inventory that was
previously recognised in CJE1. | If unsold, do nothing (cause the FV-BV just stays in ur books as recognised in CJE1)
| FA: Re-enact the excess depreciation that arose from the (FV-BV) portion from acquisition to beg of year. So
increase accumulated dep for the FA. | IP/ IA: Re-enact the excess amortisation that arose from the (FV-BV) portion
from acquisition to beg of year. So increase accumulated amortisation for the IA. | Adjust for tax effect for all reenactment.
Dr ORE Dr NCI | Cr Inventory/ Acc. Depreciation/ Acc. amortisation
Dr DTL | Cr ORE Cr NCI
Legal entity is always where the transferred Asset sits in (record TP). Economic entity should record OC. CJE is
always adjusting the difference between legal and economic. If there is impairment for the legal entity, it would have
impaired it in their books. | NCI is Cr in nature. Equity | Past Intercompany sales: Sub: ORE and NCI | Associate:
only ORE| EA: Record an EA for each past adjustments | all current year adjustments in ONE EA – share of current
profit after tax of associate!!
CONSOLIDATION – for Subsidiary (P has control; >50%)
@ Acquisition (“Past”)
FV of Consideration Transferred (CT)
Dr Investment in Sub ↑
Dr Unamortised Discount on payment to S↑
Dr Contingent Refund ↑
Dr Acquisition related exp & business development expense & stamp duties etc cost
Cr Contingent Consideration ↑
Cr Unamortised payment payable to S
Cr Legal assumption of liabilities
Cr Cash ↓ (amt paid, not loan amt)
Cr Share Capital ↓ (FV/share * no of shares)
Cr Asset ↓ (FV of Asset trasferred)
Transaction Costs
Dr Acquisition Costs – P&L (exp in relation to acquisition) ↑
Dr Equity – Share Capital (Costs incurred in relation to issuing shares e.g.stamp
duties)↓
Cr Cash↓
1.
Determine goodwill
Subsidiary: book value of net assets = A – L = Equity = SC + RE
Goodwill = (FV of consideration transferred + FV of NCI) – (FV INA acq)
FV INA acq = BV of Net Assets of S on Acq + [(FV-BV) x (1-tax rate)]
DTL/ DTA = (FV- BV) x Tax rate
FV – BV = unrecognised FV of asset
2.
CJE1 to CJE 11: Re-enactment and Eliminations (past years’ till
beg. of current year)
CJE1: Elimination of investment in S
Dr SC
Dr RE (pre-acq RE, you don’t own it)
Dr RR
Dr Goodwill (residual)
Dr Intangible Asset (FV – BV)
Cr Investment in S (Consideration transferred @ Acq)
Cr NCI (@ FV)
Cr DTL or Dr DTA
Cr Provision for Loss (litigation claim’s FV is negative; DTA impact)
Dr INA ((FV>BV) @ Acq) & Cr DTL or Dr DTA & Cr INA ((FV<BV) @ Acq)
Cr Inv in S includes 1)PV of payment payable to S 2) ST liability assumed legally
CJEx1: Eliminate Dividends income received from S
Dr Dividend Income (P% in S)
Dr NCI (NCI% in S)
Cr Dividends declared (by S, found in S’s I/S for current year ended)
CJEx2: Eliminate dividends receivable from S
Dr Dividend payable (S)
Cr Dividend Receivable (P)
CJE: Eliminate intercompany transactions “intercompany payables & receivables”
Dr Intercompany Payable
Cr Intercompany Receivable
CJE3: Allocation of Post-Acq RE of S to NCI (from date of Acq to beg of year)
