1. CONSOLIDATED ACCOUNTS
COMMON AND INTER COMPANY ITEMS
CANCEL COMMON AND INTER COMPANY ITEMS
IN PARENT AND SUBSIDIARY COMPANY BALANCE SHEETS
EITHER TOTAL CANCELLATION
OR PART CANCELLATION
CANCEL INTERCOMPANY DEBTS e.g. LOAN STOCKS
CANCEL INTERCOMPANY TRANSACTIONS (with no profit element)
CASH IN TRANSIT
GOODS IN TRANSIT
CASH/BANK A/C
INVENTORY A/C
AND CURRENT A/C OF SUBSIDIARY
ADJUST IN PARENT COMPANY'S BOOKS
INTER COMPANY PROFITS ? (see later)

2. MINORITY INTERESTS SHOWN SEPARATELY AS A CREDIT ITEM IN C.B.S
ONLY SHOW DEBIT ITEMS
IF THERE EXISTS A BINDING OBLIGATION
TO MAKE GOOD THE LOSSES
check:
Minority Interest is ALWAYS
appropriate percentage of TOTAL shareholders equity
at end of analysis
note: can have: MINORITY INTEREST IN:
ORDINARY SHARE CAPITAL + PROFITS + RESERVES
and
PREFERENCE SHARES + PREFERENCE DIVIDENDS

3. GOODWILL ON CONSOLIDATION (cost of control)
CAPITAL RESERVE ON CONSOLIDATION
PRE‑ACQUISITION and POST ACQUISITION PROFITS & RESERVES
EFFECTIVE DATE IS EARLIER OF:‑
(i) WHEN CONSIDERATION PASSES
(ii) WHEN OFFER BECOMES / IS DEEMED UNCONDITIONAL
IF NECESSARY REVALUE THE ASSETS OF A SUBSIDIARY
AND CREATE A REVALUATION RESERVE
‑ EVEN IF ONLY TEMPORARILY:

4. THE REVALUATION RESERVE
IS PART OF SHAREHOLDERS FUNDS
AND IS USUALLY ANALYSED
AS PART OF PRE‑ACQUISITION FUNDS
between GROUP & MINORITY
SOMETIMES CAN MEET A POST‑ACQUISITION
NON‑DISTRIBUTABLE RESERVE
GOODWILL ON CONSOLIDATION IS THE DIFFERENCE BETWEEN
PURCHASE CONSIDERATION
AND FAIR VALUE OF NET ASSETS of subsidiary acquired
GOODWILL ON CONSOLIDATION IS CLASSIFIED
UNDER NON-AMORTISABLE INTANGIBLE ASSETS
previously could be written off
could net off goodwill on consolidation
and capital reserve on consolidation if both arise

5. UNREALISED PROFITS IN STOCK
INVOLVING MINORITY INTERESTS
3 methods:
ELIMINATE ALL PROFIT AGAINST MAJORITY
B. ELIMINATE PROPORTION OF PROFIT AGAINST MAJORITY
AND PROPORTION AGAINST MINORITY
BUT DEPENDING WHICH APPROACH IS ADOPTED
either:
ELIMINATE UNREALISED PROFIT FOR COMPANY AT RISK
i.e. AGAINST COMPANY WHICH HOLDS THE STOCK
known as the SEPARATE ENTITIES APPROACH
or:
ELIMINATE UNREALISED PROFIT
AS IF TRANSACTION HAD NOT OCCURRED
i.e. AGAINST COMPANY WHICH SOLD THE STOCK
known as the SINGLE ENTITY APPROACH

6. UNREALISED PROFITS IN STOCK
method C
ELIMINATE MAJORITY PROFIT ONLY
AGAINST COMPANY WHICH SOLD THE STOCK
known as the ADJUNCT APPROACH
HOWEVER THIS METHOD GIVES A MEANINGLESS STOCK FIGURE
PROBABLY THE MOST UNCOMPLICATED APPROACH IS
TO ELIMINATE ALL UNREALISED PROFIT
AGAINST MAJORITY
WITHOUT REGARD TO WHICH COMPANY
SOLD OR HOLDS THE STOCK

