Consolidating accounts examples

The journals to effect this transaction are as follows: Keep in mind that under FRS 102, the additional ownership interest acquired during the year does not trigger the subsidiary’s net assets to be revalued to fair value, and no additional goodwill will be recognised because Subco was already a subsidiary of Holdco prior to the additional investment.FRS 102 requires this sort of transaction to be accounted for as one among equity holders.It is this situation which has been subject to significant change under FRS 102 when compared to previous FRS 2 Under previous FRS 2, when a parent already had control over a subsidiary and then subsequently acquired more of the subsidiary’s net assets, resulting in a dilution in minority interests, the net assets of the subsidiary would be revalued to fair value at the date control was increased and additional goodwill would also be recognised in the consolidated financial statements.Under FRS 102, the net assets of the subsidiary would not be revalued to fair value and no additional goodwill is recognised.For example, the requirement to eliminate intra-group trading is still the same and the consolidation of a subsidiary is required when the parent company controls the operating and financial policies of the entity (which is often achieved with an ownership interest of more than 50% of the net assets).

At the date of acquisition, the fair value exercise revealed the net assets of Subco to be £70,000 and this was also equivalent to their book value.

It is a common scenario in a group context where a parent company has previously acquired a controlling stake in a subsidiary (for example the parent may already own, say, 70% of the subsidiary), but then acquires further ownership interest in the subsidiary.

This increases the parent’s ownership interest and dilutes the non-controlling interest (previously referred to as ‘minority interest’).

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