A parent might acquire the interest at a date other than the beginning or end of the financial year (like in the case of chapter 1-3 and 8 of Consolidations). In which case the equity will have to be determined at the acquisition date.
The principle stands that all the equity of the subsidiary that accumulated up to the date when the parent acquired the controlling interest, should be shown in the at-acquisition journal entry and eliminated against the investment in the subsidiary by means of a consolidation journal.
- The main trick when working with the interim acquisition is to take out the income and expenses that relate to the pre-acquisition period (from beginning of reporting period until the date of acquisition) so that only the profit that relates to the post-acquisition period (from the date of acquisition until the end of the reporting period) of the subsidiary is left over and used further in the Analysis of Equity.
- That means that each income and expense item must be carefully evaluated to determine to which period it relates. It can be stated that the income and expenses are equally distributed, then only the fraction of the year relating to the pre-acquisition period will be eliminated of that specific item.
- This elimination of the income and expenses, sales and cost of sales related to the pre-acquisition, is done in the at-acquisition consolidations journal.
- At-acquisition consolidations journal portraying the elimination of income and expenses, sales and cost of sales that should not form part of the at-acquisition equity of the subsidiary:
|Ordinary Share Capital – Opening balance (S)||x|
|Retained earnings – Opening Balance (S)||x|
|Cost of Sales (S)||x|
|Other expenses (S)||x|
|Income tax expense (S)||x|
|Investment: S Limited (P)||x|
|Non-Controlling Interest (SCE)||x|
- Only the profit amount for the post-acquisition period is left over and with that, the retained earnings opening balance of the trial balance of S is added to get the total retained earnings at acquisition.
- Next, each amount in the Consolidated Statement of Profit or Loss and Other Comprehensive Income will be adjusted as follows after the above mentioned is taken into account:
100%P + 100%S – a pre-acquisition fraction of the amount – intra-group transaction
- Assets and liabilities in the Consolidated Statement of Financial Position are not affected by this adjustment between the pre – and post-acquisition period, only those items that relate to profit in the Consolidated Statement of Profit or Loss and Other Comprehensive Income.
- It is also possible that the gross income may not be distributed evenly throughout the year as it is assumed with most of the income and expense items unless otherwise stated.