7. DIVIDENDS PAID ...... BY A SUBSIDIARY
IF DIVIDENDS HAVE BEEN PAID BY A SUBSIDIARY
THEN DETERMINE IF HAVE BEEN INCLUDED IN THE ACCOUNTS
OF THE PARENT COMPANY
AND PROCEED ACCORDINGLY
IN MOST CASES ‑ THERE SHOULD BE NO PROBLEMS
AND ONE CAN IGNORE DIVIDENDS PAID
WHEN DOING THE ANALYSIS OF FUNDS IN THE SUBSIDIARY
BECAUSE
IF DIVIDENDS HAVE BEEN PAID
ONE NORMALLY ASSUMES THAT
THE DIVIDENDS HAVE BEEN INCLUDED and treated correctly
IN THE ACCOUNTS OF BOTH PARENT AND SUBSIDIARY

8. DIVIDENDS PAID HOWEVER, IF DIVIDENDS FROM SUBSIDIARY
HAVE BEEN 'INCORRECTLY' TREATED
IN PARENT COMPANY'S OWN ACCOUNTS see later

9. DIVIDENDS PAYABLE .... BY A SUBSIDIARY
PROPOSED dividends
HAVE ANY ENTRIES BEEN MADE
IN RESPECT OF PROPOSED DIVIDENDS
(a) IN ACCOUNTS OF SUBSIDIARY COMPANY ?
i.e.
TAKEN OUT OF P&L A/C
AND PUT INTO CURRENT LIABILITY (dividends payable)
(b) IN ACCOUNTS OF PARENT COMPANY ?
HAS PARENT CO. ADDED ITS SHARE TO ITS PROFITS
(of the whole dividend payable by subsidiary)
AND ALSO PUT THE DIVIDEND INTO CURRENT ASSETS ?
(dividends receivable)

10. DIVIDENDS PAYABLE (PROPOSED)
MINORITY INTEREST IN PROPOSED DIVIDEND
MUST BE SHOWN AS A CURRENT LIABILITY
IN THE CONSOLIDATED BALANCE SHEET

11. SUGGESTED METHOD WHERE HAVE PROPOSED DIVIDENDS
WHEN DOING THE ANALYSIS OF ORDINARY FUNDS IN SUBSIDIARY
if possible
USE A PROFIT BEFORE DIVIDENDS IN THE ANALYSIS
THEN SHOW PROPOSED ORDINARY DIVIDENDS
AS A DEDUCTION
FROM THE PROFITS
on a separate line in the analysis
i.e.
If accounting entries
for proposed dividends had been made
then temporarily reverse these
IN ACCOUNTS OF SUBSIDIARY ‑ the WHOLE DIV is ADDED BACK
IN ACCOUNTS OF PARENT CO (IF APPLICABLE) ‑
ITS SHARE ONLY ! is TAKEN OUT

12. WHEN DOING AN ANALYSIS OF THE ORDINARY FUNDS
WILL NEED TO TAKE OUT ANY PREFERENCE DIVIDENDS
(if applicable)
TO GET THE PROFIT ATTRIBUTABLE TO ORDINARY
SHAREHOLDERS
note:
PARENT CO's OWN DIVIDENDS
HAVE NOTHING TO DO WITH THE SUBSIDIARY

13. SUGGESTED METHOD WHERE HAVE PROPOSED DIVIDENDS
SO IN THE ANALYSIS OF ORDINARY FUNDS WILL HAVE FIGURES
for PROFITS BEFORE DIVIDENDS
less DIVIDENDS
and then PROFITS AFTER ORDINARY DIVIDENDS
in the since‑acquisition column
WHICH FIGURE DOES ONE USE IN THE CBS ?
TO ADD TO PARENT CO's OWN PROFITS ?
IF USE THE BEFORE DIVIDEND PROFITS OF SUBSIDIARY in the CBS
THEN USE THE PARENT COMPANY PROFIT BEFORE INCLUDING
DIVIDEND RECEIVABLE FROM SUBSIDIARY
IF USE THE AFTER DIVIDEND PROFITS OF SUBSIDIARY in the CBS
THEN USE THE PARENT COMPANY PROFIT AFTER ADDING