includes RR allocation to NCI too (other than post-acq RE)
Dr Opening RE
RE of S as at ‘beg of current year’
Less: RE of S as at Acquisition date
Change in post-acq RE
NCI’s share @ X%
Cr NCI
(Taken from full RE of S, NCI’s portion; Consolidated RE = Group’s RE + NCI’s RE on
S; Group’s RE = P’s RE + P’s % of S’s post-acq RE)
CJE3.2: Allocate post-acq revaluation reserve to NCI
Dr OCI
Cr NCI
RR at beg of current year
RR at acq date
Change in RR
NCI’s share @ X%
CJE4 to CJE7 – Consolidation adjustments for Fixed Asset & Inventory
CJE: Adjustment to past depreciation for unrecognised excess/ deficit FV
Dr ORE Dr NCI. [if present, i.e. bought in x5 CJE for x5, Dep,COS AR]
Cr Acc. Dep (for FA) / Inventory (for inventory) /
 CJE: tax effect
Dr DTL
Cr ORE Cr NCI
CJE4: Elimination of Unrealised Profit from transfer of FA (eg. Equipment) from prior
year
Eliminate Past Intercompany Sale of Asset
Past Gain/Loss on Sale of FA
OC≠TP∴ Overvalued or Undervaluedbring back to OC
CJE: Adjustment for unrealized profit / loss of overvalued/ undervalued Fixed Asset
Cr Equipment (TP-OC) > 0
Dr Equipment (OC-TP) < 0
TP≠NBV∴Undo gain (P&L) / loss (P&L)from Sale
Dr NCI ↓
Cr NCI ↑
Dr ORE ↓
Cr ORE ↑
(%*TP-NBV)
(%*NBV-TP)
Cr Accumulated Depreciation ((OC-NBV) restore AD to date of transfer )
Tax based on gain or loss on Sale
Dr DTA ↑
Dr NCI ↓
Cr NCI ↑
Dr ORE ↓
Cr ORE ↑
Cr DTL↑
E.g.
Reversal of sale
Dr ORE (S)
Dr NCI (bring down NCI’s share of UP)
Cr Equipment (in P’s books) (TP-OC; TP > OC if TP<OC CR Eq)
Cr Acc Depreciation (P) (at OC)
CJE5: Reverse tax on profit on sale for prior year
Dr DTA (Group’s B/S) (tax rate x UP)
Cr ORE
Cr NCI
Unrealised profit = TP – NBV
NBV = OC – Acc. Dep
Reclassify the sub’s Tax Exp (which is alr included in the RE) to DTA in consolidated
B/S.
CJE6: Reverse excess depreciation for prior year (eg here is Upstream sale)
Dr Acc Dep (P)
Cr Opening RE (P)
Cr NCI
Dep recorded by P (from date of sale to beg of year) (TP/useful life)
Original Dep had S not sold to P (OC/useful life)
Excess Depreciation
CJE7: Increase in Tax from reversal of Excess Dep for prior year
Dr ORE (P) Dr NCI
Cr DTA (Group’s B/S)
CJE8 to CJE9: Consolidation Adjustments to IP/ IA
CJE8: Adjustment for past Amortization of excess FV of Intellectual Property / (IA)
Dr ORE (P) Dr NCI
Cr Accumulated Amortisation (P)
Re-enact the acc. Amortisation that P has to recognise in consolidated B/S. Because
the intellectual property/ IA was recognised only under the acquisition method which
was previously unrecognised in S. | (FV-BV) = IA
CJE9: Adjustment for tax on amortisation of intellectual property/ IA
Dr DTL
Cr ORE Cr NCI
Earlier on in CJE1, we credited DTL due to tax effect from recognition of intellectual
property. Due to recognition of amortization expense which reduces the taxable income,
thus reducing tax payable, this leads to a decrease in DTL.
CJE: Adjustment for past impairment loss
Eg. Undo the impairment loss done by the legal entity when consolidating.
