Transcription
Good day. Welcome to another session of Fog Accountancy Tutorials. Today, we continue our lesson on the consolidated statement of financial position. We are going to take a question that is going to cover the forms of purchase consideration that we explained and also how to prepare the net asset list in order to ascertain their post-acquisition profits.
Now, what we are going to do is that after this, we are going to talk about intra-group adjustments, which will be the last aspect of the consolidated statement of financial position. We talk about intra-group adjustments and unrealized profit and all that. But then, the question that we are going to solve today has an element of intra-group adjustment, which I'm going to explain. The requirements of the question, and then afterwards, I'm sure that we'll be good to go with the statement of financial position consolidation. So, without wasting my time, I want to read the question straight away so that we'll be able to solve that together.
Okay, GBL acquired two million equity shares in ABL on 1st January 2013. On which date, the retained earnings of ABL stood at 300,000 Ghana Cedis. Their agreed consideration was 1.5 million cash and a further 600,000 Ghana Cedis on 1st January 2015, if ABL attained certain profit targets. So, that is a contingent consideration. You move on. GBL's cost of capital is 15%. The draft statement of financial position of GBL and ABL on 31st December 2013 were as follows.
So, we have for GBL and ABL. We have the non-current assets, PPE for 2,500 (you have three zeros up, of course, so that is 2.5 million) and then 2,000 (which is 2 million). For investment in ABL as cost, mind you, there are three zeros up, so 1.5 million. And then under current assets, we have inventory 150 and 400. We have receivables 800 and 350. And then we have amounts owed by GBL and ABL, that is 500 Ghana Cedis or 500,000 Ghana Cedis. I'm going to explain that. And then we have cash and cash equivalents for GBL 100.
We move to current liabilities. We have amounts owed to ABL, that is 400. And then we have trade payables 500 for GBL and 350 for ABL, then giving us a net asset of 4,150 and then 2,900 respectively. Then we come to equity. We have stated capital, ordinary shares at 50 pesos, that is 0.5 Ghana Cedis each, 2,250 for GBL, 1,250 or 1,250 for ABL. And then we have the revaluation surplus to be 600 for GBL, 250 for ABL. And then finally, the retained earnings of GBL 1,300 and that of ABL 1,400. Still bearing in mind that we have three zeros up, so that is 1.4 million.
Okay, then we move on to the additional information. ABL has an internally developed brand, ABL, which was valued at 250,000 Ghana Cedis at the date of acquisition. There have been no changes in the share capital, revaluation surplus of ABL since GBL gained control. At 31st December, ABL had invoiced GBL for transfer of mods, a basic raw material for brewing, to the value of 100,000 Ghana Cedis, which had not been received by GBL. There is no impairment of goodwill. It is the group's policy to value non-controlling interest at full fair value at acquisition date. The non-controlling interest was valued at 450,000 Ghana Cedis.
Required: Prepare the consolidated statement of financial position for GBL group as at 31st December 2013.
Okay, so this is the question, a very interesting question. Now, what I want us to look at from this question, let us pick up some very important points from the question, and then we will start solving. We are told that GBL, which is a parent company, acquired two million shares in ABL on 1st January 2013. So, what I want you to note is that the acquisition date. These are things you should consider, that is why I'm putting them down. The acquisition date is 1st January 2013. Now, what is the reporting date? We are told that the draft statement of financial position of GBL and ABL on 31st December 2013. So, the reporting date is 31st December 2013. So, you see, this reporting date is what we are going to consolidate, and this is a question of post-acquisition date consolidation. All right. And we also know that there has been one year since its acquisition. So, whatever statements we are coming to prepare now is after one year of acquisition. Bear that in mind, because it's going to help you in a lot of things.
Then we are also to let's look at the purchase consideration. We are told that on which date, first of all, they acquired it on which date, the retained earnings of ABL stood at 300,000 Ghana Cedis. So, on the date of acquisition, the income surplus balance of the subsidiary was 300,000. That is on the date of acquisition. The income surplus balance at that time, and this 300,000 is what we are going to use for the calculation of goodwill, because we know that for everything we are going to do, one thing is exceptional: the calculation of goodwill is done at acquisition date. And so, at acquisition date, the income surplus balance of the subsidiary is 300,000 Ghana Cedis, and that's what we are going to use for our calculation of goodwill.
