Example of Basic consolidation

Example of Basic consolidation

The basic rules for consolidation a subsidiary are

1.      Investment in subsidiary is removed (not shown) in group accounts.

2.      Asset and liabilities of subsidiary is combined with parent

3.      Only parent share capital is shown in group accounts.

4.      Retained of group plus post Group share in subsidiary in post acquisition profit

	Parent	Subsidiary
Share capital	$ 40,000	$ 30,000
Retained earning	$ 10,000	$ 4,000
Total Assets	$ 50,000	$ 34,000
Plant and Machinery	$ 20,000	$ 30,000
Investment in Subsidiary	$ 30,000
Receivables		$  4,000
Total Liabilities	$ 50,000	$ 34,000

Solution

Assets	Group Accounts
Share capital (only Parent Company)	$ 40,000
Retained Earnings ( $ 10,000+ $ 4000)	$ 14,000
Total	$ 54,000
Liabilities
Plant and Machinery ($20,000+ $ 30,000)	$ 50,000
Receivables	$  4,000
Total	$  54,000

In the above example there is no information available about retained earnings at the the time of acquisition and therefore it is assumed that all profit are made after acquisition. This is the 100% acquisition therefore the whole retained earnings is included in the retained earnings of the parent.