Dr Acc impairment loss (impaired amt: $27,333)
Cr ORE Cr NCI
 Dr ORE Dr NCI
Cr DTL
Impairment test as at 31 Dec x5
Cost at 1 Jan 20x5
Amoritsation expense for X5
Carrying amount as at 31 Dec x5
Value in use (i)
Fair value less cost to sell (ii)
Recoverable amount (Higher of (i) or (ii))
Impairment loss (CA – Recoverable)
Legal Entity
340K
22,667
317,333
290,000
230,000
290,000
27,333
Economic Entity
290K (Rev-profit)
19,333
270,667
290,000
230,000
290,000
0
Difference
3.
RA =
Higher one
27,333
If impairment loss arise from the economic entity, then need to recognise.
Dr ORE
Dr NCI
Cr Acc Impairment loss
CJE10 to CJ11: Consolidation Ad. to Intra-group Sale of Inventory
LCNRV Test as at 1 Jan
20X6 (eg. UL, TP<OC)
Legal Entity
Economic
Entity
% INVENTORY remaining
80%
80%
Cost (of remaining)
60,000 (TP)
80,000 (OC)
NRV
76,000
76,000
LCNRV Test as at 1 Jan
20X6
60,000
Impairment gain/loss
-
CJE12 to CJE19: Current Year’s CJE
CJE: Adjust for Impairment loss of Goodwill in current year
Dr Impairment of goodwill (P&L)
Cr Goodwill
CJE12 & 13: Fixed Asset – Equipment
CJE: Adjust Excess FV depreciation for current year (recognise the dep)
Dr Dep exp.
Cr Acc dep.
 CJE: tax effect on dep
Dr DTL
Cr Tax Expense
Diff.
Eliminate Current Sale of Asset
Transfer of Assets (US=S sell P= UP in S, so affects P &NCI)
OC≠TP∴ Overvalued or Undervalued ( at face value )bring back to OC
Cr Equipment (OC- TP) < 0
Dr Equipment (OC-TP) > 0
TP≠NBV∴ Undo gain (P&L) / loss (P&L)from Sale
Dr Gain on Sale (TP-NBV)
Cr Loss on Sale (NBV-TP)
Cr Accumulated Depreciation (OC-NBV) (restore original AD)
76,000
16,000
(UP)
4,000
4,000
Tax based on gain or loss on Sale
Dr DTA ↑(.2 * Gain on Sale)
Dr Tax Exp ↑
Cr Tax Exp↓
Cr DTL↑
Transfer of Assets (DS=P sell S=UP in P, no effect on NCI))
Same as above just ignore NCI
Any impairment loss will be adjusted. Impairment can be subsumed in the adjustments to ORE, NCI and inventory. |
UP: Cr Inventory reinstated to lower supposed lower OC = UP + impairment loss | UL: Dr Inventory reinstated to
supposed higher OC = UL – impairment loss
CJE10: Adjustment for intra-group sale of inventory (Past sale of inventory; re-enact)
Adjust UP or UL (ORE & NCI) and overstated or unstated unsold inventories at beg of current year | adjust unsold
inventory till the what should be bal. at the BEG. of current year| then in current year CJEs: adjust for the amount sold
in current years (realised UP or UL)
Eliminate Past Intercompany Sale of Inventory
Inventory (US=S sell P= UP in S∴affects P &NCI)
Full resale (100%sold)No re-enactment
With Partial resale (unsold & sold)/No resale (%unsold)
OC≠TP∴Overvalued or undervalued
UNDO inv↓∴Inv (unsold &sold)
UNDO inv ↑∴Inv(unsold &sold) ↓=NCI&RE↓
↑=NCI&RE↑
Dr NCI ↓
Dr Inv ↑ (%unsold by current year
Dr ORE ↓
end*LOCOM-TP)
Cr COS↓ (%sold in current year*TP-OC)
Dr COS ↑ (%sold in current year*OC-TP)
Cr Inv ↓(%unsold by current year end*TPCr NCI ↑
OC)
Cr ORE ↑
UNDO inv↓∴Inv↑ =DTL↑|COS↑ =Tax↓ UNDO inv↑∴Inv↓ =DTL↓|COS↓ =Tax↑
Dr NCI ↓
Dr Tax Expense ↑ (%sold in current year*TPDr ORE ↓
OC)*tax
Cr DTL (G) ↑ (%unsold by current Dr DTA (G) ↑
year end*OC-TP)*tax
(%unsold by current year end*TP-OC)*tax
Cr Tax Expense ↓ (%sold in current
Cr NCI ↑
year*OC-TP)*tax
Cr ORE ↑
Inventory (DS=P sell S=UP in P, no effect on NCI))
Same as above just ignore NCI
Unrealised Profits (TP > LCNRV)
CJE: Re-Eliminate UP and overstated inventory
Dr ORE
Dr NCI
Cr Inventory(LCNRVE - LCNRVL ; LE>LL) )( (unsold% x (TP-OC))
To reduce unrealised profit and the overstatement of inventory from unsold portion.
