CONSOLIDATED ACCOUNTS COMMON AND INTER COMPANY ITEMS CANCEL COMMON AND INTER COMPANY ITEMS

1. CONSOLIDATED ACCOUNTS COMMON AND INTER COMPANY ITEMS CANCEL COMMON AND INTER COMPANY ITEMS IN PARENT AND SUBSIDIARY COMPANY BALANCE SHEETS EITHER TOTAL CANCELLATION OR PART CANCELLATION CANCEL INTERCOMPANY DEBTS e.g. LOAN STOCKS CANCEL INTERCOMPANY TRANSACTIONS (with no profit element) CASH IN TRANSIT GOODS IN TRANSIT CASH/BANK A/C INVENTORY A/C AND CURRENT A/C OF SUBSIDIARY ADJUST IN PARENT COMPANY'S BOOKS INTER COMPANY PROFITS ? (see later)

2. MINORITY INTERESTS SHOWN SEPARATELY AS A CREDIT ITEM IN C.B.S ONLY SHOW DEBIT ITEMS IF THERE EXISTS A BINDING OBLIGATION TO MAKE GOOD THE LOSSES check: Minority Interest is ALWAYS appropriate percentage of TOTAL shareholders equity at end of analysis note: can have: MINORITY INTEREST IN: ORDINARY SHARE CAPITAL + PROFITS + RESERVES and PREFERENCE SHARES + PREFERENCE DIVIDENDS

3. GOODWILL ON CONSOLIDATION (cost of control) CAPITAL RESERVE ON CONSOLIDATION PRE‑ACQUISITION and POST ACQUISITION PROFITS & RESERVES EFFECTIVE DATE IS EARLIER OF:‑ (i) WHEN CONSIDERATION PASSES (ii) WHEN OFFER BECOMES / IS DEEMED UNCONDITIONAL IF NECESSARY REVALUE THE ASSETS OF A SUBSIDIARY AND CREATE A REVALUATION RESERVE ‑ EVEN IF ONLY TEMPORARILY:

4. THE REVALUATION RESERVE IS PART OF SHAREHOLDERS FUNDS AND IS USUALLY ANALYSED AS PART OF PRE‑ACQUISITION FUNDS between GROUP & MINORITY SOMETIMES CAN MEET A POST‑ACQUISITION NON‑DISTRIBUTABLE RESERVE GOODWILL ON CONSOLIDATION IS THE DIFFERENCE BETWEEN PURCHASE CONSIDERATION AND FAIR VALUE OF NET ASSETS of subsidiary acquired GOODWILL ON CONSOLIDATION IS CLASSIFIED UNDER NON-AMORTISABLE INTANGIBLE ASSETS previously could be written off could net off goodwill on consolidation and capital reserve on consolidation if both arise

5. UNREALISED PROFITS IN STOCK • INVOLVING MINORITY INTERESTS • 3 methods: • ELIMINATE ALL PROFIT AGAINST MAJORITY • B. ELIMINATE PROPORTION OF PROFIT AGAINST MAJORITY • AND PROPORTION AGAINST MINORITY • BUT DEPENDING WHICH APPROACH IS ADOPTED • either: • ELIMINATE UNREALISED PROFIT FOR COMPANY AT RISK • i.e. AGAINST COMPANY WHICH HOLDS THE STOCK • known as the SEPARATE ENTITIES APPROACH • or: • ELIMINATE UNREALISED PROFIT • AS IF TRANSACTION HAD NOT OCCURRED • i.e. AGAINST COMPANY WHICH SOLD THE STOCK • known as the SINGLE ENTITY APPROACH

6. UNREALISED PROFITS IN STOCK method C ELIMINATE MAJORITY PROFIT ONLY AGAINST COMPANY WHICH SOLD THE STOCK known as the ADJUNCT APPROACH HOWEVER THIS METHOD GIVES A MEANINGLESS STOCK FIGURE PROBABLY THE MOST UNCOMPLICATED APPROACH IS TO ELIMINATE ALL UNREALISED PROFIT AGAINST MAJORITY WITHOUT REGARD TO WHICH COMPANY SOLD OR HOLDS THE STOCK