Then we are told that on the reporting date, look at the statement of financial position of the subsidiary under the equity column, we have retained earnings of 1.4 million, 1,400. So, it means that at reporting date, the same income surplus balance has increased from 300,000 to 1.4 million. And it tells us that even though the parent company bought it at a time when it was 300,000, now it's 1.4 million. So, they have worked to add up an additional 1.1 million, which will be considered as a post-acquisition profit. But I remember that I told you that don't be too quick to conclude that the post-acquisition profit is just by comparing the income surplus or the retained earnings balance. You need to consider other items on the net asset list to see if there was any movement, and that is why we are going to prepare the net asset list to that effect. But I want to draw your attention to the fact that this is an increase, and so the parent company has a share only in the post-acquisition income surplus. All right.
Now, let us continue to pick up other important things from the question. We are also told that the agreed consideration was 1.5 million Ghana Cedis in cash and a further 600,000 Ghana Cedis on 1st January 2015, if ABL attained certain profit targets. That is very, very important. Now, the date of acquisition is 1st January 2013. Now, you are paying an initial cash for 1.5 million. This is the terms of the purchase or the cost of the investment or what we call the purchase consideration. So, for the cost of the investment or the purchase consideration, we have 1.5 million Ghana Cedis in cash, which is going to be paid by GBL to ABL. Then there is a deferred and contingent. Now, I call it a contingent consideration because there is a condition attached. Okay, they will pay a further 600,000. This will be paid on acquisition date, which is 1st January 2013. Make no mistake about that. It says that you are paying cash of 1.5 million. This one will be paid on the date of acquisition. But a further 600,000 Ghana Cedis on 1st January 2015. From 1st January 2013 to 1st January 2015 is a two-year interval. All right. And so, that is a deferred consideration, but there are some conditions attached. Is that if the subsidiary is able to achieve certain profit targets? So, this is a contingent consideration. And because it is going to be paid in two years' time, we are going to need the figure or the value of this 600,000 in today's time, in us, at 1st January 2013, which is two years back, in order to allow us to calculate the purchase consideration to find our goodwill. And that is where we are going to do the discounting of this 600,000. Like I taught you in our previous video, we discount back into two years back to the date of acquisition, which we are going to use to calculate our goodwill. And we are going to use the cost of capital given to us. We are told that the company's cost of capital is 15%. So, you see, all these things that I am picking out for you are so important. They are things that you should consider in trying to analyze a question of this nature. All right. So, you need to, you know, I am picking them out like this, but whenever you are reading a question like this, you need to take your time and do all these analyses that I'm doing very well before you even approach the question. Otherwise, you would not be able to get what you have to get right.
And then we have the various statements of financial positions of the parent and the subsidiary. So, we have PPE, which we are going to consolidate. Then we have investment in ABL shares at cost. You see, now there is a change. You can see from the question that we have investment in ABL shares at cost to be 1.5 million, which is 1,500 (three zeros up). Now, it means that on the statement of financial position, they have only captured the cash consideration. They did not capture the total consideration that we are going to pay, because this is a contingent consideration which was not captured. And so, in this case, you cannot say that because they put 1.5 million on the statement of financial position, that is the only purchase consideration you are going to use. Remember that what is in the introduction to passes is what we have in the statement of financial position. So, yes, we see 1.5 million in the statement of financial position, but we are supposed to also take into consideration the contingent consideration, and that is very, very important. So, that is it.
Then we continue to under the current assets. We have inventory, we consolidate. We have trade receivables, we consolidate. We have amounts owed by GBL 500,000. If you go to current liabilities, you will see amounts owed to ABL, that is 400,000. Both are not the same. Now, this aspect that you see here is supposed to be for intra-group adjustments, which I will treat after this video. Okay, I'm going to talk about intra-group adjustments after this video. But once it has appeared in this very question, we need to talk about it. What we normally say is that when we are consolidating the financial statements, there are two different entities, the parent and the subsidiary. They are supposed to be seen as one entity, a group. And because it's supposed to be seen as one entity, I cannot owe myself, and I cannot be owed by myself. Okay, so whatever amount of money that the parent owes the subsidiary, or the subsidiary owes the parent, should be cancelled out. It shouldn't come into the consolidated statement of financial position. And so, you see this amount owed by GBL that we have under current assets of ABL, it means that GBL, which is a parent company, has either taken some cash or goods that they have not paid for from their subsidiary, so they owe them. So, they have to show that as an asset. And then, if you look at the statement of financial position of the parent, they have also disclosed that they also owe their subsidiary. So, those two figures should just be cancelled out. That is a normal