Question

Question Three: 1).List at least two advantages for stakeholders from requiring groups to prepare consolidated accounts? (10 marks) 2).Rouge plc acquired 100% of the common shares of Noir plc on 1 Jan 20X0 and gained control. At that date the statements of financial position of the two companies were as follows: Rouge Smillion Noir Smillion 80 Assets Current Assets Non-current assets PPES Investment in Noir Total Assets 100 132 312 130 60 Liabilities and Equity Current Liabilities Ordinary shares Retained Earnings Total Liabilities and Equity Note: The fair values are the same as the book values. 200 52 312 130 Required: Prepare a consolidated statement of financial position for Rouge plc as at 1 January

Answer 1

1. Advantages of preparation of Consolidated financial statement (CFS):
a) Performance at a glance - For stakeholders, financial consolidation is the single best way to view overall performance at a glance. Consolidating diverse financial reports into a single snap shot gives stakeholders invaluable insight into the parent company's overall health. Without consolidation, it can be extremely difficult to access financial performance among various subsidiaries.
b) Decision making tool - There are risks allied with managing an entity and an entity rarely obtains control of another entity without obtaining significant opportunities to benefit from that control. The CFS allow an assessment of these risks and benefits. So stakeholders can take decision on the basis of this analysis.
								Rouge Plc.
				Rouge	Nair	Total	Consolidation adjustments	Consolidated
				$ million	$ million	$ million	$ million	$ million
Assets
Current Assets				80	70	150	0	150
Non Current Assets
PPEs				100	60	160		160
Goodwill							32	32
Investment in Noir				132		132	-132	0
Total Assets				312	130	442	-100	342
Liabilities and Equity
Current liabilities				60	30	90		90
Ordinary shares				200	60	260	-60	200
Retained earnings				52	40	92	-40	52
Total Liabilities and Equity				312	130	442	-100	342
Calculation of Goodwill
				$ million	$ million
Consideration paid for acquisition
Invesmtent in Noir					132
Less: Net assets of Nair
Current Asset				70
PPEs				60
				130
Less: Current liabilities				30	100
					32