14. PREFERENCE DIVIDENDS REDUCE ORDINARY SHAREHOLDERS FUNDS
THEREFORE NEED TO BE DEDUCTED FROM PROFIT
IN THE ANALYSIS OF ORDINARY FUNDS
SUGGEST THAT DO A SEPARATE ANALYSIS
FOR PREFERENCE SHAREHOLDERS FUNDS
PREFERENCE SHAREHOLDERS HAVE
NOMINAL VALUE OF PREFERENCE SHARES
PLUS THE ACCRUED DIVIDEND
COULD HAVE PRE‑ACQUISITION and/or POST‑ACQUISITION

15. PREFERENCE DIVIDENDS STRICTLY PREFERENCE DIVIDENDS ARE NOT PAYABLE
UNTIL DECLARED (EVEN IF CUMULATIVE!)
PREFERENCE DIVIDENDS IN ARREARS
TO BE FIRST ALLOCATED WHEN PROFITS BECOME AVAILABLE
THEN ORDINARY SHAREHOLDERS CAN GET THEIR DIVIDENDS
NOTE THAT THE ACQUISITION VALUE OF PREFERENCE SHARES
CONSISTS OF THE CALLED UP (i.e. NOMINAL) VALUE PLUS
THE ACCRUED DIVIDEND UP TO THE DATE OF ACQUISITION
THEREFORE MINORITY INTEREST WILL ALSO CONSIST OF
ANY ACCRUED PREFERENCE DIVIDEND NOT YET PAYABLE

16. PIECEMEAL ACQUISITIONS
ACQUISITION OF 'INTEREST' IN A 'SUBSIDIARY‘
IN TWO OR MORE STAGES
POTENTIAL PROBLEM
AT WHICH SHARE PURCHASE ?
SHOULD ONE ESTABLISH
THE PRE‑ACQUISITION AND POST‑ACQUISITION
PROFITS AND RESERVES

17. PIECEMEAL ACQUISITIONS
no problems:
IF ALREADY AN EXISTING SUBSIDIARY
OR IF FIRST ACQUISITION IS MORE THAN 50%
THEN ON ACQUISITION OF AN ADDITIONAL INTEREST
i.e ON SUBSEQUENT ACQUISITIONS
GROUP SHARE OF RESERVES / PROFITS / CAPITAL
AT DATE OF ACQUISITION OF ADDITIONAL INTEREST
SHOULD BE CAPITALISED
i.e. TREATED AS PRE‑ACQUISITION ITEMS

18. PIECEMEAL ACQUISITIONS
ACQUISITIONS PRIOR TO CONTROL CAN PRESENT PROBLEMS
i.e.
FROM WHEN SHOULD RESERVES ETC. BE CAPITALISED ?
IF OBJECTIVE IS TO GAIN ULTIMATE CONTROL
then it is suggested that
PRE‑ACQUISITION AND POST‑ACQUISITION
PROFITS AND RESERVES SHOULD BE ESTABLISHED
AT EACH PURCHASE OF SHARES
i.e a
'FROM DATE OF FIRST PURCHASE METHOD'
rather than
'FROM DATE OF CONTROL METHOD‘

19. PIECEMEAL ACQUISITIONS
CAPITALISATION FROM DATE OF FIRST PURCHASE
GIVES RISE TO GREATER POST‑ACQUISITION
(i.e. DISTRIBUTABLE) PROFITS
CAPITALISATION FROM DATE OF CONTROL
GIVES LOWER POST‑ACQUISITION
if have pre‑acquisition losses then date of control method
gives more distributable profits since more of the losses are 'capitalised‘
Hydrogen and Sulphide demo then

20. PIECEMEAL ACQUISITIONS
ACQUISITIONS PART WAY THROUGH YEAR
AND PROFITS EVENLY / NOT‑EVENLY
ie.
profits before dividends evenly or not evenly ?
dividends evenly or not evenly ? so
profits after dividends evenly or not evenly or mix?