practice. It shouldn't appear anywhere in the consolidated statement of financial position. So, when we are consolidating, that will not appear. This will not appear. So, that is just like the cancellation I taught you in the case of goodwill and the equity of the doing. But there is an exception here. You could see that in the current asset of ABL, they have showed 500,000 as being owed by GBL, and then GBL is also showing 400,000 as being owed to ABL. So, there is inconsistency in the figures. This person says you owe me 500. The other one says I owe you 400. So, what is the difference? The difference of 100. Now, what could this be? We cannot cancel out 400 and 500. If we do that, the statement of financial position that we are going to consolidate will not agree. So, what we need to do is that we can only cancel out 400 and 400. That means there will be a remaining 100 that will be left under the current assets of the subsidiary, which is supposed to be either cash in transit or goods in transit. So, that difference of 100 is supposed to be either cash in transit. In other words, it means that it's either the parent who is owing the subsidiary has actually paid the cash, they have remitted the cash, but the cash has not yet reflected in the accounts of the subsidiary. And because they have not yet received it, they have not claimed that they have paid 100. And because their parent has actually paid, they have reduced their debts by that 100 to make it 400. That could be another possibility. Another possibility could be goods in transit. It could be that the subsidiary has remitted an amount of a value of goods or has transferred goods to the parent, and they have also added that they have sent goods to their parent to a value of 100, but their parent has not yet received those goods. So, we call that goods in transit. Now, whatever the case will be, whether goods in transit or cash in transit, both of them will stand. But the actual figures, the 400 should cancel out with the 400, and the extra 100 will stand in the consolidated statement of financial position. If it is cash in transit, it will be added to cash and cash equivalents. If it is goods in transit, it will be added to inventories. And that is how we are going to look at that. So, when I get there, I will explain again.
So, the next thing we should look at, I think there is nothing much more to look at. And we have the cash and cash equivalents to 100 for only the parent. There is none for the subsidiary. And you see, let us look at the stated capital also. There is something to also pinpoint from there. Now, we are told that stated capital, ordinary shares at 50 pesos, that is 0.5 Ghana Cedis per share for both companies. So, we are going to use that to know the total number of shares. Remember that we are told in the introduction that GBL acquired two million equity shares in ABL. Okay, so they didn't tell us the total number of shares of ABL at the date of acquisition. We are only told that they acquired two million. So, in order to know the percentage or the cost of control or what we call the group structure, in order to know that, you need to find the total number of shares, and then you find a fraction of that to get the percentage that has been purchased by the parent. And then you are going to use this 50 pesos as a basis for finding that. So, let us take note of that. We also have the revaluation surplus for both, and then retained earnings.
Now, let's quickly look at the additional information and then we'll be good to solve the question. Additional information: ABL has an internally developed brand, ABL, which was valued at 250,000 Ghana Cedis at the date of acquisition. Now, this internally generated brand was not in the financial statement, but we were told it was there at the date of acquisition, and it is still there because we are told that it has not. The tense of the sentence makes us understand that the internally generated brand is still there, okay, 250,000. Now, it was there at the date of acquisition, and so it should be part of our net asset list at both acquisition and then at consolidation date. Now, because it was not in the financial statement, when we are preparing the consolidated statement of financial position, we must capture that as well. It's very, very important that it should be captured now in the statement of financial position. So, take note.
Then we are told there have been no changes in share capital, revaluation surplus since the control was gained. So, it means that at acquisition date and at reporting date, there have been no changes in both the stated capital and the revaluation surplus. So, but the income surplus has definitely changed. We could see that. All right. As at 31st December, ABL had invoiced GBL for transfer of mods, a basic raw material for brewery, at a value of 100,000. Okay, so that is what I was talking about. This is the 100,000 that is the difference between the amount owed by GBL and the amount owed to ABL. So, that is goods in transit. We are told that this particular difference of 100 is goods in transit. So, we are going to treat it as part of inventories in the consolidated statement of financial position. And then finally, I also told that there is no impairment of goodwill. So, then it is the group's policy. Finally, it is the group's policy to value non-controlling interest at full fair value at the date of acquisition. The non-controlling interest was valued at 450,000 Ghana Cedis for the non-controlling interests of the NCI. And I have taught you already how to treat that. We are going to show that we are going to add that to the purchase consideration of the parent to get the total cost of investment in order to find the goodwill at acquisition date. It's very, very necessary, and it's going to also change the way we find our non-controlling interest value as at reporting date. So, this is just the analysis that I want us to look at, and then we'll be good to answer the question.
