Imrul kayas,ACA (Mobile No : 01737231658)

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Complex Groups
Complex groups structures: Complex group structures exist where a subsidiary of a parent entity owns
a shareholding in another entity which makes that other entity also a subsidiary of the parent entity.
Complex structures can be classified under two headings.
-vertical groups
-mixed groups

Vertical groups: A vertical groups arises where a subsidiary of the parent entity holds shares in a further
entity such that control is achieved. The parent entity therefore controls both the subsidiary entity and
in turn its subsidiary (often referred as sub-subsidiary entity).

Example: situation-1 situation-2

P P
90% purchased 31.12.2015 70% 31.12.15
S S 60% 30.04.16
80% 31.12.15
T T

In-both situations, p controls s, and s controls T. P is therefore able to exit control over T by virtue of its
ability to control S. All three companies form a vertical group. Both companies that are controlled by the
parent are consolidated. In situation 1, P controls S and S controls T. Therefore, P can indirectly control
T. (Direct and Indirect control).

Effective Consolidation percentage:

S will be consolidated with P owning 90% and NCI owning 10% T will be consolidated with P owning 90%
*80% , I,E, 72% and NCI owning 28% .
Dates
S will be consolidated from 31 December 2015
When p acquires controls of s, it also acquires indirect control over T. therefore, p will consolidate T
from 31 December 2015.
In situation 2, P controls S and s controls T. Therefore, P can indirectly control T.
S will be consolidated with P owning 70% and the NCI owning 30%
T will be consolidated with P owning 42% (70%*60%) and the NCI owning 58% (100%-42%)
Do not put off by the fact that the effective group interest in T is less than 50% and that the effective
non controlling interest in T is more than 50%.

Indirect holding adjustment

Accounting for a sub-subsidiary requires an indirect holding adjustment.

Math 1: On 31 March 2014, A purchased 90% of the equity shares in B for Tk. 150,000 and B purchased
80% of the equity shares in C for Tk.1, 00,000
At this date, the fair value of the net assets of B and C were tk.1,44,000 and tk.90,000 respectively. The
fair value of the non-controlling interest in B and C was tk.17,000 and tk. 15,000 respectively.
Required:
Calculate goodwill and the non-controlling interest for inclusion in the consolidated statement of
financial position as at 31 December 2014.

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Sol: Group structure
A
90%
B
80%
C

B C
Consideration 1,50,000 1,00,000
Indirectly holding adjustment (10,000)
1,00,000*10%
Add: Fair value of non controlling interest
at the date of acquisition 17,000 15,000
1,67,000 1,05,000
Less: Net assets at acquisition (1,44,000) (90,000)
Good will at acquisition 23,000 15,000

Non controlling interest

NCI at acquisition 17,000
Indirect holding acquisition (10,000)
NCI at acquisition 15,000
22,000

Math 2: The statement of financial position of Dorin, koyel and John , as at 31 December 2014, are as
follows:

Dorin koyel John

Tk'000 Tk'000 Tk'000
Sundry assets 280 180 130
Share in subsidiary 120 80 --

Equity capital (taka 1 shares) 200 100 50

Retained earnings 100 60 30
Liabilities 100 100 50
400 260 130
The following information is also available:
-Dorin acquired 75,000 tk. 1 per shares in koyel on 1st January 2014 when the retained earnings of koyel
amounted to tk. 40,000. At that date, the fair value of the non controlling interest in koyel was valued at
tk. 38,000

ii) koyel acquired 40,000 tk. 1 per share in John on 30 June 2014 when the retained earnings of John
amounted to 25,000 the retained earnings of John had been tk. 20,000 on the date of Dorin's
acquisition of koyel . On 30 June 2014, the full value of the non controlling interest in John (both direct
and indirect) based upon effective shareholdings, was tk. 31,000

iii) Goodwill has suffered no impairment. It is group policy to use the full goodwill method.

Required:

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Produce the consolidated statement of Financial position of the Dorin group as at 31 December 2014.
Sol: W1: Group structure
Dorin
75% 1January 2014

Koyel
80% 30 June 2014

John

Control
Dorin controls koyel and koyel controls John. Therefore, Dorin can indirectly control john.

Effective consolidation percentage

Koyel will be consolidated with Dorin owing 75% and NCI owing 25%
John will be consolidated with Dorin owing 75%*80% = 60% and NCI owing 40% (100%-60%)

Dates
koyel will be consolidated from 1 January 2014
However, koyel did not gain control of John until 30 June 2014.
Therefore, Dorin does not indirectly control John until this date.
As such, John is consolidated from 30 June 2014.