 CJE: Tax effect on above
Dr DTA (the tax expense adjust to become prepaid tax)
Cr ORE
Cr NCI
Unrealised Loss (LCNRV > TP)
CJE: Re-eliminate UL and understated inventory
Dr Inventory (LCNRVE - LCNRVL ; LE>LL) ) (unsold% x (LCNRV - TP))
Cr ORE
Cr NCI
 CJE: Tax effect on above
Dr ORE Dr NCI
Cr DTL
CJE: Adjust for Impairment of Goodwill in prior years (no tax effect for goodwill)
Dr ORE Dr NCI
Cr Goodwill
For both prior yr & current yr trans of FA | need to remove cur. yr’s excess dep
[a3] CJE12: Adjustment for dep. of transferred FA (remove current year’s excess dep)
Dr Acc. Dep.
Cr Dep exp (buying’s dep exp (TP/RUL)– original dep. exp(NBV/RUL)
[a4] CJE13: Adjustment for tax on dep of FA
Dr Tax Expense
Cr DTA
CJE 14 & 15: Intellectual Property/ Intangible Assets
CJE14: Amortisation of IP [from excess (FV-BV) IA] need to recog amortisation
Dr Amortisation exp (record amortisation for current year for the recognised IA)
Cr Acc. Amortisation
CJE15: Adjustment for tax on amortisation of IP
Dr DTL
Cr Tax Expense
CJE: Adjustment to over-amortised IA/IP (when TP > OC; there is profit/ UP)
Dr Acc. Amortisation
Cr Amortisation expense
 Dr Tax Expense Cr DTA
CJEs: INVENTORY
CJE: Adjustment of excess FV of inventory when inventory is sold
Dr COS (excess FV x % sold) –to recog increase in COS to FV
Cr Inventory
 CJE: tax effect
Dr DTL
Cr Tax expense
CJE16 & 17, CJE18: Adj for INTRA-GROUP SALE OF INVENTORY on 2 occasions
CJE16: Adj for intra-group sale of inventory (sale occurred in PRIOR YEARS)
Unrealised Profit realised (sold)
Dr Inventory
Cr COS (sold% x UP) (amt. sold in current year)
 Dr Tax Expense (Crystallisation of tax due to realisation/ earned profits)
Cr DTA
Unrealised Loss realised (sold)
Dr COS (sold% x UL)
Cr Inventory
 Dr DTL
Cr Tax Expense
CJE18: Adj for intra-group sale of inventory (sale occurred in CURRENT YEAR)
 Eliminate sales entry and UP/UL
Eliminate Current Intercompany Sale of Inventory
Transfer of Inventory (US=S sell P= UP in S∴affects P &NCI)
Full resale (100%sold)
Dr Sales (S) (Undo S’s Sale @ TP)
Cr COS (P) (%sold*TP) (Undo P’s COS @ TP bcos COS should be @ OC, which
was already recorded by S)
NO TAX EFFECTS (↑P&L=↓P&L∴no△to taxes)
With Partial resale (unsold & sold) / No resale (100%unsold)
Dr Sales (S) (Undo S’s Sale @ TP)
OC≠FV∴impairment or Artificial Loss? (ignore if OC=FV)
FV>OC =
OC>FV
Remaining Impairment Recognise
Artificial Loss Reverse Out artificial
Inv not
Impairment of remaining Inv ∴P’s loss in remaining Inv ∴P’s COS ↓ 
impaired COS ↑ (for Inv, impairment is in
