TOPIC 2: GROUP ACCOUNTING: INTRA GROUP TRANSACTION

What is intercompany transaction?

An intercompany transaction occurs when one unit of an entity is involved in a transaction with other unit of the same entity. While these transaction can occur for a variety of reason, they often occur as a result of the normal business relationship that exist between the units of the entity. these unity may be the parent and subsidiary, two subsidiaries, two division, or two department or one entity. 

It is common for vertically integrated organizations to transfer inventory among the units of the consolidated entity. On the other hand, a plant asset may be transferred between organizational units to take advantage of changes in demand across product lines. an inter-company transaction is recognized in the financial records of both units of the entity as if it were and arm's-length transaction with unrelated party. From the consolidated entity's perspective the transaction is initially unrealized because unrelated parties are not involved; therefore, the consolidated statement of financial position (CSOFP)should not disclose any intra group balance.

The CSOFP are to report transaction that have take place with parties outside the group. This avoids the double counting of assets and liabilities that arise through transaction between members of the group. therefore, all Intra group balance have to be eliminated. 

What is the Items in Transit?

Items in Transit are cash remittance and dispatch of other asset, such as inventories, by one party but the other party has not received them as at the statement of financial position date. The items is transit are adjusted for in the accounts of the holding company.The adjusted balance derived at cab be cancelled off against the amount will then be settled by payment or receipt of cash. 

What is the Current Accounts?

In situation where there are numerous inter-company transaction, it is more convenient to operates a current account to record the amounts due to and from each other. The current account is debited for amounts due and credited for amounts due and credited for amounts owing. The net amount will then be settled by payment or receipt of cash However, balance in the current accounts as at the statement of financial position date are cancelled off, as these are the inter-company balance. At times, balance in the current accounts may differ as only one member might have recorded certain transactions, and the other member may not be aware of the transaction. The differences between the current accounts have to be adjusted before canceling amounts in the current accounts. 

What is Bills receivable/Payable?

Bills Receiver or Payable are negotiable financial instruments that the holder can transfer to another party. This legal document can be used by the parents to pay to another party. At times these bills are discounted with discount houses or financial institutions. In the consolidation statement of financial position, if inter is limited to the un-discounted bills only. The bills discounted represented liabilities to third parties.

We will focus our discussion in this scope:

1.  how if intra-group transactions owing money?

     a.  Loans to and from holding

     b.  Current accounts and item in transit

     c.  Bill receivable/payable

     d.  Interest receivable/payable

     e.  Dividend receivable/payable

2.  How to eliminate intra group balances?

3.  how to prepare consolidated financial statement after adjustment intra group transactions?

To answer that brilliant question, let us get through these example:

Below are the statement of Financial Position of Bo Bhd and its subsidiary, Be bhd as at 31 December 2008

	Bo Bhd		Be Bhd
Investment in Be Bhd:
80,000 unit Ordinary Shares	100,000		-
Property, Plant & Equipment	500,000		200,000
Inventory	50,000		20,000
Trade Receivable	30,000		5,000
Bill Receivable	20,000		10,000
Loan to Be Bhd	30,000		-
Bank	20,000		2,000
	750,000		237000
Ordinary shares@RM1.00	600,000		100,000
Retained Profit	120,000		55,000
Trade Payable	20,000		30,000
Bills Payable	10,000		25,000
Loan from Bo Bhd	-		27,000
	750,000		237,000

Additional Information:
1.  Bo Bhd acquired ordinary shares in Be Bhd on 1.1.2008 when the retained profit of Be Bhd had a credit balance of RM15,000.

2.  Trade receivables of Bo Bhd include RM10,000 due from Be Bhd.  This includes amount due for inventory costing RM2,500 sent by Bo to Be Bhd on 30.12.2008.  Be Bhd only received the inventory on 5.1.2009.

3.   Bills Payable of Be Bhd amounted RM 15 ,0000 were drawn in favour of Bo Bhd. Bo Bhd has discounted RM 8.000 of these bills.