W2: Calculation of net assets

The acquisition date will be the date on which Dorin (the parent company) gained control over each
entity.
- Koyel 1January 2014
- John 30 June 2014

Net assets of subsidiary

Koyel John
At acquisition At reporting date Post acquisition At acquisition At reporting date Post acquisition
Tk'000 Tk'000 Tk'000 Tk'000 Tk'000 Tk'000
Equity Capital 100 100 - 50 50 -
Retained earnings 40 60 20 25 30 5
140 160 20 75 80 5

W3: Calculations of goodwill

A separate goodwill calculation is required for each subsidiary.
For the sub-subsidiary, goodwill is calculated from the perspective of the ultimate parent entity, (Dorin)
rather than the immediate parent (Koyel). Therefore the effective cost of John is only Dorin's share of
the amount that Koyel paid for John i,e, Tk 80000*75%= 60000

Koyel John
Tk'000 Tk'000
Cost of investment in subsidiary 120 80
Indirect holding adjustment 80000*25% - (20)

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Fair value of NCI 38 31
158 51
FV of net assets (140) (75)
18 16

W4: Non controlling interest

Tk'000
Koyel: NCI at acquisition 38
Koyel: NCI share of post acquisition net assets 20000*25% 5
Less: Indirect holding adjustment (20)
John: NCI at acquisition 31
John: NCI share of post acquisition net assets 5000*40% 2
56

W5: Group Retained earnings

Tk'000
Dorin 100
Koyel: 20000*75% 15
John: 5000*60% 3
118

Statement of financial position

David Group
Tk'000
Goodwill 18+16 34
Sundry assets 280+180+130 590
624

Equity and Liabilities:

Equity Capital 200
Retained Earnings 118
Non controlling interest 56
374
Liabilities 250
624

Math 3: The draft statements of financial position of Daniel, Kane and James as at 31 December 2014
are as follows
D K J
Tk'000 Tk'000 Tk'000
Sundry assets 180 80 80
Shares in subsidiary 120 80 -
300 160 80
Equity capital 200 100 50
Retained earnings 100 60 30
300 160 80

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i. Kane acquired 40,000 Shares Tk. 1 per shares in James on 1 January 2014 when the retained earnings
of James amounted to Tk. 25000.
ii. Daniel acquired 75,000 Tk. 1 per shares in kane on 30 June 2014 when the retained earnings of Kane
amounted to Tk. 40,000 and those of James amounted to Tk. 30,000.
It is group policy to value the non controlling interest using the proportion of net asstes method.
Required: Prepare the consolidated statement of financial position of the Daniel group at 31 December
2014.

Solution: Group Structure

Daneil
75% 30 June 2014
Kane
80% 1 January 2014
James

Control
Daniel control Kane and Kane controls James. Therefore, Daniel can indirectly control James.
Effective Consolidation percentage
Kane will be consolidated with Daniel owning 75% and the NCI owning 25%
James will be consolidated with Daniel owning 60% (75%*80%) and the NCI owning 40% (100%-60%)
Dates
Kane will be consolidated from 30 June 2014
When Daniel acquires control of Kane, it also acquires indirect control over James. Therefore, Daniel will
consolidate James from 30 June 2014.

W2: Calculation of net assets

Kane Jame
At acquisition At reporting date Post acquisition At acquisition At reporting date Post acquisition
Tk'000 Tk'000 Tk'000 Tk'000 Tk'000 Tk'000
Share Capital 100 100 - 50 50 -
Retained earnings 40 60 20 30 30 -
140 160 20 80 80 -

W3: Calculations of goodwill

Kane James
Tk'000 Tk'000
Cost of investment 120 80
Indirect holding adjustment - (20)
NCI at acquisition:
140000*25%, 80000*40% 35 32
155 92
FV of Net assets at acquisition (140) (80)
15 12

W4: Non controlling interest

Tk'000

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Kane: NCI at acquisition 35
Koyel: NCI % post acquisition's net assets 20000*25% 5
Less: Indirect holding adjustment (20)
James: NCI at acquisition 32
James: NCI % post acquisition's net assets -
52
W5: Group Retained earnings
Tk'000
Danies 100
Kane: 20000*75% 15
115

Consolidated Statement of financial position

Daniel Group
As 31 December 2014
Tk'000
Assets
Goodwill 15+12 27
Sundry assets 180+80+80 340
367
Equity and Liabilities
Equity Capital 200
Retained Earnings 115
Non controlling interest 52
367

Math 4: The statements of financial position of three entities at 30 June 2016 were as follows:
Grape Vine Wine
Tk'000 Tk'000 Tk'000
Investment 110 60 -
Sundry assets 350 220 120
460 260 120
Equity share capital 100 50 10
Retained earnings 210 110 70
Liabilities 150 100 40
460 250 120

(i) Grape purchased 40,000 of the 50,000 taka 1 shares in vine on 1 July 2015,when the retained
earnings of that entity were tk. 80,000 . At that time, vine held 75,000 of the 10,000 shares taka 1 shares
in wine. These had been purchased on 1 January 2015 when wines retained earnings were tk.65, 000.
On 1 July 2015, wine,s retained earnings were tk. 67,000.