21. Hydrogen and Sulphide is example where
PROFITS (before dividends) NOT EVENLY
DIVIDENDS NOT EVENLY
WHAT WOULD BE THE RESULT IF: a)
PROFITS EVENLY BUT DIVIDENDS NOT EVENLY
(demo this) b)
PROFITS AND DIVIDENDS EVENLY
then only final profit & loss column relevant
AND
have to consider the cost of the investment reduced
and
pre‑acquisition dividends treated incorrectly by Holding company

22. ACQUISITIONS PART WAY THROUGH A YEAR
i.e.
ACQUISITION OF A SUBSIDIARY DURING ITS ACCOUNTING YEAR
ASSUMPTIONS ABOUT : PROFITS (BEFORE DIVIDENDS)
A EITHER PROFITS DO ACCRUE EVENLY ON A TIME BASIS
B OR OTHER INFORMATION IS AVAILABLE AS TO PROFITS
ie. DO NOT ACCRUE EVENLY
METHOD
SPLIT THE PROFITS
AND THEN ALLOCATE
THE PRE‑ACQUISITION AND POST‑ACQUISITION PORTION
BETWEEN THE GROUP AND MINORITY

23. ACQUISITIONS PART WAY THROUGH A YEAR
PRE‑ACQUISITION LOSSES
STRICTLY, ON CONSOLIDATION,
ENOUGH POST‑ACQUISITION PROFITS
SHOULD BE CONSIDERED
NON‑DISTRIBUTABLE GROUP PROFITS
TO COVER / ELIMINATE LOSSES OF SUBSIDIARY

24. ACQUISITIONS PART WAY THROUGH A YEAR
ASSUMPTIONS / DECISIONS ABOUT : DIVIDENDS
A EITHER DIVIDENDS DO ACCRUE EVENLY OVER THE YEAR
B OR DIVIDENDS DO NOT ACCRUE EVENLY OVER THE YEAR

25. ACQUISITIONS PART WAY THROUGH A YEAR
IF ASSUME THAT DIVIDENDS DO ACCRUE EVENLY
THEN SOME OF THE DIVIDEND MAY BE PRE‑ACQUISITION
and can do the analysis using profits after dividends
which automatically puts in some of the dividend as pre‑acquisition
THEREFORE HOLDING COMPANY MUST
PUT THE PRE‑ACQUISITION PART OF THE DIVIDEND
AGAINST THE COST OF THE INVESTMENT
IN ITS OWN BALANCE SHEET
(and must remember to reduce the cost of investment in analysis)

26. ACQUISITIONS PART WAY THROUGH A YEAR
IF ASSUME THAT DIVIDENDS DO NOT ACCRUE EVENLY
suggest that do the analysis of profit before dividends
SPLIT THE PROFIT BEFORE DIVIDENDS
(on time basis or other information)
BETWEEN PRE‑ACQUISITION
AND POST‑ACQUISITION
and then
DEDUCT DIVIDENDS FROM THE POST‑ACQUISITION PROFITS
so have no complication with pre‑acquisition dividends !

27. DIVIDENDS & PRE‑ACQUISITION PROFITS
DO DIVIDENDS COME OUT OF PRE‑ACQUISITION
OR POST‑ACQUISITION PROFITS ?
i.e.
HOW MUCH OF THE DIVIDEND PAID/PAYABLE BY A SUBSIDIARY
IS OUT OF POST‑ACQUISITION PROFITS ?
DO DIVIDENDS ACCRUE EVENLY
OR NOT EVENLY
ON A TIME BASIS ?
IS POST‑ACQUISITION AND HOW MUCH IS PRE‑ACQUISITION

28. DIVIDENDS & PRE‑ACQUISITION PROFITS
FOR CONSOLIDATED BALANCE SHEET
DOES NOT MAKE ANY DIFFERENCE
WHICH TREATMENT OF DIVIDENDS IS USED
PRE‑ACQUISITION ; POST ACQUISITION ; EVENLY ; NOT EVENLY ;
THE CONSOLIDATED BALANCE SHEET WILL LOOK THE SAME
FOR CONSOLIDATED INCOME STATEMENT
AGAIN DIVIDEND TREATMENT WILL NOT AFFECT
THE CONSOLIDATED PROFIT AND LOSS ACCOUNT IN TOTAL
However
THE ANALYSIS OF RETAINED PROFITS AND RESERVES
WILL BE DIFFERENT but the TOTAL will stay the same

