The function of the consolidated balance sheet is to
disclose:
disclose:
(a) The total of the combined assets and liabilities of the
companies in the group after eliminating inter – group balances;
companies in the group after eliminating inter – group balances;
(b) The minority interest in the capital and reserves of the
subsidiaries in the group;
subsidiaries in the group;
(c) That proportion of the total share capital and reserves which
is attributed to the shareholders of the holding company (this will include the
holding company’s fraction of post – acquisition profits and reserves of
subsidiaries).
is attributed to the shareholders of the holding company (this will include the
holding company’s fraction of post – acquisition profits and reserves of
subsidiaries).
(d) The cost to the holding company of controlling the group, that
is, the amount by which the cost of the shares in subsidiaries procedures the appropriate
fraction of share in capital and profits and reserves at the date of acquisition
– of the situation is vice versa, the difference represents a profit on
acquisition.
is, the amount by which the cost of the shares in subsidiaries procedures the appropriate
fraction of share in capital and profits and reserves at the date of acquisition
– of the situation is vice versa, the difference represents a profit on
acquisition.
Legal Aspects of Consolidation
1. Section 338 of the Companies and Allied Matters Decree
(CAMD) 1990 specified these condition, any of which creates the relationship of
holding and subsidiary company, namely;
(CAMD) 1990 specified these condition, any of which creates the relationship of
holding and subsidiary company, namely;
(a) One company must be a member of the other and control composition
of its board of directors;
of its board of directors;
(b) One company must hold more than half in nominal value of the
*equity share capital of other; and
*equity share capital of other; and
(c) Where the company is the subsidiary of the of the holding
company’s subsidiary (that is, subsidiary).
company’s subsidiary (that is, subsidiary).
*By equity share, we mean issued share capital excluding any
part thereof which Neither, as
respects dividend Nor as respects
capital, carries any right to participation beyond a specified amount in a
distribution.
part thereof which Neither, as
respects dividend Nor as respects
capital, carries any right to participation beyond a specified amount in a
distribution.
2. Group accounts are
intended to give shareholders of a company the information they would have if
the entire group were constituted as a single undertaking. According to Section
336 (1) of CAMD. 1990 if at the end of year a company has subsidiaries the
directors shall, as well as preparing individual accounts for that year, also
prepare group financial statement being accounts or statements which deal with
the state of affairs and profit or loss of the subsidiaries.
intended to give shareholders of a company the information they would have if
the entire group were constituted as a single undertaking. According to Section
336 (1) of CAMD. 1990 if at the end of year a company has subsidiaries the
directors shall, as well as preparing individual accounts for that year, also
prepare group financial statement being accounts or statements which deal with
the state of affairs and profit or loss of the subsidiaries.
Consolidated Balance Sheet:
(a) Must combine the information contained in the balance sheet of
that holding company with that of the subsidiary companies, but with such
adjustments as are necessary, example, the elimination of inter – company share
holdings and indebtedness;
that holding company with that of the subsidiary companies, but with such
adjustments as are necessary, example, the elimination of inter – company share
holdings and indebtedness;
(b) In preparing a consolidated balance sheet, the requirements of
CAMD 1990 relating to balance sheet must be observed; and
CAMD 1990 relating to balance sheet must be observed; and
(c) Minority share holding in subsidiaries must be shown separately.
Consolidated Profit and Loss Account.
(a) Must combine the information contained in the profit and loss
account of the holding company with that of the subsidiary companies.
account of the holding company with that of the subsidiary companies.
(b) Eliminate inter – company transactions, including dividends paid
by the subsidiary companies to the holding company;
by the subsidiary companies to the holding company;
(c) Form of consolidated profit and loss account must comply with the
requirements of CAMD 1990 for profit and loss accounts generally (schedule 2
sections C)
requirements of CAMD 1990 for profit and loss accounts generally (schedule 2
sections C)
(d) Amount attributable to the interest of the holding company and that
attributable to minority interest must be clearly indicated.
attributable to minority interest must be clearly indicated.
4. Minority Interest: The information given in consolidated accounts
is to be combined to that which concerns members of the holding company. When
the subsidiary is wholly – owned by the holding company all amounts included in
the accounts of the subsidiary relate to the group. When, however, (as often
happens) a portion of a subsidiary’s capital is owned by outside shareholders, the
proportion of the capital reserves and undistributed profits attributable to Minority
Interests should be shown as such in the consolidated balance sheet.
Similarly, the share of profit for the year applicable to minority interest
must be shown separately in the consolidated profit and loss account.
is to be combined to that which concerns members of the holding company. When
the subsidiary is wholly – owned by the holding company all amounts included in
the accounts of the subsidiary relate to the group. When, however, (as often
happens) a portion of a subsidiary’s capital is owned by outside shareholders, the
proportion of the capital reserves and undistributed profits attributable to Minority
Interests should be shown as such in the consolidated balance sheet.
Similarly, the share of profit for the year applicable to minority interest
must be shown separately in the consolidated profit and loss account.
5. Pre-Acquisition
Profits: Undistributed profits of a subsidiary company existing at the date
of its acquisition by a holding company must be treated by the holding company
as profits not regarded as being free for distribution.
Profits: Undistributed profits of a subsidiary company existing at the date
of its acquisition by a holding company must be treated by the holding company
as profits not regarded as being free for distribution.
6. Inter – company
Relationship and Transactions: It is of course, a fundamental rule in the
preparation of consolidated accounts that all transactions internal to the
group, that is, inter – company transactions, should be eliminated.
Relationship and Transactions: It is of course, a fundamental rule in the
preparation of consolidated accounts that all transactions internal to the
group, that is, inter – company transactions, should be eliminated.