Okay, let us now solve the question together. Now, the first thing that we have to do is, I told you, let's find the group structure. Once we follow those procedures, we have no problem. So, the first workings, let's do our workings first. It is to find the group structure. Working one: or the control structure. Now, the group structure, according to this question, we are told that we are told that the parent GBL acquired two million equity shares in ABL. So, two million. But then we don't know the total number of shares of the subsidiary. But we are told from the question that it is one, the total share value in Cedis is 1.250 million or 1,250. So, 1,250,000, and then the price per share is 50 pesos. So, to get the total number of shares of the subsidiary, which is ABL, is going to be 1,250,000 divided by the share price of 50 pesos, which is 0.5, and that is going to give us 2.5 million shares. So, the total number of shares of the subsidiary is 2.5 million. And so, in order to get your group structure, you see that the parent acquired two million shares out of the total number of shares, 2.5 million, times 100, and that is going to give us 80%. And so, what we are trying to say is that the parent, or GBL, acquired 80% in a subsidiary. So, you see the trick that it wasn't given to you straight forward. You have to even go through this process to find the total number of shares. So, if you're unable to establish the total number of shares, you'll be stuck from the first start, because you can't even find the group structure. And if you cannot find a group structure, there is nothing more you can do. So, very, very important. And if the parent has 80% holding, then it means our non-controlling interest, or NCI, will have 20% holding, giving us a total of 100%. And this is the first working that I always tell you to do, to find the group structure. Very, very necessary to find the group structure. So, now that we have found our group structure, the next thing to do is to go to the calculation of goodwill. I told you that the big four: we have the group structure, goodwill at acquisition date, then we have the NCI at reporting date, and then the group consolidated income surplus at reporting date. But to get these four, sometimes you may have to go through other things. So, the next thing we have to look at is goodwill, but we cannot find goodwill at acquisition date if we have not been able to establish the total purchase consideration, which is going to be made up of the cash consideration and the contingent consideration. So, that is the next thing we have to look at, the calculation for purchase consideration. And also, we are also going to do the net asset list at once, so that when we are moving, we just move straight to the other three in the big four. So, let's do the purchase consideration calculation. We will do the net asset list, and then we can proceed to continue from goodwill and then the rest. So, let's look at the workings for purchase consideration or the cost of investment, the purchase consideration or cost of investment of the parent. Okay, so we are told that we have the cash consideration to be 1.5 million. Let me put three zeros up, please permit me to show my three zeros up so that I can write here 1,500. Very important. And then there we also have a deferred or a contingent consideration. And the contingent consideration is going to be discounted. So, we find the discounting factor. So, it's going to be 600,000 that we are supposed to pay times the discounting factor, 1 over 1 plus the cost of capital of the company is 15%, 0.15. Now, it's going to be raised to the power 2. It's going to be raised to the power 2 because it's going to be 2 years. You can find this from your present value table and then put the figure there straight away. Okay, if you look at this from the present value table, it's going to be 0.756. So, you multiply 0.756 by that 600,000. Please, and please again, you need to understand the time value of money very well before you can do this. So, you need to understand how to do future values and then present values, very necessary. So, once you're able to discount this, then you get a figure which is going to be 453.6. 453.60. So, when we add that up, we are going to get a total purchase consideration of the parent to be 1,953.60. Bearing in mind that we have three zeros up. So, this is how to get the total purchase consideration at acquisition date. And then we are going to use this to calculate goodwill. This figure will be our purchase consideration, not only the 1.5 million. And I taught you this in the previous video. And then after that, let us also try doing our net asset list. Now, we can do the goodwill before we do that of the net asset list, but I want us to do that at once, and then we can continue with that big four. So, the third workings, I'm going to call it net assets list. Now, very, very important, pay attention to what I'm coming to do. In every question that you do, you make sure that you do this before you proceed. Once you get your cost of control, find your purchase consideration, make sure you are doing the net asset list before you proceed, because it's going to help you in a lot of things. Now, the net asset list is supposed to be shown at acquisition date and then at reporting date. The reporting date is actually the reporting date is the date that we are consolidating, which is 31st December 2013, that is one year after acquisition. And acquisition date is 1st January. Instead of writing as reporting at acquisition, you can just put in the dates, and that will be acceptable. So, you can either write your 1st January and then the 1st of November 2013, that is also acceptable. Now, we are going to list our net assets at both dates. Let me put my Ghana Cedi sign and then let me also bring up three zeros so that we know that we are working in millions, but we are going to write them in thousands. Now, let us consider the stated capital first. Remember that we are looking at the net assets in relation to equity. I told you. So, with the stated capital and please, we are looking at the net asset list of the subsidiary. So, let me also add that before you go and pick any figure of the parent. We are not bringing in any figure for the parent. This is the net asset list of the subsidiary, acquisition date and as reporting date. Now, at acquisition date, the stated capital of the subsidiary is 1,250. We are told that there was no changes, and that means that as reporting date, it's also actually this is what we even have at reporting date. But we are told there are no changes, meaning that it was the same as acquisition date. And then also, we have the revaluation surplus from the statement of financial position. We have revaluation surplus at the acquisition date to be 250. And then the same for reporting. Actually, the statement of financial position that we have is at reporting date, but we have been told in additional information that