29. IF THE TREATMENT OF DIVIDENDS RECEIVED/RECEIVABLE
HAS BEEN CORRECT IN THE PARENT COMPANY'S OWN BOOKS
THEN THE CONSOLIDATED BALANCE SHEET
WILL LOOK THE SAME
AND THERE IS NO DIFFERENCE
WHETHER THE SUBSIDIARY'S DIVIDENDS
COME OUT OF PRE‑ACQUISITION OR POST‑ACQUISITION PROFITS
BUT IT DOES AFFECT THE PARENT COMPANY'S
OWN NON‑CONSOLIDATED BALANCE SHEET
whether the subsidiary's dividends
come out of pre‑acquisition or post‑acquisition profits

30. BECAUSE:
DIVIDENDS RECEIVED/RECEIVABLE
WHICH ARE CONSIDERED TO BE
OUT OF PRE‑ACQUISITION PROFITS
SHOULD BE DEDUCTED FROM THE ASSET of
COST OF INVESTMENT IN SUBSIDIARY
IN PARENT COMPANY BOOKS
i.e.
ANY PRE‑ACQUISITION DIVIDENDS SHOULD
CREDIT THE COST OF INVESTMENT A/C
AND NOT CREDIT THE PROFIT & LOSS A/C

31. MULTICOMPANY STRUCTURES
DISTINGUISH BETWEEN PERCENTAGE OF SHARES
WHICH OWN
and
WHICH CONTROL
i.e.
CAN OWN LESS THAN 50%
BUT CONTROL MORE THAN 50%
AND IF CONTROL THEN IS A SUBSIDIARY
Methods
MULTISTAGE CONSOLIDATION
SINGLE STAGE CONSOLIDATION

32. MULTICOMPANY STRUCTURES
SIMPLEST WAY
IS TO MULTIPLY PERCENTAGES
AND DO A SINGLE STAGE CONSOLIDATION
have
PERCENTAGE OF SHARES OWNED
DIRECT MINORITY
INDIRECT MINORITY

33. MULTICOMPANY STRUCTURES
e.g. P A A1
80% 80% R
S B B %
60% 75%
C C1
A owns 80% x 60% = 48% of C
A controls 100% x 60% = 60% of C
CONTROL IS THE TEST SO A SUBSIDIARY even though only own 48%

34. MULTICOMPANY STRUCTURES
A owns 80% x 60% = 48% of C
A controls 100% x 60% = 60% of C
CONTROL IS THE TEST SO A SUBSIDIARY even though only own 48%
the MI of B = 20%
so the MI of B own 20% x 60% = 12% of C is INDIRECT MI
the MI of C own 40% of C is DIRECT MI
so TOTAL MI of C = 52%
A1 owns 80% x 75% = 60% plus 10% = 70% of C1
TOTAL MI of C1 = 30%
i.e.
DIRECT MI of C1 = 15%
INDIRECT MI of C1 = 20% x 75% = 15%
A1 controls 100% x 75% = 75% plus 10% = 85% of C1

35. DIVIDENDS & PRE‑ACQUISITION PROFITS
AND CONSOLIDATED PROFIT AND LOSS ACCOUNTS
AS WITH CBS's CPL's NOT AFFECTED IN TOTAL
WHETHER DIVIDENDS ARE:
PRE , POST , EVENLY , NOT‑EVENLY
BUT
ANALYSIS OF (i.e. split between companies)
OF RETAINED GROUP CONSOLIDATED PROFIT
AND RESERVES WILL BE DIFFERENT
but total will stay the same
Apricot Cherry Banana q
b/f profits are a bit different but this is because
do not have enough information to correct the b/f profits
i.e. the b/f profits have not been adjusted for the
pre/post acquisition treatment of dividend

36. ASSOCIATED COMPANIES MORE THAN OR EQUAL TO 20 % OF VOTING shares
IN CONSOLIDATED PROFIT AND LOSS ACCOUNT
INCLUDE GROUPS CURRENT YEAR SHARE OF
POST ACQUISITION PROFITS BEFORE TAX OF ASSOCIATE
AS PART OF GROUP PROFIT BEFORE TAX
IN CONSOLIDATED BALANCE SHEET
INVESTMENT IN ASSOCIATE
the make up to be disclosed