4. Be Bhd had remitted RM3,000 on account of the loan from Bo Bhd, Bo Bhd received the remittance on 2.1.2009.

You are required to prepare:
             
              i)     Cost of control Account
            
             ii)      Non Controlling Interest Account

            iii)      Consolidated Profit and Lost

            iv)      Consolidated Statement of Financial Position as at 31.12.2008



Suggestion Answer:

1.       Journal Entries

          Eliminate all the debts in the group
             Dt    Trade Payable                                                      7,500
                     Inventory in Transit                                             2,500
                     Cr       Trade Receivables                                               10,000

             Dt     Bills Payable                                                       7,000
                      Cr      Bills Receivables                                                  7,000

          Record Cash in Transit
             Dt      Cash in Transit                                                   3,000
                        Loan from Be Bhd                                           27,000
                        Cr        Loan to Be Bhd                                               30,000

2.      Caculation of holding control on subsidiary ( Be Bhd )

         80,000 units of ordinary shares than being bought in Be Bhd =80%
         100,000 units of ordinary shares issued in Be Bhd

3.      Eliminate the investment account, ordinary shares and pre acquisition reserves

                         Cost of Control Account ( 80% )                                            
          Investment in Be Bhd                 100,000  OS                                                80,000
                                                                         Retained Profit                             12,000
                                                                         Goodwill                                        8,000
                                                             100,000                                                   100,000


4.      Record the non controlling interest in the net assets of the subsidiary

                         Non-controlling Interest Profit                                               
        CSOFP                                   31,000  OS                                                 20,000
                                                                 Retained Profit                              11,000
                                                     31,000                                                       31,000


5.      Record the Consolidated Retained Profit

Consolidated Retained Profit
	Bo	Be		Bo	Be
COC		12,000	Balance b/f	120,000	55,000
NCI		11,000
Balance c/f	120,000	32,000
	120,000	55,000		120,000	55,000

6.      Prepare the Consolidated Statement of Financial Position

Bo Group Bhd
Consolidated Statement of Financial Position as at 31 Disember 2008

Non Current Asset:
Property, Plant, Equipment (PPE)	700,000
Goodwill	8,000
Current Asset:
Inventory	72,500
Trade Receivable	25,000
Bills Receivable	23,000
Bank	25,000
	853,500
Equity:
Ordinary Shares	600,000
Retain Profit	152,000
Trade Payable	42,500
Bills Payable	28,000
Non-Controlling Interest	31,000
	853,500

Exercise 2:

Below are the statement of Financial Position of  Lobak Ltd and it subsidiary, Labu Ltd as at 31.12.2009

	Lobak Ltd	Labu Ltd
Investment in Labu Ltd:
300,000 ordinary Shares	350,000
RM10,000 Debenture	10,000
PPE	267,000	654,000
Inventories	40,000	35,000
Debtors	55,000	40,000
Bill Receivable	18,000	21,000
Loan to Labu Ltd	22,000
Bank	33,000
	795,000	750,000
Ordinary shares @RM1	600,000	400,000
Retained Profit	160,000	100,000
10% Debenture		200,000
Creditors	20,000	15,000
Loan from Lobak Ltd		20,000
Bill Payable	15,000	12,000
Overdraft		3,000
	795,000	750,000

Additional information:

1.  Lobak Ltd acquired 10% Debenture and ordinary shares in Labu Ltd on 1.1.2008 when the retained profit of Labu Ltd had credit balance of RM40,000.

2.  Include in Debtors Lobak Ltd is RM6,000 debt from Labu Ltd. This amount include RM1,000 of inventories that had been sent to Labu Ltd on 31.12.2009.

3.Bill payable amounted of RM10,000 is from Lobak Ltd and Labu Ltd discounted the bill for RM3,000.

4.  Labu Ltd had remitt RM2,000 to Lobak Ltd for payment of the loan but Lobak Ltd received it at 4.1.2010.

5.  Any goodwill or reserves on consolidated is to be amortized for 4 years.

You are required to prepare:
i.  Cost of control Account (Key:Goodwill RM20,000)
ii.  Non Controlling Interest Account (Key:COSP RM125,000)
iii.  Consolidated Profit and Loss(Key:RM195,000)
iv. Consolidated Statement of Financial Position as at 31.12.2009. (Key:RM1,160,000)


Exercise 3:

Below are the statement of Financial Position of Kelam Ltd and it subsidiary, Malam Ltd as at 31.12.2008

	Kelam Ltd	MalamLtd
Non Current Assets:
Land and Building	606,600	464,600
Investment in Malam: Ordinary Share	400,000
Preference Shares	200,000
Current Assets:
Inventories	87,400	75,700
Bill Receivable	66,800	50,400
Current Account - Kelam		19,400
Debtors	58,000	52,000
Bank	89,000	79,300
	1,507,800	741,400
Equity:
Ordinary Share@RM4	280,000
Ordinary Share@RM1.5	400,000	300,000
9% Preference Shares @RM2	400,000	100,000
General reserves	38,000	35,000
Retained Profit	91,000	82,500
Premium Shares	44,900	29,600
12% Debentures	110,000	90,000
Current Liabilities:
Creditors	65,900	45,500
Bill Payable	24,000	46,800
Current Account - Malam	12,000
Loan	42,000	12,000
	1,507,800	741,400

Additional Information:
I.  On 1.01.2006 Kelam acquired 160,000 ordinary shares and 42,500 Preference Shares of Malam Ltd when the balances of the profit and loss account, share premium and general reserves were RM30,000, RM20,000 and RM30,000 respectively.