(ii) At 1 July 2015, the fair value of the non controlling interest in vine was tk. 27,000 and that of wine
(both direct and indirect) was tk. 31,500. It is group policy to value the non controlling interest using the
full goodwill method.

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(iii) The equity share capital of grape includes tk. 20,000 received from the issue of 20,000 class B shares
on 30 June 2016. These shares entitle the holders to fixed annual dividends. The holders of these B
shares can also demand the repayment of their capital from 30 June 2019.

(iv) Includes in the liabilities of grape are tk.1,00,000 proceeds from the issue of a loan on 1 July 2015.
there are no annual interest payments and grape therefore believes that no further accounting entries
are required until the repayment date. The loan is repayable on 30 June 2018 at a premium of 100% .
The effective rate of interest on the loan is 26%.

Required:
Prepare the consolidated statement of financial position for the grape group at 30 June 2016.

Sol: W1: Establish Group structure

Grapes
80%
vine
75%
wine

Effective consolidated percentage

Vine will be consolidated with Grape owing 80% and the NCI owing 20%
Wine will be consolidated with Grape owing 60% (80%*75%) and the NCI owing 40% (100%-60%)

W2: Calculation of net assets

Vine Wine
At acquisition At reporting date Post acquisition At acquisition At reporting date Post acquisition
Tk'000 Tk'000 Tk'000 Tk'000 Tk'000 Tk'000
Equity Capital 50000 50000 - 10000 10000 -
Retained earnings 80000 110000 30000 67000 70000 3000
130000 160000 30000 77000 80000 3000

The acquisition date for both entities is the date they joined the grape group i.e. 1 July 2015

W3: Adjusting entry

Tk Tk
(i) Share capital 20000
Non current liabilities 20000
(ii) Financial cost 100000*26% 26000
Non current liabilities loan 26000

W4: Calculations of goodwill

Vine Wine
Tk Tk
Investment 110000 60000
Indirect holding adjustment 60000*20% - (12000)
Fair value of NCI at the date of acquisition: 27000 31500

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 137000 79500
FV of Net assets at acquisition (130000) (77000)
Goodwill 7000 2500

W5: Non controlling interest

Tk
Vine: NCI at acquisition 27000
Vine: Net share of post acquisition 30000*20% 6000
Less: Indirect holding adjustment (12000)
Wine: NCI at acquisition 31500
Wine: Net share of post acquisition's net assets 1200
53700
W6: Consolidated Retained earnings
Tk
Retained earnings of Grape 210000
Interest on liability (26000)
Group Share of post acquisition
Vine: 30000*80% 24000
Wine: 3000*60% 1800
209800

Consolidated Statement of financial position

Grape Group
As 30june 2016
Tk
Assets
Goodwill 7000+2500 9500
Sundry assets 350000+200000+120000 670000
679500

Equity and Liabilities

Equity Share Capital 100000-20000 80000
Retained Earnings 209800
Non controlling interest 53700
Liabilities 150000+100000+40000+20000+26000 336000
679500

Mixed D-shaped Groups

In a mixed group situation the parent entity has a direct controlling interest at least one subsidiary. In
addition, the parent entity and the subsidiary together hold a controlling interest in a further entity.
For example,
H
60% 30%

S T
30%

-H has 60%share of S. S is therefore a subsidiary of H.

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-H has a 30% direct holding in T . H also controls S , who has a 30% holding in T . H therefore controls T
through its direct and indirect holdings. This means that T is part of H's group and must be consolidated.
-Accounting for a mixed group is similar to accounting for a vertical group.

Example
H
60% 30%
1 January 2016 1 January 2015

S T
30%
1 July 2014

H acquired a 60% interest in S on 1 January 2016 and acquired a 30% interest in T on the same date.
S acquired a 30% interest in T on 1 July 2014.
Control:
H controls S. This makes S a subsidiary of H.
H is able to direct 30%+30%=60%. Of the voting rights of T. T is a subsidiary of H.