entry already done below (Cr
∴ ignore COS)
COS(S)(%unsold*OC))∴ DON'T ADJUST
Dr COS (P) (%unsold*(OC-FV))↑
LOCOM≠TP∴Overvalued or undervalued (ignore if LOCOM=TP)
(LOCOM)>TP=Remaining Inv undervalued TP>(LOCOM) =Remaining Inv overvalued
@TP∴↑to FV
@TP∴↓to OC
Dr Inv (P)(%unsold*LOCOM-TP)
Cr Inv(P)(%unsold*TP-LOCOM)
Cr COS (P) (%sold*TP) (Undo P’s COS @ TP bcos COS should be @ OC, which
was already recorded by S)
Cr COS (S) (%unsold*OC) (Undo S’s COS @ OC bcos unsold yet)
Net inv↑=Tax↑
Net inv↓=Tax↓
Dr Tax Exp (S) ↑
Dr DTA (G) ↑
Cr DTL (G) ↑
Cr Tax Expense (S) ↓
Transfer of Inventory (DS=P sell S=UP in P, no effect on NCI))
Same as above just ignore NCI
Additional Step (just combine this entry with the one above)
* DR Inventory CR COS if Legal (person sold to) other than GRP makes impairment too
Unrealised Profit (TP > OC)
Unrealised profit, impairment loss (TP > OC > FV)
Dr Sales (TP)
Cr COS (TP x sold%)
Cr COS (OC x unsold %)
Cr Inventory [(UP + impairment loss) x unsold %]
Unrealised profit (TP > FV > OC), NO impairment loss
(adjust UP; reverse sale, reinstate unsold inventory to OC to remove UP, realise amt
sold in COS)
Dr Sales (TP)
Cr COS (TP x sold%)
Cr COS (OC x unsold %)
Cr Inventory (UP x unsold%)
Unrealised Loss ( TP < LCNRV)
[1] Impairment loss (FV < OC) & Unrealised Loss (LCNRV > TP) | Artificial loss:
reverse as if unrealised loss |
100% unsold (unsure)
Impairment loss: retain; no adj | reverse sale at TP | adjust up inventory from UL |
Dr Sales (@ TP)
Dr Inventory [(TP – LCNRV) x Unsold %]
Cr COS (OC x Unsold%)
If only impairment loss, no UL (is there such a scenario?)
Partial unsold (impair &  Inventory from TP to LCNRV), partial sold
Dr Sales (@ TP)
Dr COS ((OC-FV) x unsold%) (unsold inventory is impaired, subsumed under COS)
Dr Inventory ((LCNRV – TP) x unsold%)
Cr COS (TP X sold%)
[2] Only Unrealised loss (TP < OC) | no impairment (OC </= FV )|
Dr Sales (TP)
Dr Inventory [(LCNRV - TP) x unsold%] (bring inventory back up to LCNRV)
Cr COS (Balancing figure) (incl. sold% x TP + unsold% x OC)
CJE: Allocation of current year OCI to NCI
Dr OCI (current year after-tax OCI changes x NCI’s share @ X%)
Cr NCI
CJE 19: Allocation of Income for current year to NCI
Dr Income to NCI (P&L)
Cr NCI (B/S) (NCI is Cr in nature, under Equity)
Adjust NPAT of S with current year’s CJE to get Adjusted NPAT of S, then
allocate NCI’s % of income to NCI | DS sale/transfer, no NCI effect
  inc exp = less | dec exp = add
DO NOT INCLUDE DOWNSTREAM (DS) EFFECTS! NCI NOT AFFECTED!