7. DIVIDENDS PAID ...... BY A SUBSIDIARY IF DIVIDENDS HAVE BEEN PAID BY A SUBSIDIARY THEN DETERMINE IF HAVE BEEN INCLUDED IN THE ACCOUNTS OF THE PARENT COMPANY AND PROCEED ACCORDINGLY IN MOST CASES ‑ THERE SHOULD BE NO PROBLEMS AND ONE CAN IGNORE DIVIDENDS PAID WHEN DOING THE ANALYSIS OF FUNDS IN THE SUBSIDIARY BECAUSE IF DIVIDENDS HAVE BEEN PAID ONE NORMALLY ASSUMES THAT THE DIVIDENDS HAVE BEEN INCLUDED and treated correctly INTHE ACCOUNTS OF BOTH PARENT AND SUBSIDIARY

8. DIVIDENDS PAID HOWEVER, IF DIVIDENDS FROM SUBSIDIARY HAVE BEEN 'INCORRECTLY' TREATED IN PARENT COMPANY'S OWN ACCOUNTS .......see later

9. DIVIDENDS PAYABLE .... BY A SUBSIDIARY PROPOSED dividends HAVE ANY ENTRIES BEEN MADE IN RESPECT OF PROPOSED DIVIDENDS (a) IN ACCOUNTS OF SUBSIDIARY COMPANY ? i.e. TAKEN OUT OF P&L A/C AND PUT INTO CURRENT LIABILITY (dividends payable) (b) IN ACCOUNTS OF PARENT COMPANY ? i.e. HAS PARENT CO. ADDED ITS SHARE TO ITS PROFITS (of the whole dividend payable by subsidiary) AND ALSO PUT THE DIVIDEND INTO CURRENT ASSETS ? (dividends receivable)

10. DIVIDENDS PAYABLE (PROPOSED) MINORITY INTEREST IN PROPOSED DIVIDEND MUST BE SHOWN AS A CURRENT LIABILITY IN THE CONSOLIDATED BALANCE SHEET

11. SUGGESTED METHOD WHERE HAVE PROPOSED DIVIDENDS WHEN DOING THE ANALYSIS OF ORDINARY FUNDS IN SUBSIDIARY if possible USE A PROFIT BEFORE DIVIDENDS IN THE ANALYSIS THEN SHOW PROPOSED ORDINARY DIVIDENDS AS A DEDUCTION FROM THE PROFITS on a separate line in the analysis i.e. If accounting entries for proposed dividends had been made then temporarily reverse these IN ACCOUNTS OF SUBSIDIARY ‑ the WHOLE DIV is ADDED BACK IN ACCOUNTS OF PARENT CO (IF APPLICABLE) ‑ ITS SHARE ONLY ! is TAKEN OUT

12. WHEN DOING AN ANALYSIS OF THE ORDINARY FUNDS WILL NEED TO TAKE OUT ANY PREFERENCE DIVIDENDS (if applicable) TO GET THE PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS note: PARENT CO's OWN DIVIDENDS HAVE NOTHING TO DO WITH THE SUBSIDIARY

13. SUGGESTED METHOD WHERE HAVE PROPOSED DIVIDENDS SO IN THE ANALYSIS OF ORDINARY FUNDS WILL HAVE FIGURES for PROFITS BEFORE DIVIDENDS less DIVIDENDS and then PROFITS AFTER ORDINARY DIVIDENDS in the since‑acquisition column WHICH FIGURE DOES ONE USE IN THE CBS ? TO ADD TO PARENT CO's OWN PROFITS ? IF USE THE BEFORE DIVIDEND PROFITS OF SUBSIDIARY in the CBS THEN USE THE PARENT COMPANY PROFIT BEFORE INCLUDING DIVIDEND RECEIVABLE FROM SUBSIDIARY IF USE THE AFTER DIVIDEND PROFITS OF SUBSIDIARY in the CBS THEN USE THE PARENT COMPANY PROFIT AFTER ADDING DIVIDEND RECEIVABLE FROM SUBSIDIARY