2.  Debtors in Kelam Ltd are include RM29,000 from Malam Ltd. However on 29 December 2008, Malam had remitted RM15,000 but only been received by Kelam Ltd on 5 January 2009.

3.  Bill Payable amounted of RM25,400 are from Malam Ltd and RM5,000 had been discounted from the bills.

4.  The differences between current account is inventories in transit.

5.  Goodwill on consolidated is to be amortized for 10 years.


Required:
1. Cost of Control Account (key:RM211,00)
2.  Non Controlling Interest Account(key:RM104,420)
3.  Consolidated Profit and Loss Account(Key: Kelam-RM27,700; Malam-RM42,000)
4.  Consolidated Statement of Financial Position as at 31.12.2008.(ley:RM1.7505 mill)

How to treat intra-group sale of trading inventories?

Adjustment for unrealized profits is only required if the trading inventories purchased from a member still remain unsold on the statement of financial position date.
 

The unrealized profits on the inventories unsold are to be eliminated in full and value of the inventories reduced to cost to the group.

 Example:

 Below are the statement of Financial Position of Baby and Bobo as at 31.12.2009

	Baby	Bobo
Property, Plant & Equipment	180,000	155,000
Investment in 100,000 Orinary shares in Bobo	108,000
Inventories	40,000	30,000
Debtors	12,000	20,000
Bank	10,000	15,000
	350,000	220,000
Equity:
Ordinary Share@RM0.50	200,000	150,000
Retained Profit	100,000	48,000
Creditors	50,000	22,000
	350,000	220,000

Additional information;

1.  Baby acquired 100,000 ordinary shares of Bobo Ltd when the retained profits of Bobo Ltd had a credit balance of RM12,000.

2.  Throughout the year 2005, Bobo Ltd had sold inventory costing RM50,000 to the Baby Ltd.  Bobo Ltd invoiced the goods at cost plus 25%.  RM20,000 of these goods still remain in the closing inventories of Baby Ltd.

Your are required to prepare:

1.  Cost of control Account

2.  Non Controlling Interest Account

3.  Consolidated Profit and Loss

4.  Consolidated Statement of Financial Position as at 31.12.2009.

Working:

1.  Calculation of unrealized profits:

Inventories unsold	x	mark up (in percentage)
		invoice price (in percentage)
RM20,000	x	25%	=	RM4,000
		125%

Journal: Dr    Consolidated Profit and Loss             4,000

                    Cr     Inventories                                      4,000

2. Calculation of holding control on subsidiary:

100000 OS bought in Bobo Lt	=	2
150000 OS issued in Bobo Ltd		3

3.  Eliminate the Investment account, ordinary shares and pre-acquisition reserve:

Cost of Control Account (2/3)
Investment in Bobo		108,000	OS		100,000
			Retained Profit		8,000
		108,000			108,000

4.  Record the non controlling interest in the net assets of the subsidiary

Adjustment Profit and Loss Bobo:

Balance b/d                    RM 48,000
URP                                RM   4,000

                                      RM 44,000

Retained Profit to NCI   2/3 * 44,000 = RM14,667

 

Non Controlling Interest (1/3)
CSOFP		64,667	OS		50,000
			Retained Profit		14,667
		64,667			64,667

5.  Record the Consolidated Retained Profit

Consolidated Retained Profit
	Baby	Bobo		Baby	Bobo
COC		8,000	Balance b/f	100,000	48,000
NCI		14,667
Unrealized Profit		4,000
Balance c/f	100,000	21,333
	100,000	48,000		100,000	48,000

6.  Prepare the Consolidated Statement of Financial Position

BabyGroup Bhd
Consolidated Statement of Financial Position as at 31 Disember 2009
Non Current Asset:
Property, Plant & Equipment (PPE)	335,000
Current Asset:
Inventory	66,000
Debtors	32,000
Bank	25,000
	458,000
Equity:
Ordinary Shares	200,000
Retained Profit	121,333
Creditors	72,000
Non-Controlling Interest	64,667
	458,000

Example 2: 

Below are statement of Financial Position of MSD Ltd and OMD Ltd as at 31.12.2010.