NPAT of S for current year
Less: Gain on US sale Add: Tax on GOS
Add/Less: Adj on Profit on sale of FA to third party (+ if POS/LOS is CR)
Add: Excess Dep of FA Less: tax on excess dep
Add: Cost of Sales (CJE 16)
Less: Amortisation of IP (CJE 14)
Adjusted NPAT of S for current year
NCI’s share @ X%
ANALYTICAL CHECK – NCI
Alternative 1 – NCI with goodwill
Sequential listing | NCI cr in nature | Cr: add | Dr: less
NCI bal. as at Acq date**** [ONLY THIS IS DIFF. FROM ALT 2]
Dividend received (-) NCI’s share
Add/Less: NCI’s share of all re-enactment of all prior year’s
adjustments (CJE2 to 11) (till beg of this year) including tax effects
Add: Allocation of current income to NCI from current year
NCI balance as at current year end
Reconciliation
Shareholders’ equity (book value) of S as at year end (in S’s B/S)
Unamortised balance of FV adjustments, after-tax:
(+ if underval) Intangible Assets  (FV – BV) of IP x remaining useful life x (1-tax rate)]
(-) Equipment  Unrealised profit from FA = gain on intragroup sale of FA (TP –
ONBV) x (RUL@ YE/ RUL @transfer date) x (1-tax rate)
(-) Inventory  Unrealised profit from inventory = (TP – OC) x unsold % x (1-tax rate)
Adjusted Shareholders’ Equity
NCI’s Share @ X%
Goodwill attributable to NCI  FV of NCI at Acq – (NCI’s % x FV INA acq) – (NCI’s % x
goodwill impairment)
****[alt 2: GW = O; no goodwill to NCI]
NCI balance as at current year end
FV INA acq = BV of Net Assets of S on Acq + [(FV-BV) x (1-tax rate)]
 to reconcile from ‘Shareholders’ equity of S (Book value; Subsidiary’s)’ with
consolidation adjustments to ‘consolidated shareholder’s equity balance (Economic
Entity’s) | then to find amt. of NCI’s share
Alternative 2 – NCI without goodwill
[1] Find NCI as a proportion of FV INA (not FV of NCI) = NCI’s % x FV INA acq  amt. of
NCI at Acq in CJE1
[2] Determine goodwill for Parent = Consideration transferred – P’s % of FV INA acq |
 amt. of goodwill at Acq in CJE1
Lower amt. of Dr Goodwill, Lower amt. of Cr NCI in CJE1: Elimination of investment in S
Amt. of GW to be lowered from Alt 1 = FV of NCI (NCI’s value in Alt 1 CJE1) – NCI% of FV INA (NCI’s
value in Alt 2 CJE1)
EQUITY ACCOUNTING – for Associates (Investor has sig. influence; 20-50%)
EA: Capture past profits, then past expenses, then current year’s income | ‘One line consolidation’ to Dr Investment in
Associate | Goodwill is implicit in “investment in associate” | GW is not tested for impairment on its own. The entire
carrying value of the investment is tested for impairment | compute all after-tax as pass transactions goes into ORE
directly | Only need to record the past changes (EAs) + share of allocation of income where it will include all current
years’ adjustments (the last EA, all to the “Dr Investment in Ass”) |
If investment in associate happens in Associate CURRENT YEAR
[ONLY EA1 & 2. EA(5) of Share of allocation of current year’s income]
EA1: Recognise initial investment in the associate (at cost/ Book value)
Dr Investment in Associate
Cr Cash
1. EAs all the re-enactments | record all the past changes EAs
If investment happened in PRIOR YEARS
EA1: Recog post-acq RE Associate (from Acq date to beg of current period)
Re-enact past EA entries with post-acq changes in RE | the change captures the
composite and cum. effect of post-acq profits in past periods and reducing effects of
past post-acq dividend payments |
Dr Investment in Associate
Cr ORE
RE as at beg of current year