14. PREFERENCE DIVIDENDS REDUCE ORDINARY SHAREHOLDERS FUNDS THEREFORE NEED TO BE DEDUCTED FROM PROFIT IN THE ANALYSIS OF ORDINARY FUNDS SUGGEST THAT DO A SEPARATE ANALYSIS FOR PREFERENCE SHAREHOLDERS FUNDS PREFERENCE SHAREHOLDERS HAVE NOMINAL VALUE OF PREFERENCE SHARES PLUS THE ACCRUED DIVIDEND COULD HAVE PRE‑ACQUISITION and/or POST‑ACQUISITION PREFERENCE DIVIDENDS

15. PREFERENCE DIVIDENDS STRICTLY PREFERENCE DIVIDENDS ARE NOT PAYABLE UNTIL DECLARED (EVEN IF CUMULATIVE!) PREFERENCE DIVIDENDS IN ARREARS TO BE FIRST ALLOCATED WHEN PROFITS BECOME AVAILABLE THEN ORDINARY SHAREHOLDERS CAN GET THEIR DIVIDENDS NOTE THAT THE ACQUISITION VALUE OF PREFERENCE SHARES CONSISTS OF THE CALLED UP (i.e. NOMINAL) VALUE PLUS THE ACCRUED DIVIDEND UP TO THE DATE OF ACQUISITION THEREFORE MINORITY INTEREST WILL ALSO CONSIST OF ANY ACCRUED PREFERENCE DIVIDEND NOT YET PAYABLE

16. PIECEMEAL ACQUISITIONS i.e. ACQUISITION OF 'INTEREST' IN A 'SUBSIDIARY‘ IN TWO OR MORE STAGES POTENTIAL PROBLEM AT WHICH SHARE PURCHASE ? SHOULD ONE ESTABLISH THE PRE‑ACQUISITION AND POST‑ACQUISITION PROFITS AND RESERVES

17. PIECEMEAL ACQUISITIONS no problems: IF ALREADY AN EXISTING SUBSIDIARY OR IF FIRST ACQUISITION IS MORE THAN 50% THEN ON ACQUISITION OF AN ADDITIONAL INTEREST i.e ON SUBSEQUENT ACQUISITIONS GROUP SHARE OF RESERVES / PROFITS / CAPITAL AT DATE OF ACQUISITION OF ADDITIONAL INTEREST SHOULD BE CAPITALISED i.e. TREATED AS PRE‑ACQUISITION ITEMS

18. PIECEMEAL ACQUISITIONS ACQUISITIONS PRIOR TO CONTROL CAN PRESENT PROBLEMS i.e. FROM WHEN SHOULD RESERVES ETC. BE CAPITALISED ? IF OBJECTIVE IS TO GAIN ULTIMATE CONTROL then it is suggested that PRE‑ACQUISITION AND POST‑ACQUISITION PROFITS AND RESERVES SHOULD BE ESTABLISHED AT EACH PURCHASE OF SHARES i.e a 'FROM DATE OF FIRST PURCHASE METHOD' rather than 'FROM DATE OF CONTROL METHOD‘

19. PIECEMEAL ACQUISITIONS CAPITALISATION FROM DATE OF FIRST PURCHASE GIVES RISE TO GREATER POST‑ACQUISITION (i.e. DISTRIBUTABLE) PROFITS CAPITALISATION FROM DATE OF CONTROL GIVES LOWER POST‑ACQUISITION (i.e. DISTRIBUTABLE) PROFITS if have pre‑acquisition losses then date of control method gives more distributable profits since more of the losses are 'capitalised‘ Hydrogen and Sulphide demothen

20. PIECEMEAL ACQUISITIONS ACQUISITIONS PART WAY THROUGH YEAR AND PROFITS EVENLY / NOT‑EVENLY ie. profits before dividends evenly or not evenly ? dividends evenly or not evenly ? so profits after dividends evenly or not evenly or mix?

21. Hydrogen and Sulphide is example where PROFITS (before dividends) NOT EVENLY DIVIDENDS NOT EVENLY WHAT WOULD BE THE RESULT IF: a) PROFITS EVENLY BUT DIVIDENDS NOT EVENLY (demo this) b) PROFITS AND DIVIDENDS EVENLY then only final profit & loss column relevant AND have to consider the cost of the investment reduced and pre‑acquisition dividends treated incorrectly by Holding company

22. ACQUISITIONS PART WAY THROUGH A YEAR i.e. ACQUISITION OF A SUBSIDIARY DURING ITS ACCOUNTING YEAR ASSUMPTIONS ABOUT : PROFITS (BEFORE DIVIDENDS) A EITHER PROFITS DO ACCRUE EVENLY ON A TIME BASIS B OR OTHER INFORMATION IS AVAILABLE AS TO PROFITS ie. DO NOT ACCRUE EVENLY METHOD SPLIT THE PROFITS AND THEN ALLOCATE THE PRE‑ACQUISITION AND POST‑ACQUISITION PORTION BETWEEN THE GROUP AND MINORITY

23. ACQUISITIONS PART WAY THROUGH A YEAR PRE‑ACQUISITION LOSSES STRICTLY, ON CONSOLIDATION, ENOUGH POST‑ACQUISITION PROFITS SHOULD BE CONSIDERED NON‑DISTRIBUTABLE GROUP PROFITS TO COVER / ELIMINATE LOSSES OF SUBSIDIARY

24. ACQUISITIONS PART WAY THROUGH A YEAR ASSUMPTIONS / DECISIONS ABOUT : DIVIDENDS A EITHER DIVIDENDS DO ACCRUE EVENLY OVER THE YEAR B OR DIVIDENDS DO NOT ACCRUE EVENLY OVER THE YEAR

25. ACQUISITIONS PART WAY THROUGH A YEAR IF ASSUME THAT DIVIDENDS DO ACCRUE EVENLY THEN SOME OF THE DIVIDEND MAY BE PRE‑ACQUISITION and can do the analysis using profits after dividends which automatically puts in some of the dividend as pre‑acquisition THEREFORE HOLDING COMPANY MUST PUT THE PRE‑ACQUISITION PART OF THE DIVIDEND AGAINST THE COST OF THE INVESTMENT IN ITS OWN BALANCE SHEET (and must remember to reduce the cost of investment in analysis)

26. ACQUISITIONS PART WAY THROUGH A YEAR IF ASSUME THAT DIVIDENDS DO NOT ACCRUE EVENLY suggest that do the analysis of profit before dividends SPLIT THE PROFIT BEFORE DIVIDENDS (on time basis or other information) BETWEEN PRE‑ACQUISITION AND POST‑ACQUISITION and then DEDUCT DIVIDENDS FROM THE POST‑ACQUISITION PROFITS so have no complication with pre‑acquisition dividends !

27. DIVIDENDS & PRE‑ACQUISITION PROFITS DO DIVIDENDS COME OUT OF PRE‑ACQUISITION OR POST‑ACQUISITION PROFITS ? i.e. HOW MUCH OF THE DIVIDEND PAID/PAYABLE BY A SUBSIDIARY IS OUT OF POST‑ACQUISITION PROFITS ? DO DIVIDENDS ACCRUE EVENLY OR NOT EVENLY ON A TIME BASIS ? i.e. HOW MUCH OF THE DIVIDEND PAID/PAYABLE BY A SUBSIDIARY IS POST‑ACQUISITION AND HOW MUCH IS PRE‑ACQUISITION

28. DIVIDENDS & PRE‑ACQUISITION PROFITS FOR CONSOLIDATED BALANCE SHEET DOES NOT MAKE ANY DIFFERENCE WHICH TREATMENT OF DIVIDENDS IS USED PRE‑ACQUISITION ; POST ACQUISITION ; EVENLY ; NOT EVENLY ; THE CONSOLIDATED BALANCE SHEET WILL LOOK THE SAME FOR CONSOLIDATED INCOME STATEMENT AGAIN DIVIDEND TREATMENT WILL NOT AFFECT THE CONSOLIDATED PROFIT AND LOSS ACCOUNT IN TOTAL However THE ANALYSIS OF RETAINED PROFITS AND RESERVES WILL BE DIFFERENT but the TOTAL will stay the same

29. IF THE TREATMENT OF DIVIDENDS RECEIVED/RECEIVABLE HAS BEEN CORRECT IN THE PARENT COMPANY'S OWN BOOKS THEN THE CONSOLIDATED BALANCE SHEET WILL LOOK THE SAME AND THERE IS NO DIFFERENCE WHETHER THE SUBSIDIARY'S DIVIDENDS COME OUT OF PRE‑ACQUISITION OR POST‑ACQUISITION PROFITS BUT IT DOES AFFECT THE PARENT COMPANY'S OWN NON‑CONSOLIDATED BALANCE SHEET whether the subsidiary's dividends come out of pre‑acquisition or post‑acquisition profits

30. BECAUSE: DIVIDENDS RECEIVED/RECEIVABLE WHICH ARE CONSIDERED TO BE OUT OF PRE‑ACQUISITION PROFITS SHOULD BE DEDUCTED FROM THE ASSET of COST OF INVESTMENT IN SUBSIDIARY IN PARENT COMPANY BOOKS i.e. ANY PRE‑ACQUISITION DIVIDENDS SHOULD CREDIT THE COST OF INVESTMENT A/C AND NOT CREDIT THE PROFIT & LOSS A/C

31. MULTICOMPANY STRUCTURES DISTINGUISH BETWEEN PERCENTAGE OF SHARES WHICH OWN and WHICH CONTROL i.e. CAN OWN LESS THAN 50% BUT CONTROL MORE THAN 50% AND IF CONTROL THEN IS A SUBSIDIARY Methods MULTISTAGE CONSOLIDATION SINGLE STAGE CONSOLIDATION

32. MULTICOMPANY STRUCTURES SIMPLEST WAY IS TO MULTIPLY PERCENTAGES AND DO A SINGLE STAGE CONSOLIDATION have PERCENTAGE OF SHARES OWNED DIRECT MINORITY INDIRECT MINORITY

33. MULTICOMPANY STRUCTURES e.g. P A A1 80% 80% R S B B1 10% 60% 75% C C1 A owns 80% x 60% = 48% of C A controls 100% x 60% = 60% of C CONTROL IS THE TEST SO A SUBSIDIARY even though only own 48%

34. MULTICOMPANY STRUCTURES A owns 80% x 60% = 48% of C A controls 100% x 60% = 60% of C CONTROL IS THE TEST SO A SUBSIDIARY even though only own 48% the MI of B = 20% so the MI of B own 20% x 60% = 12% of C is INDIRECT MI the MI of C own 40% of C is DIRECT MI so TOTAL MI of C = 52% A1 owns 80% x 75% = 60% plus 10% = 70% of C1 TOTAL MI of C1 = 30% i.e. DIRECT MI of C1 = 15% INDIRECT MI of C1 = 20% x 75% = 15% A1 controls 100% x 75% = 75% plus 10% = 85% of C1

35. DIVIDENDS & PRE‑ACQUISITION PROFITS AND CONSOLIDATED PROFIT AND LOSS ACCOUNTS AS WITH CBS's CPL's NOT AFFECTED IN TOTAL WHETHER DIVIDENDS ARE: PRE , POST , EVENLY , NOT‑EVENLY BUT ANALYSIS OF (i.e. split between companies) OF RETAINED GROUP CONSOLIDATED PROFIT AND RESERVES WILL BE DIFFERENT but total will stay the same Apricot Cherry Banana q b/f profits are a bit different but this is because do not have enough information to correct the b/f profits i.e. the b/f profits have not been adjusted for the pre/post acquisition treatment of dividend

36. ASSOCIATED COMPANIES MORE THAN OR EQUAL TO 20 % OF VOTING shares IN CONSOLIDATED PROFIT AND LOSS ACCOUNT INCLUDE GROUPS CURRENT YEAR SHARE OF POST ACQUISITION PROFITS BEFORE TAX OF ASSOCIATE AS PART OF GROUP PROFIT BEFORE TAX IN CONSOLIDATED BALANCE SHEET INVESTMENT IN ASSOCIATE the make up to be disclosed

37. ASSOCIATED COMPANIES 1.COST OR FAIR VALUE OF SHARE OF NET ASSETS OF ASSOCIATE ie. net assets at acquisition plus net assets since acquisition is net assets at balance sheet date (except purchased goodwill) so balance sheet value OF ASSOCIATE will include GROUP SHARE OF TO DATE POST ACQUISITION PROFITS / RESERVES OF THE ASSOCIATE but DIVIDENDS RECEIVABLE GO AS A CURRENT ASSET 2.COST OF SHARE OF ANY GOODWILL OF ASSOCIATE 3.PREMIUM OR DISCOUNT ON ACQUISITION OF ASSOCIATE

38. ASSOCIATED COMPANIES PARENT COMPANY CONSOLIDATED PROFIT & LOSS ACCOUNTS DIVIDENDS RECEIVED SHARE OF PROFIT and RECEIVABLE less LOSSES from ASSOCIATE of ASSOCIATE ie. SHARE OF PROFITS/LOSSES BEFORE TAX so also SHARE OF ALL OTHER ITEMS that follow profit before tax so, TAX , PROFIT AFTER TAX , etc. SHOW HOW MUCH OF P&L a/c balance RETAINED BY ASSOCIATE

39. ASSOCIATED COMPANIES PARENT COMPANY CONSOLIDATED BALANCE SHEETS COST OF INVESTMENT (i) GROUP SHARE OF less AMOUNTS w/o (if any) NET ASSETS OF ASSOCIATED (except GOODWILL) (ii) GROUP SHARE OF ASSOCIATED COMPANY GOODWILL (iii) PREMIUM ON ACQUISITION OF ASSOCIATED can show (ii) & (iii) together DO NOT NET OFF LOANS OR CURRENT a/c's SHOW RESERVES IN ASSOCIATE AND MOVEMENTS ON RESERVES

40. CONSOLIDATED PROFIT AND LOSS ACCOUNT notes period comparative TURNOVER [eliminate intra group] Cost of sales [items and] GROSS PROFIT [unrealised profit] Other operating EXPENSES distribution administration OPERATING PROFIT Other operating income INVESTMENT INCOME Profits of ASSOCIATED companies [group share] Income from other participating interests Amounts written off investments INTEREST PAYABLE AND SIMILAR CHARGES **PROFIT ON ORDINARY ACTIVITIES BEFORE TAX

41. CONSOLIDATED PROFIT AND LOSS ACCOUNT INTEREST PAYABLE AND SIMILAR CHARGES **PROFIT ON ORDINARY ACTIVITIES BEFORE TAX TAX on profit on ordinary activities group [HC + subsidiaries] associated [group share] PROFIT on ordinary activities AFTER TAX MINORITY INTERESTS [in profit for the year] Group's share of pre‑acquisition profits [of subsidiary acquired during the year] PROFIT FOR THE FINANCIAL YEAR *** **DIVIDENDS paid and proposed [HC only] RETAINED PROFIT FOR THE YEAR** [**ie. transfer to reserves]

42. ***PROFIT FOR THE FINANCIAL YEAR dealt with in the accounts of: THE COMPANY SUBSIDIARIES ASSOCIATED **the three items which must be shown on the face of the cpl ordinary profit before tax dividends transfers to reserves Notes to the accounts MOVEMENT ON RESERVES GROUP HOLDING SUBSIDIARIES ASSOCIATES Balance b/f Retained for the year Balance c/f

43. TURNOVER eliminate intra group items COST OF SALES and unrealised profit GROSS PROFIT EXPENSES OPERATING PROFIT INVESTMENT INCOME interest receivable share of profits of associated amounts w/o investments INTEREST PAYABLE AND SIMILAR CHARGES PROFIT ON ORDINARY ACTIVITIES BEFORE TAX TAX [HC total + subsidiary since acq. bit + associate share of] PROFIT AFTER TAX all the above items are: Parent company TOTAL plus subsidiary company TOTAL but SINCE ACQUISITION bit if subsidiary acquired part way through year i.e. includes M.I. plus associate share of years profits MINORITY INTERESTS in post acq. bit of the profit for the year includes M.I. dividends , but note is after tax