	MSD	OMD
	'000	'000
Non Current Assets:
Property, Plant & Equipment	670	590
Investment in OMD	480
Inventories	70	40
Bank	80	50
	1300	680
Equity:
Ordinary Share@RM0.50	1,000	500
Retained Profit	300	180
	1,300	680

 Additional information:

1.  MSD acquired 800,000 ordinary shares of OMD Ltd when the retained profits of OMD Ltd had a credit balance of RM100,000.

2.  During the year 2004, MSD sold inventories costing RM20,000 to OMD for RM30,000.  All of these goods remain unsold in holding.

Required:
The consolidated statement of Financial Position of the group as at 31.12.2010.
(key: RM1,490,000)

Example 3:

Below are the statement of financial position of Leman Ltd and Tijah Ltd as at 31 December 2008

	Leman Ltd	Tijah Ltd
	'000	'000
Non Current Assets:
Land	400,000	115,000
Plant & Machinery	420,000	260,000
Depreciation	(120,000)	(60,000)
Research	100,000
Investment in subsidiary:
170,000 Ordinary Shares	210,000
50,000 Preference Shares	50,000
Current Assets:
Inventories	40,000	20,000
Debtors	20,000	30,000
Bank	30,000	46,000
	1,150,000	411,000
Finance By:
Ordinary Shares @RM1	800,000	200,000
7% Preference shares@RM1	100,000	100,000
Retained Profit	200,000	81,000
Current Liabilities:
Creditors	50,000	30,000
	1,150,000	411,000

Aditional Information:

1.  Leman Ltd has acquired 170,000 ordinary shares and 50,000 Preference shares, especially in the Tijah Ltd on January 1, 2007.  At the time of possession, the Tijah Ltd has retained profit of RM30,000.

2.  in the current accounting period, Tijah Ltd sold stock at the sale price of RM24,000 to the Leman Ltd.  Tijah Ltd sell these stocks at cost plus 20% .  Leman Ltd could not sell the stock 50% purchased from Tijah Ltd until the end of the accounting period.

3.  Goodwill is amortized for RM4,500

You are required to prepare:
1.  Cost of Control Account (key: RM14,500)
2.  Non Controlling Interest Account (key: RM91,850)
3.  Consolidated Profit and Loss(key: L-RM195,500;T-RM41,650)
4.  Consolidated Statement of Financial Position as at 31.12.2008(key: RM1.3098mill)

How to treat the interest and dividends from subsidiary?

 What is it?  Tell me more...!!

* The subsidiary will from time to time declare and pay dividends on its issued shares, ordinary and preferences.  The holding company, being the shareholder, will receive dividends declared and paid by the subsidiary.

For the subsidiary, payment of dividends is an appropriation of profits while interest is an expense and must be provided even if the company is making a loss!

For the holding company, they may record the investment income (dividends or debenture's interest) as a part of income...

The consolidation adjustments depend on how this intra group expense/income has been dealt by both the holding and subsidiary in 3 situation.

1.  Both the subsidiary and holding companies have recorded the interest & dividend.
2.  The subsidiary and holding companies have not recorded the interest & dividend yet.
3.  The subsidiary has recorded the interest & dividend payable but the holding company has not taken credit for its share of interest/dividend receivable.


Situation 2:
The subsidiary and holding companies have not recorded the interest & dividend yet

Given below are the statement of financial position of Semah Ltd and Markonah Ltd as at 31.12.2009

	Semah Ltd	Markonah Ltd
Non Current Assets:	"'000	'000
Land & Building	380	100
Plant & Machinery	230	210
Investment in Markonah 160,000 OS	210
Investment in Siah Ltd	85
Investment in Temah Ltd		90
Current Assets:
Inventories	40	35
Debtors	42	25
Bank	54	38
Bill Receivable	18	15
	1059	513
Equity:
Ordinary shares@RM1	600	200
Premium Shares	60	20
Retained Profit	150	50
General Reserve	108	100
Current Liabilities:
Creditors	44	36
Bill Payable	12	17
Long term Liabilities: Loan	85	90
	1,059	513

Additional information:
a.  Semah Ltd has acquired ordinary shares in Markonah Ltd on January 1, 2009 when Markonah LTd has the following balances:
Share premium of RM20,000
General Reserve RM40,000
Profit and Loss Account of RM30,000 (dt)

b.  BIll payable Markonah Ltd include bill to be paid to Semah Ltd amounting to RM15,000.

c.  Included in debtors Semah Ltd is from Markonah Ltd amounting to RM5,000.

d.  During the year ended December 31, 2009 Semah Ltd has been selling inventory to Markonah Ltd worth RM20,000. Inventory sales by Semah Ltd are at cost plus 25%. Half of the inventory is sold by Markonah Ltd.

e.  On December 31,2009, Chairman Markonah Ltd has announced 10% dividend on ordinary shares.  Both companies have not yet to record the transaction.