37. SHARE OF NET ASSETS OF ASSOCIATE
ASSOCIATED COMPANIES
1.COST OR FAIR VALUE OF
SHARE OF NET ASSETS OF ASSOCIATE
ie. net assets at acquisition plus net assets since acquisition
is net assets at balance sheet date
(except purchased goodwill)
so balance sheet value OF ASSOCIATE will include
GROUP SHARE OF
TO DATE POST ACQUISITION PROFITS / RESERVES
OF THE ASSOCIATE
but DIVIDENDS RECEIVABLE GO AS A CURRENT ASSET
2.COST OF SHARE OF ANY GOODWILL OF ASSOCIATE
3.PREMIUM OR DISCOUNT ON ACQUISITION OF ASSOCIATE

38. ASSOCIATED COMPANIES PROFIT & LOSS ACCOUNTS
PARENT COMPANY CONSOLIDATED
PROFIT & LOSS ACCOUNTS
DIVIDENDS RECEIVED SHARE OF PROFIT
and RECEIVABLE less LOSSES
from ASSOCIATE of ASSOCIATE
ie. SHARE OF PROFITS/LOSSES
BEFORE TAX
so also SHARE OF ALL OTHER ITEMS
that follow profit before tax
so, TAX , PROFIT AFTER TAX , etc.
SHOW HOW MUCH OF P&L a/c balance
RETAINED BY ASSOCIATE

39. ASSOCIATED COMPANIES BALANCE SHEETS PARENT COMPANY CONSOLIDATED
COST OF INVESTMENT (i) GROUP SHARE OF
less AMOUNTS w/o (if any) NET ASSETS
OF ASSOCIATED
(except GOODWILL)
(ii) GROUP SHARE OF
ASSOCIATED COMPANY GOODWILL
(iii) PREMIUM ON ACQUISITION OF ASSOCIATED
can show (ii) & (iii) together
DO NOT NET OFF LOANS
OR CURRENT a/c's
SHOW RESERVES IN ASSOCIATE
AND MOVEMENTS ON RESERVES

40. CONSOLIDATED PROFIT AND LOSS ACCOUNT
notes period comparative
TURNOVER [eliminate intra group]
Cost of sales [items and]
GROSS PROFIT [unrealised profit]
Other operating EXPENSES distribution
administration
OPERATING PROFIT
Other operating income
INVESTMENT INCOME
Profits of ASSOCIATED companies [group share]
Income from other participating interests
Amounts written off investments
INTEREST PAYABLE AND SIMILAR CHARGES
**PROFIT ON ORDINARY ACTIVITIES BEFORE TAX

41. CONSOLIDATED PROFIT AND LOSS ACCOUNT
INTEREST PAYABLE AND SIMILAR CHARGES
**PROFIT ON ORDINARY ACTIVITIES BEFORE TAX
TAX on profit on ordinary activities
group [HC + subsidiaries]
associated [group share]
PROFIT on ordinary activities AFTER TAX
MINORITY INTERESTS [in profit for the year]
Group's share of pre‑acquisition profits
[of subsidiary acquired during the year]
PROFIT FOR THE FINANCIAL YEAR ***
**DIVIDENDS paid and proposed [HC only]
RETAINED PROFIT FOR THE YEAR**
[**ie. transfer to reserves]

42. ***PROFIT FOR THE FINANCIAL YEAR
dealt with in the accounts of:
THE COMPANY
SUBSIDIARIES
ASSOCIATED
**the three items which must be shown on the face of the cpl
ordinary profit before tax
dividends
transfers to reserves
Notes to the accounts
MOVEMENT ON RESERVES
GROUP HOLDING SUBSIDIARIES ASSOCIATES
Balance b/f
Retained for the year
Balance c/f

43. TURNOVER eliminate intra group items
COST OF SALES and unrealised profit
GROSS PROFIT
EXPENSES
OPERATING PROFIT
INVESTMENT INCOME
interest receivable
share of profits of associated
amounts w/o investments
INTEREST PAYABLE AND SIMILAR CHARGES
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX
TAX [HC total + subsidiary since acq. bit + associate share of]
PROFIT AFTER TAX
all the above items are:
Parent company TOTAL
plus subsidiary company TOTAL
but SINCE ACQUISITION bit if subsidiary acquired part way through year
i.e. includes M.I.
plus associate share of years profits
MINORITY INTERESTS
in post acq. bit of the profit for the year
includes M.I. dividends , but note is after tax