(RE as at Acq date)
Change in RE from Acq date
Share of investor’s post-acq RE
EA: Reclassify dividend income as a reduction of investment
Income is recognised purely on the basis of net profit of the associate. Dividend income
and other distributions received are deemed as repayment of profits; Cr Investment in
Associate. | so we reclassify and not eliminate the dividend income to the I/S as a
realisation of the accrued profits | not eliminated as EA does not involve a line-by-line
summation of an associate’s F/S
Dr Dividend income (% in Ass x dividend declared by Ass)
Cr Investment in Associate
EA: Recognise post-acq RR from associate
Dr Investment in Associate (if positive)
Cr ORR
RR as at beg of current year
(RR as at Acq date)
Change in RR from Acq date
Share of investor’s post-acq RR
Transfer of FA
EA(FA1): Share of Unrealised Profit/ (UL) in be beg FA
Dr ORE
Cr Investment in Associate
Find the amt of unrealised profit after tax allocated to investor at the date of transfer
Profit arising from transfer of FA (TP – NBV) (NBV = OC – Acc. Dep)
Tax on unrealised profit (tax rate x Unrealised profit)
UP after tax
Investor’s % of UP after-tax
EA(FA2): Share of after-tax effects on UP/UL in FA
Any adjustment relating to an asset or liab of associate is made against the investment
in associate account | Re-enact the past cum dep relating to the undervalued/
overstated FA |
Overvalued FA – decreases the excess acc dep to the what should be original acc dep
Dr Investment in Associate
Cr ORE [(profit from sale/ useful life) x (1-tax rate) x (% in Ass)]
Undervalued FA – increase the under cum dep to the what should be original acc dep
Dr ORE [(loss on sale/ useful life) x (1- tax rate) x (% in Ass)]
Cr Investment in Associate
Adjustment arising from FV and NBV differential at Acquisition – amortise/dep
EA: Adjustment for past after-tax depreciation on under/overvalued Asset (at Acq)
Overvalued
Dr Investment in Associate
Cr ORE {[(BV-FV)/ useful life] x (1- tax rate) x (% in Ass)}
Undervalued
Dr ORE {[(FV – BV)/ useful life] x (1- tax rate) x (% in Ass)}
Cr Investment in Associate
EA4: Re-enactment of past impairment loss on Goodwill
Impairment loss relates to the goodwill owned by the investor, hence no need to x %
owned to it
Dr ORE
Cr Investment in Associate
Transfer/ Sale of Inventory
Downstream Sale (Investor to Associate)
EA6: Share of Unrealised profits from DS sale of Inventory
Unrealised profits from past DS sale of inventory (Investor sell to Associate)
Dr ORE (UP x %unsold x P’s share in Associate x 0.8)
Cr Investment in Associate
Upstream Sale (Associate to Investor)
Adjustment for unrealised profit from past US sale of inventory
Dr ORE [UP x unsold% x share% x (1-tax rate)]
Cr Investment in Associate
EA4: past settlement of Provisions (increase provision = increase liab)
– compare legal and group, all after tax x share % x X amt.
EA5: adjust UP for construction contract
Cannot recog cause u are constructing for yourself; reverse all rev and exp u
recognised in legal entity
Eliminate progress billing (cause its for yourself)
E construction WIP to zero (cause there isn’t)
Restate FA to cost
WIP
Reverse the excess profit that were recognised in past years
Realisation of whatever it is constructed for, depending on the contract:eg. for sale
(realise through COS) | for own use (realise through depreciation) | investment contract
(realise through FV changes?)