Required to prepare:
1.  Cost of control Account (GW:RM26,000)
2.  Non controlling interest account(key: RM70,000)
3.  Consolidated Profit and loss (S-RM164,000;M-RM48,000)
4.  Consolidated Statement of Financial Position as at 31.12.2009(key: RM1.366mil)


I want more...!

Given below are the statement of financial position of Joe Ltd and its subsidiary Jambul Ltd as at 31 December 2009

	Joe Ltd	Jambu     Ltd
Financed By:	"000	"000
Ordinary Shares@RM1	5,000	1,000
Capital Reserves	50	100
Revenue Reserves	700	150
General Reserves	100	20
Current Liabilities:
Creditors	40	50
Rent Payable		30
	5,890	1,350
Non Current Assets:
Investment In Jambul Ltd:  800,000 OS	890
Investment In Sambul Ltd: 100,000 OS	120
Land & Building	2,500	550
Plant & Machinery	1,330	200
Vehicle	40	100
Current Assets:
Inventories	500	200
Debtors	120	60
Rent Receivable	50
Bank	340	240
	5,890	1,350

Additional Information:

1.  Joe Ltd has bought shares in Jambul Ltd as at 31.12.2005 in which the SOFP's Jambul Ltd showed the following balances:
Revenue Reserve  RM30,000 (dr)
Capital Reserve Account RM100,000 (cr)
General Reserve Account of RM20,000 (cr)

2.  Included in creditors Jambul Ltd is a debt outstanding to Joe Ltd amounting to RM30,000.

3.  60% of the current inventory balance Jambul Ltd is bought from Joe Ltd.  These goods were invoiced at cost plus 50% by Joe Ltd.

4. 50% of the rent receivables are from Jambul Ltd.

5. On December 31, 2009 the board Jambul Ltd has declared 5% on its ordinary shares.

Required:
1. Cost of Control Account(key: GW-RM18,000)
2. Non Controlling interest account(key: RM244,000)
3.  Consolidated Profit and Loss Account(key: Joe-700,000;Jambul-RM104,000)
4.  Consolidated statement of financial Position as at 31.12.2009(key: RM6.273 mil)


Let's try this...
Below are the statement of financial position of Mama Bhd and its subsidiaries as at 31 December 2010

	Mama Bhd	Mamu Bhd	Momo Bhd
	"000	"000	"000
Non Current Assets:
Land	4,200	950	480
Plant & Machinery	2,500	530	220
Vehicle	800	200	140
Investment in Subsidiaries:
OS in Mamu Bhd	1,500
OS in Momo Bhd	650
Current Assets:
Stock	350	320	100
Debtors	230	70	60
Rent Receivable	100
Bank	250	220	110
	10,580	2,290	1,110
Finance By:
OS @RM1	10,000	2,000	1,000
Retained Profit	310	180	50
Capital Reserves	150	40	20
Current Liabilites:
Creditors	120	40	30
Rent Payable		30	10
	10,580	2,290	1,110

Additional information:
1.  Mama Bhd has 1,400,000 ordinary shares of Mamu Bhd on 1 January 2005 where Mamu Bhd Profit and Loss Account shows a credit balance of RM40,000 and RM20,000 in Capital Reserve Account.

2.  Mama BHd has 600,000 ordinary shares Momo Bhd on January 1, 2007 where Momo Bhd Profit and Loss Account has a credit balance of RM20,000 and the capital Reserve account had a credit balance of RM20,000.

3.  50% of the current inventory of Mama Bhd is from the Mamu Bhd and 30% is from Momo bhd.

4.  Mamu Bhd and Momo Bhd invoiced all the inventories to Momo bhd at cost plus 25% profit.

5.  Rent Payable of Mamu Bhd is for the building of the Mama Bhd.

6.  At the end of the year, the Board of Directors of Mamu Bhd has declared 5% dividend of ordinary shares but not yet recorded by Mama Bhd.