Effective consolidation percentage

S will be consolidated with H owning 60% and the NCI owning 40%.
H's effective interest in T is calculated as follows:
Direct 30%
Indirect (60%*30%) 18%
48%

The net interest in T is therefore 52% (100%-48%)

Dates
The date of acquisition for S and T is 1 January 2015.
Math 5: The statements of financial position of H, S and C as at 31 December 2015 were as follows:
H S C
Tk. Tk. Tk.
75% of shares in S 72,000
40% of Shares in C 25,000
30% of shares in C 20,000
Sundry assets 1,25,000 1,20,000 78,000
2,22,000 1,40,000 78,000

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Equity share capital (tk. 1 share) 1, 20,000 60,000 40,000
Retained earnings 95,000 75,000 35,000
2,22,000 1,40,000 78,000
All shares were acquired on 31 December 2012 when the retained earnings of S amounted to tk. 30,000
and those of C amounted to tk. 10,000
It is group accounting policy to value the non controlling interest on a proportionate basis.
Required:
Prepare the statement of financial position for the H group as at 31 December 2015.

Solution: W1: Group Structure

H
75% 40%

S T
30%

H's interest in S in 75%. The NCI interest in S is 25%.

H's effective interest in C

Direct 40%
Indirect 60%*30% 22.5%
62.5%
The NCI interest in C is 37.5% (100%-62.5%)

W2: Calculation of net assets

S C
At acquisition At reporting date Post acquisition At acquisition At reporting date Post acquisition
Equity Capital 60000 60000 - 40000 40000 -
Retained earnings 30000 75000 45000 10000 35000 25000
90000 135000 45000 50000 75000 25000

W3: Calculation of goodwill

S C
Tk. Tk.
H's Investment 72000 25000
S's Investment 20000
Indirect holding adjustment 20000*25% - (5000)
NCI at acquisition in case of S 90000*25% 22500
NCI at acquisition in case of C 50000*37.5% - 18750
94500 58750
Less: FV of net assets at acquisition (90000) (50000)
Goodwill 4500 8750

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W4: Non controlling interest
Tk
S: NCI value at acquisition 22500
S: NCI% of post acquisition net assets 45000*25% 11250
Less: Indirect holding adjustment (5000)
C: NCI at acquisition 18750
C: NCI% of post acquisition net assets 25000*37.5% 9375
56875

W5: Retained earnings

Tk
100% of H's Retained earnings 95000
Group Share of S's post acquisition
Retained earnings 45000*75% 33750
Group Share of C's post acquisition
Retained earnings 25000*62.50% 15625
144375

Consolidated financial position

Tk
Goodwill 4500+8750 13250
Sundry assets 125000+120000+78000 323000
336250

Equity and Liabilities

Equity Share Capital 120000
Retained Earnings 144375
Non controlling interest 56875
Total equity 321250
Liabilities 7000+5000+3000 15000
336250

Math 6: The following are summarized statements of financial position of T, S and R at 31 December
2014 was as follows:
T S R
Noncurrent assets 140000 61000 170000
Investment 200000 65000 -
Current assets 30000 28000 15000
370000 154000 185000
Equity share of Tk. 1 each 200000 80000 100000
Retained earnings 150000 60000 80000
Other component of equity 10000 8000 -
Liabilities 10000 6000 5000
370000 15400 185000

(i) On 1st January 2013 S acquired 35,000 ordinary in R at a cost of tk.56000 when the retained earninjgs
of R amounted to tk. 40,000

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(ii) On 1st January 2014 ,T acquired 64,000shares in S at a cost of tk.120,000 and 40,000shares in R at a
cost of tk.80,000.On this date the retained earnings of S and R amounted to tk.50,000 and tk. 60,000
respectively. S also had other components of equity tk.3000. the fair value of the NCI in S on 1 January
2014 was tk.27,000.The fair value of the NCI (direct and indirect) in R was tk.56,000.the non controlling
interest is measured using the full goodwill method. At the reporting date, goodwill has not been
impaired.

(iii) On 1st January 2014, T obtained use of a machine under a two year lease. The machine has a useful
economic life of ten years. No payment was due 2014 so no accounting entries have been posted. it
payment of tk.10,000 must be made on 31 December 2015.

(iv) On 1st January 2014 T granted 100 share appreciation rights (SARS) to 60 managers .These entitle the
holders to a cash bonus based on the share price of T the SARs vest if the managers are still employed
by T at 31 December 2017.Five managers left during 2014 and it is expected that another 15 is will leave
prior to 31 December 2017. The fair value of each SARs was tk.10 on 1 st January 2014 and tk. 14 on 31
December 2014.

Required:
Prepare the consolidated statement of financial position of the T group as at 31 December 2014.

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