Consolidated Balance Sheets
Objectives
Having successfully completed this unit you should be able to:
• Understand what is meant by a Group and the need for Group Accounts.
• Understand the concepts and calculate Goodwill, Minority Interest and Group Profits.
• Calculate a basic set of consolidated accounts
Groups
What constitutes a group of companies ?
If Company A buys shares in Company B for cash, as an investment, the double entry is :
Debit Non Current Asset Investments (BS)
Credit Cash (BS)
The investment is shown in A’s balance sheet at cost.
However if Company A buys 50% or more of the shares in Company B, then A is known as the Parent Company and B is known as the Subsidiary Company.
Companies A and B are a Group.
The accounting treatment in Company A’s books is the same as above. However Company A must also produce Group Accounts, and it’s investment in B is accounted for in a different way, known as consolidation.
Group Accounts
The reason why Company A, the Parent, needs to prepare Group Accounts is to provide information to shareholders and other users of the Parent company’s financial statements, about the group as a whole.
Group accounts are prepared to reflect the financial performance and the financial position of the Group, so that users are able to make informed decisions about the group.
Goodwill
The value of a business as a whole often differs from the value of its separable net assets, the difference, which is known as Goodwill.
Goodwill exists because there are many items of benefit to a business, and therefore of value to the business, which are not included as assets in conventio ...