there were no changes. If there were any changes, it would have been mentioned. So, we always assume once they didn't say anything about that, then there are no changes in revaluation surplus. So, at acquisition date, it's 250. As reporting date, it's 250. And then let's look at the retained earnings. We are told from the question that GBL bought so that on which date, retained earnings of ABL stood at 300,000. Okay, so at acquisition date, the retained earnings, which is also known as the income surplus, stood at 300. But as reporting date, which is the statement of financial position we've been given, we have seen that it is 1.4 million. So, the statement of financial position that we have been given is what is catering for the reporting date. The acquisition date, we are told about them. So, that is it. So, at acquisition date, we had the income surplus balance with 300, and then at reporting date, it's 1,400. This is what we saw from the statement of financial position. But let us not forget that we have been told about a certain brand. We are told that ABL had an internally generated brand, ABL, which was valued at 250 at acquisition date. There have been no changes in the share capital, revaluation surplus. Now, listen very carefully. You can say, what is brand coming to do together with these items of equity? Remember that the brand name is an intangible non-current asset. And once we are introducing it into the asset, then it has to affect equity as well, because according to the accounting equation, asset equals to equity plus liability. So, if you are increasing the asset by 250, you have to either increase your equity or liability by the same 250. And we know that this brand name will not be a liability, so definitely it is supposed to be part of equity. And that is why we are looking at net asset list. It is when we look at it from this side, it's part of net asset. And look at it from the point of equity, it should also be part of the net asset. And so, we are going to have brand name, and we are told it was there at acquisition, 250. At reporting date, it is still 250. There has been no impairment of that. And ladies and gentlemen, this is our net asset list at acquisition and that's as reporting date. We find the totals. You see that the total net asset at acquisition is 2,050. And then the total net asset as reporting date is 3,150 Ghana Cedis. So, you see that there has been an increase. So, we are, we have to find the difference. So, we now find our post-acquisition profits. And post-acquisition profit is going to be 3,150 minus 2,050. So, we are actually finding the difference between the two to see if there has been an increase in their reserves or their net assets. And truly, truly, the increase is going to be 1,100 Ghana Cedis. And that is going to be our post-acquisition profit. And this is what we are going to use. Remember that the non-controlling interests will have a share of this, and then the group income surplus for the parent will also have a share on that, based on the percentage holding for both companies, or for both of them. Now, I want to draw attention to something in this very question. We have seen that none of these net assets changed with the exception of their retained earnings, which increased by 1,100, which has also caused the same difference. So, like I told you, if you have not done this and you have looked straight away at the retained earnings to get your difference, in this very question, you would have been right, maybe, but you may have lost marks for this. But you would have used the 1,100 and then it's going to give you correct answers. But in some questions, you are going to see a lot of changes. We are still moving ahead. When I finish doing the intra-group adjustment, we are going to pick a question that is more loaded with additional information, and then you will see that a lot of this may change. Okay, so you can see even there could be an issue of share, there could be a change in revaluation, there could be a fair value adjustment that we need to do to reflect, and all those ones are going to change the net asset. So, I repeat that do not put all your hopes only on the changes that happen with retained earnings, even though retained earnings will always change, but there could be other changes in the net asset as well. So, that is it for that.
So, having been able to get the post-acquisition profit, the next thing we can focus on now is to calculate the goodwill at acquisition date, then we move to other things. So, working number four, working number four will be goodwill calculation at acquisition date. Let me put three zeros up like that. Okay, so we have the purchase consideration. We all know we begin with the purchase consideration of the parent, and we have worked that to be 1,953.60. Okay, so that is the purchase consideration. Then remember that I told you that when there is a full fair valuation for non-controlling interest at acquisition date, we add that to the purchase consideration to get the goodwill. Now, in this question, we are told that non-controlling interest was valued at 450,000. And so, we add that non-controlling interest at fair value, and that is 450. Remember that three zeros are already up. So, 450,000. And then when we add that, we are going to have 2,403.60. That is going to be the total cost of investment. Okay. And then we can now take out the fair value of net assets taken over. But remember that over here, we are not going to strike any percentages because this value represents 100% of the cost of investment. So, we are going to list the fair value at acquisition date. And ladies and gentlemen, the reason why I did this before going here is that it will save me time. I'm not going to list all these net assets already, because I've already done that here. These assets are what I'm going to list. So, I should have listed this 1,250, the revaluation surplus of 250, retained earnings of 300, and then the brand name of course of 250. But because I've already done that at working three, I can just pick this total and send it straight, and it's going to save me a lot of time. So, when I send it there, I'll refer the examiner that I did that at working three. So, I will see less fair value of net assets at acquisition date, and I'll say working three, then I'll put here 2,050 in brackets. So, that straight away I get the value of my goodwill. So, it makes the goodwill calculation even simpler when you do this first before that. So, that is why I intentionally did that to teach you something. And so, the goodwill value now becomes 353.6. So, that is 353 Ghana Cedis. 60%. We are told in this question, the goodwill was not impaired. So, we leave it like that. If there was any impairment of goodwill, we would have taken out, less impairment of that amount, and then we get a final goodwill. And that goodwill impairment would have also been taken to the group income surplus to reduce it. That is how to treat that.
