Page 417 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Answers

Example 12.4 cont'd

(ii) Sub sells to Parent

Dr Sub’s retained earnings (W2) ↓ 16,000

Cr Group inventory (CSFP) ↓ 16,000

The subsidiary (BadaBing) would make the profit from the intragroup sale. As a
result, the retained earnings of the sub would be reduced by $16,000. This
would impact the net assets of the subsidiary working (W2) within the CSFP.

The parent’s (Ralphy’s) inventory would be overstated by $16,000. This is 100%
consolidated within the CSFP.

Tutorial note

BadaBing is a 100% owned subsidiary. If the subsidiary was not 100% owned
(an 80% sub), the reduction in the subsidiary’s profits would need to be shared
between the parent and NCI shareholders using respective shareholding
percentages. This would be achieved in the NCI reserve (W4) & consolidated
reserves (W5) workings.

By adjusting for the PUP in the net assets working (W2), the PUP will
automatically be split between the two reserves. S’s profits are shared between
the parent and the non-controlling interest shareholders.

409