Presentation is loading. Please wait.

Presentation is loading. Please wait.

Chapter 25 Changes to Parent Investment in Subsidiaries.

Similar presentations


Presentation on theme: "Chapter 25 Changes to Parent Investment in Subsidiaries."— Presentation transcript:

1 Chapter 25 Changes to Parent Investment in Subsidiaries

2 Lecture Topics Bonus issue by subsidiary Purchase of additional shares of a subsidiary Parent disinvestment Other matters

3 Lecture References Text- Chapter 25 AASB- 1024

4 Key Concepts Bonus issue Rights issue Disinvestment Loss of control

5 Bonus Issues by Subsidiary Retained profit and reserves may be used Total owner’s equity unchanged Issued pro-rata to existing shareholders

6 Bonus Issues by Subsidiary DrDividend equalisation reservex DrGeneral reservex DrRetained profitsx CrShare capitalxx bonus issue of shares from reserves and retained profits DrDividend equalisation reservex DrGeneral reservex DrRetained profitsx CrShare capitalxx bonus issue of shares from reserves and retained profits

7 Bonus Issues by Subsidiary Bonus from pre-control reserves – Pre-control reserves and profits always treated as capital and eliminated – Bonus has minimal impact on consolidation – Cosmetic change to elimination entry

8 Bonus Issues by Subsidiary Bonus from post-control reserves – All equity eliminated on consolidation – Bonus issue increases and overstates equity eliminated – Corrected via ‘consolidation reserve’

9 Bonus Issues by Subsidiary - example Tom acquired 80% of Jerry for $72000 Jerry makes 1 for 5 bonus issue Should issue be from pre or post control equity?

10 Equity of Jerry (a) (b) at before purchase bonus $ paid-up capital4000040000 contingencies reserve90009000 reserves1100021000 profits1000025000 owner’s equity 7000095000 Bonus issue by subsidiary - pre-control equity

11 Equity of Jerry (a) (b) (c) at beforeafter purchase bonusbonus $ $ $ paid-up capital400004000048000 contingencies reserve900090001000 reserves110002100021000 profits100002500025000 owner’s equity 700009500095000 Bonus issue by subsidiary - pre-control equity

12 Parent interest purchased Equity of Jerry and eliminated (a) (b) (c) (d) at beforeafterbefore purchase bonusbonusbonus $ $ $ $ paid-up capital40000400004800032000 contingencies reserve9000900010007200 reserves1100021000210008800 profits1000025000250008000 owner’s equity 70000950009500056000 Bonus issue by subsidiary - pre-control equity

13 Parent interest purchased Equity of Jerry and eliminated (a) (b) (c) (d) (e) at beforeafterbeforeafter purchase bonusbonusbonusbonus $ $ $ $ $ paid-up capital4000040000480003200038400 contingencies reserve9000900010007200800 reserves11000210002100088008800 profits10000250002500080008000 owner’s equity 7000095000950005600056000 Bonus issue by subsidiary - pre-control equity

14 DrOwner’s equity components56000 (per columns (d) or (e)) Dr Consolidation Goodwill 16000 CrInvestment in Jerry72000 DrOwner’s equity components56000 (per columns (d) or (e)) Dr Consolidation Goodwill 16000 CrInvestment in Jerry72000 Elimination entry

15 Equity of Jerry (a) (b) (c) at beforeafter purchasebonusbonus $ $ $ paid-up capital400004000048000 contingencies reserve900090009000 reserves110002100021000 profits100002500017000 owner’s equity 700009500095000 Bonus issue by subsidiary - post-control equity

16 Parent interest purchased Equity of Jerry and eliminated (a) (b) (c) (d) (e) at beforeafterbeforeafter purchasebonusbonusbonusbonus $ $ $ $ $ paid-up capital4000040000480003200038400 contingencies reserve90009000900072007200 reserves11000210002100088008800 profits10000250001700080008000 owner’s equity 7000095000950005600062400 Bonus issue by subsidiary - post-control equity

17 after bonus: DrOwner’s equity62400 DrConsolidation Goodwill 16000 CrInvestment in Jerry72000 CrConsolidation reserve6400 before bonus: DrOwner’s equity56000 DrConsolidation Goodwill 16000 CrInvestment in Jerry72000 before bonus: DrOwner’s equity56000 DrConsolidation Goodwill 16000 CrInvestment in Jerry72000

18 OEI in equity of Jerry at beforeafter purchasebonusbonus $ $ $ Paid-up capital800080009600 All other equity6000110009400 OEI 140001900019000 OEI in equity of Jerry at beforeafter purchasebonusbonus $ $ $ Paid-up capital800080009600 All other equity6000110009400 OEI 140001900019000