So, ladies and gentlemen, we are done with the goodwill on acquisition date. So, let us move on to the non-controlling interest and then consolidated retained earnings. Before we move on to that, there is something that I want us to look at, very, very important, the unwinding of the discounts. Please pay attention. Now, remember that on acquisition date, there was a promise to pay 600,000 in two years' time, and that date was 1st January. One year later. Now, you see, the acquisition date is 1st January 2013. That 600,000 is to be paid on 1st January 2015, and that is two years' time. Make no mistake about that. Now, we have moved to 31st December 2013, which is one year's time. So, we are left with one more year. Remember that this is equal to 31st December 2014. If you don't know, 1st January 2015 is the same as 31st December 2014 in accounting. So, it means that there is one year more to go for the 600,000 to be paid. Now, on the date of acquisition, we were supposed to pay 600,000 in two years' time. In today's terms, the value is 453.6. Now, we have moved one year. So, the value of this contingent consideration will no more be 453.6. I don't know if you understand what I'm trying to say. What I'm trying to say is that you you you tell someone that okay, so 1st January 2013, I promise you I'll give you 600. Okay, now this 600 will be given, let's say, 1st January 2014, 1st January 2015. This 600 will be given on 1st January 2015. Anyway, I've told you that I'm going to pay you 600 in 600,000 or whatever in two years' time. I'm promising you today, which is 1st January 2013. Now, we have said that the value of this 600 in two years' time, discounted back to today's terms, is 453.6. Now, pay attention very well. Though this system that I'm going to pay on 1st January 2015, as at 1st January 2013, the value is 453. Now, today we are standing here, 1st January 2014, is the same as 31st December. This is the reporting date that we are working with now. So, previous year, this season report was valued at 453. In three years' time, it's been valued at 600. What is the value in today's terms? We don't know. And this is what we need to show as a liability for the statement of financial position, because it will be shown as a contingent liability. It should be shown as a contingent liability. Now, please take note that I repeat, we are going to pay 600 in two years' time. In today's terms, the value is this, that's at the date of acquisition. But at reporting date, we need to show the 600 in our statement of financial position as a liability at what value? Because we cannot show it as 600. 600 will be the value in one year's time, because where we are standing today, we have one year more to go. Then in the previous one year, it was 453. So, what is the current year now? So, now we need to discount it again, because from here, so the date that we are going to take it is one year. So, we now have to discount it and see that it's now 600 times 1 over 1.15 raised to the power 1. This time it will not be raised to the power 2. So, that this will be the new value for this year. So, when we discount it to this year, the new value that we are going to get, I'm going to show you something called an unwinding of a discount. So, this is going to give us 522. So, previously, we discounted 600 times 1 over 1.15 raised to the power 2, because we were looking at two years forward, and we had 453.6. Now, we discounted it one year, and we have 522. So, if we are going to show this, the difference between this new value and the previous value is called an unwinding of a discount. We have brought back the discount. Let me take my time and explain this for you. It's very important for me. Now, we are supposed to pay 600,000. Watch this very well. We are supposed to pay 600,000. So, currently, we pay it in one year's time. So, once we are going to pay in one year's time, we are so going to say that the contingent consideration, or the contingent consideration as at today, is supposed to be 600 times 1 over 1.15, which is asked for the discounting formula. We all know, raised to the power 1, raised to the power 1, because it's going to be paid in one year's time, because it's normal two years' time. We have moved from the date of acquisition. So, where we are standing now, we have one year left. So, in one year's time, we are going to pay 522. Then in the previous year, or at acquisition date, it was, we discounted it as 600, 1 over 1.15 raised to the power 2, and then we had 453.6. Now, you see that we are moving closer and closer towards 600. So, next year, when we discount it on the date that we are supposed to pay, it's going to be, let's say, 600 times 1 over 1.15 raised to the power 0, because now we are in the current year, and any number raised to the power 0 is 1. So, it will be 1 over 1 times 600, which is still going to be 600. So, in next year, whether we are discounting or not, it now comes back to the same value. So, we are saying that as we move forward, year after year, we move forward closer towards 600. And so, what I'm trying to say is that we have moved from 453.60 to 522. And so, let us subtract and find the difference. The difference is going to be 68.4. This 68.4, we have to treat it as an additional finance cost. We call it the unwinding of the discount. We discounted it forward, and it gave us a small amount. Now, we are unwinding it towards 600, and it has been unwound by one more year. And so, 68.4 becomes a discount unwound. We call it discount unwound, that becomes an unwinding of the previous discount. The previous