Prepare:
1. Cost of Control Account (GW: Mamu RM58,000; Momo RM26,000)
2. Non Controlling interest account(Mamu RM666,000; Momo RM428,000)
3.  Consolidated Profit and Loss Account(RM340,000)
4.  Consolidated statement of financial Position as at 31.12.2010 (RM11,828)


Situation 3: 
The subsidiary has recorded the dividend payable but the holding company has not recorded its share of dividend receivable.

Saemah bhd acquired 80% ordinary shares on Saerah Bhd on 1 January 2008 for the price of RM300,000 and 60% preference shares of Saerah Bhd for RM65,000.  Below is the statement of financial Position of the two companies as at 31 December 2008.

	Saemah Bhd	Saerah Bhd
	"000	"000
Equity:
400,000 OS @RM1	400
300,000 OS @RM0.50		150
100,000 10% Preference Shares @RM1		100
Retained Profit	240	108
General Reserves	30	30
Current Liabilities:
Creditors	100	50
Tax Payable	30	14
Ordinary Shares dividend	20	10
Preference Shares dividends		10
Current Account		14
	820	486
Non-Current Assets:
Freehold Land	88	254
Plant Machinery (cost)	98	50
Investment in Saerah Bhd	365
Current Assets:
Inventories	80	70
Debtors	160	100
Bank	10	12
Current Account	19
	820	486

Additional Information:
1.  The balances in retained profit on 1 jan 2008 for Saerah Bhd is a credit of RM90,000 while the balances in general reserve account is RM30,000.

2.  Saerah Bhd remit of RM2,000 to Saemah Bhd on 31 Dec 2008 was nto accepted by Saemah Bhd until 2008.

3.  Goods valued at invoice RM3,000 were sent by Saemah Bhd on December 2008 but only received by Saerah Bhd in January 2009.  The profit included in the goods is RM400.

4.  Included in stock at 31 December 2008 of Saerah Bhd is purchased goods from Saemah bhd amounted RM10,000. The element of profit included in this amount is RM2,000.


Prepare:
1. Cost of Control Account (GW RM89,000)
2. Non Controlling interest account (RM97,600)
3.  Consolidated Profit and Loss Account (Saemah-RM251,600; Saerah RM14,400)
4.  Consolidated statement of financial Position as at 31.12.2010 (RM1,0136 mil)


* since declaration made by subsidiary, as seen in the question the ordinary share dividend and preference share dividend just appear in the subsidiary statement not in the holding.

* so, you are required to do treatment on this situation.


More exercise question:

Hage Bhd acquired interests in Maru Bhd on 31 December 2009.  Below are the statement of financial Position of both companies at the current date.

Statement of Financial Position As At 31 December 2009
	Hage Bhd	Maru Bhd
Non Current Assets:	"'000	'000
Land Building	270	340
Plant	210	170
Investment in Maru Bhd:
400,000 unit OS	440
50,000 10% Preference Shares	50
Current Assets:
Cash	120	90
Inventories	160	70
Debtors	160	100
	1,410	770
Financed By:
Ordinary Shares@RM1	1,000	500
10% Preference Shares	200	100
Retained Profit	70	50
Current Liabilities:
Creditors	90	80
Dividends Payable-Ordinary Shares	50	40
	1,410	770

Additional Information:
a) The Board director of Hage Bhd declared dividend for the year ordinary shares of 5% and have been recorded.
 b) Hage and Maru also announced its dividend payment of 10% Preference Shares for the respective year.
c)  Include in the inventories of Maru Bhd are the products purchased from Hage Bhd at a price of RM50,000.  Hage Bhd has made a profit from the stock sales of RM10,000.  Till the end of accounting period, these products have yet to be sold to outside parties.

Prepare as follow:
1. Cost of Control Account (GW RM40,000)
2. Non Controlling interest account (RM160,000)
3.  Consolidated Profit and Loss Account (H-RM77,000; M- RM30,000)
4.  Consolidated statement of financial Position as at 31.12.2010 (RM1,720 mil)


INTRA-GROUP SALES OF NON CURRENT ASSETS

In the consolidated accounts the non current assets purchased from member companies should be disclosed at carrying value to the seller.

Adjustments have to be made to remove the unrealized profits and disclose the asset at carrying value to the group.