2. Last EA: Allocation of income | All current year’s adjustments
EA5: Share of current profit after tax of associate
incl. current year’s after-tax [1] current year depreciation on FA [2] impairment loss [3]
realisation of profits from previous year’s US [4] removal of unrealised profits from
current year’s DS
Dr Investment in Associate
Cr Share of profit of associate
NPAT (of Ass at current year end)
Less: Profit in fixed asset transfer (after-tax) [if FA transferred in current yr]
Add: Depreciation on fixed assets transfer (after-tax)
Less: Unrealised Profit from current year sale (after-tax)
Add: Realised profit from Past Inv sale (after-tax) [TP-OC][% resold in current yr x.8]
Add: (Undo of) impairment loss of inventory recognised by Associate (after-tax)
Less: Amortization of intangible asset(after-tax) [(FV diff/RUL@acq)*0.8] only current yr
Add: Provision exp, (after tax) [(FV – prior year provision exp)*0.8]
Less: Current year’s excess dep (after-tax)
Less: Current Impairment Loss (after-tax)
Adjusted profit after tax
Share of Profit of associate (% in ass x adjusted NPAT)
EA: Recognise current year’s share of RR
Dr Investment in Associate (if positive change)
Cr Share of Current RR
RR at end of year
(RR at the beg of year)
Change in RR
Share of investor’s change in RR
ANALYTICAL CHECK – INVESTMENT IN ASSOCIATES
Investment in Associate – (at cost)
Add/ less: All the EAs
Investment in Associate as at end of year
Reconciliation
Shareholders’ equity of Associate at the END of year
(+) (FV-BV – impairment ) x 0.8
(-)Adjustments for UP in inventory (after-tax) [the LCNRV difference from the table]
Adjusted shareholders’ equity of Associate
Investor’s share of adjusted SE of Associate (share %)
+ Investor’s share of after-tax unamortised balance of FV differential adjustments
+ Goodwill implicit in investment of Associate
Investment in Associate at end of year
Goodwill = Investment in associate – Investor’s Share of FV INA acq
 Investment in Associate: Given in question
 FV INA acq = BV Total net asset + (FV-BV of assets (Inventory/intangibles...))0.8 if
FV-BV is +/ve – provision after tax
ANALYTICAL CHECK – CONSOLIDATED RETAINED EARNINGS
Adding P’s RE with P’s share of Sub RE [1] excludes NCI [2] automatically eliminate
intra-group transactions. | P’s share of RE includes all items under “less”, so minus to
be left with the realised & amortised in Consol RE | CJE for FV differentials are not
pushed down to the sub’s legal books, and hence not reflected in the P’s share of RE
from sub. So we need to recognise P’s share of cumulative amortisation/expensing of
FV differentials.
Reconciliation
P’s RE at end of current year
Add:
P’s share % of Sub’s post-acq RE = (RE at end of current year – RE at Acq) x share%
P’s share % of Ass’s post-acq RE = (RE at end of current year – RE at Acq) x share%
Less if profit/ Add if loss: ALL AFTER TAX
100% Unrealised profit or loss at year end for DS to sub (not share% | remove UP/UL from
remaining inventory)
P’s % x Unrealised profit or loss at year end from Sub (DS is 100%)
P’s % x Unrealised profit or loss at year end from Ass
P’s % x Impairment of asset ( “remaining” FV – recoverable amount)
P’s % x Cumulative Amortisation of FV differentials from Sub
P’s % x Cumulative Amortisation of FV differentials from Ass
+++ Add: P’s % x FV adjustment for litigation loss in Ass (specific to qn: add back provision as there are
no more further litigation expenses after the year; take back what u provided during acq)
Consolidated closing RE (at year end)
Sequential listing
P’s RE as at end of year
+ Sub’s RE as at end of year
All CJE and EAs
Consolidated closing RE (at year end)
CJE:
Dr RE/ ORE (-) | Cr ORE (+)
(+) NCI for elimination of dividends
Dr Exp (+) | Cr Exp Income to NCI for allocation of current year income to NCI (-)
EA:
Dr Investment in Ass (+) | Cr Investment in Ass (-)
Ignore RR entries