discount took us to 453.60, but it has been unwound to 522. Next year, there will be another unwinding that will take us to 600. So, all that I'm trying to explain to you is that once you get the purchase or the deferred consideration to find your goodwill in the day, at the date of reporting, find another new value using the time value of money, and then compare the discount value that you had at the date of acquisition to the current value. The difference would be a finance cost. We call it discount unwound. So, this is how we are going to treat it. The discount unwound will be subtracted from the group income surplus, because it's a finance cost, it's going to affect our profits. And then we are going to treat the new 522 as our continuing liability in the consolidated statement of financial position. So, our call this also as working five. Okay, all right.
So, having understood the unwinding of the discount, let us also look at the last two things we are supposed to do. To do that is the group income surplus and then the NCI at reporting date. So, working six, let me call it group income surplus or consolidated retained earnings. And we said that the group income surplus, let me put my three zeros up. The group income surplus is the income surplus of the parent company. So, parent company. And the income surplus of the parent company was 1,300, according to the statement of financial position. And then we add their share of the post-acquisition profit. So, share of post-acquisition profit. And the post-acquisition profit, we got that from the net asset list, which is 1,100. So, this 1,100 times 80%. This 80% is the percentage holding of the parent company. So, 80% of 1,100 will be 880. Then we will have to subtract the discount unwound, very, very important. Discount unwound, which is 68.4. Now, if there was any goodwill impairment, we would have subtracted a goodwill impairment as well. So, take notes. But in this case, these are the only three things that we are going to consider with the group income surplus. And so, the group income surplus is going to be 2,111.60. Remember that there are still three zeros up. So, this is how to get the group or the consolidated retained earnings. And then finally, let's look at the non-controlling interest value as at reporting date. So, non-controlling interest at reporting date. This is also group income surplus and reporting date, the same thing. So, let me show my currency signs. Three zeros up. And that is going to be. Now, listen. Previously, I told you that the pre-acquisition, the stated capital and the pre-acquisition profit is going to be eliminated. When we have the fair valuation of NCI, it will replace that. So, we will start with the NCI at fair value, which we were given and we used to calculate the goodwill. That will come first. And then we give them their share in the post-acquisition profit. And then we are done. So, we see that NCI at fair value at acquisition date, that is 450. And then we see their share of post-acquisition profits, which is 20% of 1,100 that we had from the net asset list. So, that is going to be 220. And so, when we add 450 to 220, that gives us 670. Remember that in all this, there are three zeros up, the currency sign. So, this is how to go by the non-controlling interest as at reporting date. So, you see that we are gradually moving. This question is still not complete, because to get a very complex and full question with this, we need to talk about the intra-group adjustment and maybe fair value adjustment. But we already have seven workings. But because we moved step by step to this place from where we started, I'm sure that if you have been following all this, wow, you shouldn't be lost at this point. We are now going to prepare the consolidated statement of financial position, and that will end this video. All right, so we'll start by saying GBL Group, Consolidated Statement of Financial Position, as at 31st December 2013. Let me bring my three zeros up and then let me show my notes where necessary. So, this is the consolidated statement of financial position, as easy as ABC. So, we begin with non-current assets. We are not going to waste time with this, because we have explained in detail every other thing that should be done. So, there was property, plant and equipment, which we have for the parent was 2,500, and then the subsidiary was 2,000. There are three zeros up, so that gives us 4,500. And then remember there was goodwill. The investment or the purchase consideration up down there will not come. That is the 1.5 million. We will bring it. So, the goodwill was from working three. Either you put here working three, or you put underneath. No, straight, very, very important. I think the note is a more professional way of doing it. So, note three, and the goodwill value is 453.6. So, the notes that I have put here is there to cater for the workings. So, please take note. Note three means working three. I could have put into bracket W3, but I'm saying three underneath, so that you know that this is from working three. Sorry, the value is 353.6 for goodwill. And then there was another intangible asset, the brand name, which they introduced. So, brand name, and the brand name is 250. So, to give us the total value of their non-current assets as 5,103.6. And then we move to current assets. Current assets, we have inventories. Now, the inventories were 150 for parent, 400 for subsidiary, and remember that I told you that the goods in transit of 100 will also be treated as part of the inventory. So, plus 100. So, the total is going to be.