1.  Sale of Non-Depreciable Assets
Where the sale price is above carrying value (cost or book value), and the assets still remains with the buyer then the profit recognized by the seller is unrealized profit from the standpoint of the group.

                      unrealized profit = sale price > book value


2.  Sale of Depreciable Assets
If the asset sold is a depreciable assets, then besides adjusting for unrealized profits, adjustments have to be made for depreciation.  The buyer of the assets would have depreciated the asset acquired base on the carrying value to the buyer.  However, for consolidation purpose depreciation has to be based on carrying value to the group.


workings:

1.  Calculate unrealized Profit
                    Unrealized profit = sale price > book value


              Adjustments:              Dr             CSOCI
                                                        Cr                NCA

2.  Compare if there is a difference in depreciation that shall be adjusted.  Depreciation group is in accordance with the depreciation on the carrying value.

If depreciation of sale price > depreciation of book value; adjustment has to be made.

                                                   Dr             Accumulated Depreciation
                                                             Cr             SOCI (buyer)


3.  Calculate new balance for profit and loss of subsidiary, where the new balance is to be calculate to NCI Account

4.  Find the new value of non current asset to be included in the CSOFP

		NCA
Balance b/f			Unrealised Profit c/f
		Accumulated  Depreciation	Acc
P&L Balance c/f			Balance b/f

5.  Find out if subsidiary sold to Holding - calculate for NCI portion; but if holding sold to subsidiary, there are NO NCI's portion.


Exercise:

Below are the statement of Financial position of Baba Bhd and Saba Bhd as 31.12.2010.

	Baba Bhd	Saba Bhd
Ordinary Shares@RM1	500,000	400,000
Retained Profit	200,000	100,000
Creditors	40,000	50,000
Overdraft	10,000
	750,000	550,000
Non Current Assets:
Investment in Saba Bhd	350,000
Land & Building	200,000	200,000
Plant & Machinery	100,000	250,000
Acc. Dep	-20,000	-50,000
Vehicle	90,000	50,000
Acc. Dep	-30,000	-10,000
Current Assets:
Debtors	20,000	30,000
Inventories	40,000	30,000
Bank		50,000
	750,000	550,000

Addition Information:
1.  On 1/1/2009 Baba bhd acquired 300,000 ordinary shares in Saba Bhd, where the balance of retained earnings at that time was RM60,000.

2.  During 2010, Saba Bhd sold a piece of land worth RM40,000 for RM60,000.

3.  At the beginning of 2010, Baba sold to Saba Plant a& Machinery of book value RM20,000 for RM30,000.  The remaining useful life of the Plant & Machinery on the date of sale was 10 years.  Depreciation policy of the group is to depreciate Plant & Machinery on a straight line basis and to give full year's depreciation in the year of purchase.

4.  Goodwill on consolidation is amortized over 2 years.


Prepare as follow:
1. Cost of Control Account (GW RM5,000)
2. Non Controlling interest account (RM120,000)
3.  Consolidated Profit and Loss Account (B-RM170,000; S- RM31,000)
4.  Consolidated statement of financial Position as at 31.12.2010 (RM921,000)

Question

Given below are the statement of Financial position of Jaja Bhd and Fafa Bhd as at 31.12.2009