19 Purchase of Additional Shares of a Subsidiary Additional purchase of existing shares – Sale to parent of part of OEI – Elimination entry refers to % ownership acquired in each case

20 Purchase of Additional Shares of a Subsidiary - example Purcell owns 85% of Byrd – Purchased 70% 30/6/X0 - $90 000 Retained profits $18 000 – Purchased 15% - $27 500 Retained profits $50 000 – No dividends have been paid

21 Parent interest Equity of Byrd purchased and eliminated X0 X0 70% $ Paid-up capital10000070000 Profits1800012600 118000 Equity eliminated82600 Investment cost90000 Consolidation difference (Goodwill)7400

22 Parent interest Equity of Byrd purchased and eliminated X0 X3 X0 X3 70%15% $ $ Paid-up capital1000001000007000015000 Profits1800050000126007500 118000150000 Equity eliminated8260022500 Investment cost9000027500 Consolidation difference (Goodwill)74005000

23 Parent interest Equity of Byrd purchased and eliminated X0 X3 X0 X3X3 70%15%85% $ $ $ $ $ Paid-up capital100000100000700001500085000 Profits180005000012600750020100 118000150000 Equity eliminated8260022500105100 Investment cost9000027500117500 Consolidation difference (Goodwill)7400500012400

24 DrPaid-up capital85000 DrRetained profits20100 DrGoodwill on Cons.12400 CrInvestment in Byrd117500 DrPaid-up capital85000 DrRetained profits20100 DrGoodwill on Cons.12400 CrInvestment in Byrd117500 Entry to eliminate combined investment

25 Parent Subscribes to New Issue by Subsidiary Public offer or rights issue – Degree of ownership unchanged No impact on consolidation – Degree of ownership increased Transfer of interest from OEI to parent

26 Rights issue - example Purcell owns 85% of Byrd – 30/6/X3 Byrd announces 2 for 1 rights issue at $2 per share – No other equity transactions for Byrd

27 Parent interest Equity of Byrd purchased and eliminated 30/630/6 85% $ Paid-up capital10000085000 Profits5000020100 150000 Equity eliminated105100 Investment cost117500 Consolidation difference (Goodwill)12400

28 Parent interest Equity of Byrd purchased and eliminated 30/631/7 30/6 31/7 85%85% new $ $ Paid-up capital1000002000008500085000 Profits500005000020100 150000250000 Equity eliminated10510085000 Investment cost11750085000 Consolidation difference (Goodwill)12400nil

29 Parent interest Equity of Byrd purchased and eliminated 30/631/7 30/6 31/731/7 85%85%85% new total $ $ $ $ $ Paid-up capital1000002000008500085000170000 Profits50000500002010020100 150000250000 Equity eliminated10510085000190100 Investment cost11750085000202500 Consolidation difference (Goodwill)12400nil 12400

30 Rights issue - example Purcell owns 85% of Byrd – 30/6/X3 Purcell buys all new shares – Purcell pays $1500 to buy rights of other shareholder

31 Parent interest Equity of Byrd purchased and eliminated 30/6 30/6 85% $ Paid-up capital10000085000 Profits5000020100 150000 Equity eliminated105100 Investment cost117500 Consolidation difference (Goodwill)12400

32 Parent interest Equity of Byrd purchased and eliminated 30/631/7 30/6 31/7 85% 100% new $ $ Paid-up capital1000002000008500095000 Profits5000050000201002500 150000250000 Equity eliminated10510097500 Investment cost117500101500 Consolidation difference (Goodwill)124004000

33 Parent interest Equity of Byrd purchased and eliminated 30/631/7 30/6 31/731/7 85% 100%90% newtotal $ $ $ $ $ Paid-up capital1000002000008500095000180000 Profits500005000020100250022600 150000250000 Equity eliminated10510097500202600 Investment cost117500101500219000 Consolidation difference (Goodwill)12400400016400

34 Parent Disinvestment Disinvestment by sale – Subsidiary - no change – Parent Deduct cost of shares sold from investment Record gain or loss

35 Parent Disinvestment Disinvestment by sale – Cost of shares sold? Calculate cost of particular shares sold Make flow assumption (eg. FIFO) Average

36 Parent Disinvestment Disinvestment by acquisition or inaction – Parent sells share in subsidiary – Subsidiary issue share and parent does not subscribe

37 Other Matters Inter-company transactions – Not affected by ownership changes – Distribution of the effects of profit eliminations based on new ownership percentages Aspects of control – Acquisitions preceding control – Disinvestment and loss of control

38 Where to get more information Other courses List books, articles, electronic sources


Download ppt "Chapter 25 Changes to Parent Investment in Subsidiaries."

Similar presentations


Ads by Google