650. If I'm right, yes. So the parent campaign is inventory, the subsidiaries, and then the inventory, which are goods in transit. This is still part of inventories of the group, whether it's in transit or not. So we put that there. And then we have receivables. The value of receivables per the question, we have 800 for the period, 350 for the subsidiary, so 800 plus 350. And that is going to give us 1150 for inventories. And then we move on to the next item, which is going to be, I think, yeah, they're just because they're always to GBL and, um, whatever they always and then always by HGBO and then the always EBO has cancelled out, and that is why we have the goods in transit. So let's bring our cash and cash equivalents. And then the cash and cash equivalent is just 100 for the parents, nothing for the subsidiary. So that gives us a total non-current asset of 1900. Okay. And so we add the two current assets and then the non-current asset gives us our total assets. So total asset becomes 7000 and 3.60. So that is it for the total asset. And then we move on to equity and liabilities, but we are going to start with equity. In this question, I didn't see any non-current liabilities, so we'll start with equity. So it's going to be only the current liabilities. For the equity, I told you that the stated capital will be that of their parent company only. Same with the revaluation surplus, is going to be that of the parent company only. So the stated capital for the parent company was 2 million 250 thousand, so that is 2000, 250. And the revaluation supplies for the parent company access and right. In fact, when it comes to the items of equity, apart from the group income supplies that we did work in, almost every other ten is that of the appearance company alone. So we do this and then we can add the consolidated retained earnings or the group income surplus because that is part of equity. And the group income supply, the working we did was 2 thousand, 111.60. So when we add, it's going to give us the value of equity to be 4 thousand, 961.60. So this is the value of equity. And then we can now add our non-controlling interest. The group incomes of loss, I think, is from working six or so. The non-controlling interest is from working seven, and that is going to be 670. So when we add these two, so this is what we do all the time. We get our, we get the value of, um, equity for the group and then we add that of the non-controlling interest. And when we add the non-controlling interest value to this, it's going to be 5631.6. That is it for the equity and the non-controlling interest. And then we can now add our liabilities. I don't have space down here, so I'm going to continue from this side. So I'll start with now. There are no. If there were long-term liabilities, I would have brought down before the Carolina beliefs, but there are no long-term liabilities. So I move straight to current liabilities. Now, the reason why there are no long-term liabilities, I'm going to explain to you. You see those contingency consideration, okay, would have been a long-term liability, but from where we are standing now, the 522 we have just one year to pay. So in a debt that you have one year to pay, it's a current liability. But if it was two years to come, it would have been a non-current liability or a long-term liability. So we begin with our trade payables per the question. There are trade payables. The trade payables for their parents is 500 and the subsidiary is 350. So we have 500 plus 350 and that gives us 850. And then we have the contingent consideration, which is a contingent liability. The contingency consideration is also coming from working five. So let me put notes here, note 5, and that is 522. So when we add the two, it's going to give us 1372. So now this is total liabilities, total equity. So when we add the two, it should give us what we call total equity and liabilities. And that is going to be, if you add these two, you are going to have 7000 and 3.60. And so, ladies and gentlemen, this figure for total equity and liabilities is the same figure for total assets. And therefore, there has been a balance for our statement of finance, for our consolidated statement of financial position. Okay, it has been a long video, but I took my time to explain. I could have made this short by going faster, but I believe that the understanding is the most important thing, and you've really been able to grab this concept well. Now, in our next video, we are going to look at intra-group adjustments. We are going to look at a situation where parent sells inventories to subsidiaries or subsidiary sales inventories to parent, how to treat it, especially in a case where there are unrealized profits, how to treat them in the consolidated statement of financial position. And then also, we are going to look at transfer of non-current assets. Okay, we look at fair value adjustments and then we'll take a question. Now, remember to subscribe to this channel if you are new. Share this video. Recommend this channel to other accounting students who are also struggling to also get a benefit, and together we'll be successful. Until we meet again another time for the video on intra-group adjustment, it is bye for now.