Article on consolidation process part two

STEP 2: CANCEL ALL INTRA-GROUP TRANSACTIONS AND BALANCES

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• Investment in subsidiary’s equity shares.

STEP 2: CANCEL ALL INTRA-GROUP TRANSACTIONS AND BALANCES Intra-group balances should be eliminated, as the consolidated accounts need to show the group as a single economic entity in other words, the group position with the outside world. Usually, the intra-group transactions span from the acquisition investment made by the parent in the subsidiary to the sales of goods between them. Below, we discuss the common intra-group transactions. 1. Investment in subsidiary’s equity shares. The investment in the subsidiary represents all the investments made by the Parent in the subsidiary’s equity shares. The investment can be in the form of cash, share exchange, debt instruments, or a combination of the above. The consolidation treatment involves a simple process of cancellation. The cancellation procedure involves the passing of the following entries in The Journal Debit Cost of Control Credit Investment in subsidiary equity shares Now let us consider the following extract from the Comprehensive Question Extract (a) from the Statement of Financial Position Victory Ltd Happy Ltd Comfort Ltd GH¢ GH¢ GH¢ ASSETS Non-current assets Property, plants and equipment 610,000 20,500 32,000 Investments in shares 41,000 651,000 20,500 32,000 Footnote (ii bVictory acquired 6,250 shares of Comfort Ltd in 2005 at a total cost of GH¢12,000. Download 0.61 Mb. Share with your friends: