Question

Why are consolidation measures that are carried forward from one period to the next subject to data adjustments and eliminations? Give examples

Answer 1

Solution:

Many adjustments and eliminations are recurring; they must be recorded not just once but in

successive consolidations. Recurring items are those that are long term in character or that alter group profits.

Reason for repeating adjustments:

(a) it is essential that group opening balances of one period is equal to group closing balances of the

preceding period;

(b) the journal entry and worksheet entry mechanisms are time specific and non-cumulative. Only

by maintaining memoranda ledger accounts for the group entity would we avoid the necessity to repeat entries.

Items that affect successive group balance sheets or that alter group profits are the ones that require

repeated adjustment or elimination.

Some examples of recurring data adjustments are:

(i) Inclusion of unrecorded control date or subsequent fair values of a subsidiary’s assets and liabilities; or

(i) Variation to a subsidiary’s recorded amounts for assets or liabilities so as to establish uniform accounting policies.

These adjustments will need to be made each period until the assets or liabilities are either

appropriately remeasured, or removed from the primary data by use/disposal or repayment.

Adjustments for control date fair values persist even after the related assets or liabilities have been

removed and recur until the subsidiary ceases to be a controlled group company.

Some examples of recurring eliminations:

(i) Intra-group balances of indebtedness; the eliminations persist until the debt is repaid.

(ii) Intra-group exchange of a depreciable asset; the elimination persists until the asset is used or disposed of.

(iii) Substitution; this elimination persists until the subsidiary ceases group membership. Original

equity elimination persists until that equity is distributed.

(iv) Consolidation differences; eliminations that dispose of the difference (by impairment or transfer

to profit or loss) persist in some form until the subsidiary ceases group membership