Jaja Bhd Fafa Bhd Non Current Assets: "'000 '000 Land & Building          7,275          1,425 Plant & Machinery          4,000          1,000 Acc. Dep            (250)            (205) Vehicles          1,600             400 Acc. Dep            (400)            (100) Investment in Fafa Bhd          2,250 Current Assets: Rent Receivable             150 Inventories             520             480 Debtors             350             105 Bank             375             330       15,870         3,435 Financed By: Ordinary Shares @RM1        15,000          3,000 Capital Reserve             225               60 Retained Profit             465             270 Current Liabilities: Creditors             180               60 Rent Payable               45       15,870         3,435
Additional Information: 1.  Jaja Bhd acquired 2,100,000 ordinary share in Fafa Bhd on 1/1/2007.  Retained profit balances at that time was RM60,000 and balance in capital reserves was RM30,000. 2.  Jaja Bhd sold machines to Fafa Bhd at cost price RM20,000 (sale price of RM28,000)  in the accounting period above, and the depreciation is 25%. 3.  65% inventory in Fafa Bhd is purchased from Jaja Bhd. 4.  Jaja Bhd sold the inventories with the cost price plus 25%. 5.  Including debtor's of Jaja Bhd is a debt to Fafa Bhd amounted of RM14,000. 6.  Rent payable of Fafa Bhd is a rental to Jaja Bhd. 7.  Board of director of Fafa Bhd agreed to declare a dividend of 5% on 31/12/2009, and has not yet been recorded by both companies. Prepare as follow: 1. Cost of Control Account (GW RM87,000) 2. Non Controlling interest account (RM999,000) 3.  Consolidated Profit and Loss Account (J-RM499,600; F- cr RM1,000) 4. Consolidated General Reserve Account (J-RM225,000; F- RM21,000) 5.  Consolidated statement of financial Position as at 31.12.2009 (RM17,014,600)
FIXED ASSET REVALUATION OF SUBSIDIARY In any business acquisition, the parent company usually will re-evaluate the assets of the subsidiary.  Any surplus or deficit that occurs in the revaluation of these assets will be transferred to Revaluation Reserve Account. Asset revaluation reserve in this group treated as pre-acquisition reserves. Revaluation of the group are in accordance with the price evaluation Adjustments: Dr   Non Current Assets         Cr Assets Revaluation Reserve Dr  Assets Revaluation Reserve        Cr Cost Of Control              Non Controlling Interest Acc  Example: Given below are the statement of Financial Position of Haha Bhd and Titi Bhd as at 31.12.2009: Haha Bhd Titi Bhd "'000 '000 Land                  100                  100 Building at cosst                  450                  400 Accumulatd Depreciation                  (50)                (100) Other non Current Assets                  100                  200 Investment in Titi Bhd                  750 Current Assets                  150                    30              1,500                  630 Ordinary Shares @RM1              1,000                  500 Retained Profit                  400                  110 Current Liabilities                  100                    20              1,500                  630
Additional Information:
a.  Haha Bhd acquired 450,000 ordinary shares in Titi Bhd on 1.1.2009 b.  On the date of acquisition, Land and Buildings of Titi Bhd were revalue for RM120,000 and RM500,000 respectively.  Titi Bhd did not adjust its book to reflect the new value. c.  The depreciation policy of the group is to depreciate buildings on 10% using reducing balance.  Accumulated depreciation includes current depreciation. d.  Goodwill on consolidation is to be amortized over three years.
Prepare as follow: 1. Cost of Control Account (GW RM183,000) 2. Non Controlling interest account (RM73,000) 3.  Consolidated Profit and Loss Account (H-RM339,000; T-70,000 ) 4.  Consolidated statement of financial Position as at 31.12.2009 (RM1,602,000)
Key: Non Current Assets: Land               20,000                                   Building     100,000              Asset Revaluation Reserve                120,000 Assets Revaluation Reserve            120,000              Cost of Control                                   108,000              Non Controlling Interest                       12,000 Profit & Loss                                      20,000              Accumulated Depreciation                    20,000
Let's Us doing some Comprehensive Exercise!   Below are the statement of Financial Position of Sinchan  Bhd and Hagemaru Bhd as at 31 Dec 2007:
Sinchan Bhd Hagemaru Bhd Non Current Assets: Land 400,000 115,000 Plant & Machinery 420,000 310,000 Acc. Dep -120,000 -110,000 R&D  150,000 Investment in Hagemaru Bhd: 170,000 OS 210,000   50,000 Preference Share 50,000       Current Assets: Inventories 40,000 22,000 Debtors 20,000 35,000 Bank 30,000 46,000 1,200,000 418,000 Financed By: OS @RM1 700,000 200,000 7% Preference Shares@RM1 200,000 100,000 Retained Profit 250,000 85,000 Current Liabilities: Creditors 50,000 33,000 1,200,000 418,000 Additional Information: 1.  Singa Bhd acquired 170,000 units of Ordinary Shares and 50,000 units of preference shares in Hagemaru Bhd on 1 January 2007.  At that date, Hagemaru Bhd had a balance in Retained profit amounted to RM20,000. 2.  On 30 June 2007, Sinchan Bhd sold a piece of land at RM100,000 to Hagemaru Bhd.  The cost price of this asset was RM70,000. 3.  During the current year, Hagemaru Bhd sold inventories to Sinchan Bhd at cost plus 20%.  Cost of the inventories amounting RM30,000.  50% of the inventories were unsold and remain in the closing inventories of Sinchan Bhd. 4.  At the year end, the director of Sinchan Bhd and Hagemaru Bhd declared ordinary dividend of 8% and preference dividend which has not been provided for in both company. 5.  Goodwill on consolidation will be amortized for RM5,000. You are required to prepare: 1. Cost of Control Account 2. Non Controlling interest account 3.  Consolidated Profit and Loss Account 4.  Consolidated statement of financial Position as at 31.12.2007