DPA6013 - FINANCIAL ACCOUNTING 4
_________________________________________________________________________________________________________________________________________________
TOPIC 1: INTRODUCTION TO GROUP ACCOUNTS
1.0 INTRODUCTION
1.1 When individual businesses combine to become one big
business, it is generally referred to as a business
combination. Businesses can combine in various ways,
namely acquisitions and mergers, as explained below:
 Acquisitions involve the purchasing of net assets
and acquiring assets and liabilities through the
process of amalgamation and absorption. If
acquisition is performed by acquiring the share
capital (control), then a parent and subsidiary
relationship is created.
 Mergers involve two or more existing entreprises
combine through the exchange of shares, but
neither will be seen as an acquirer. The
entreprises remains as separate legal entities but
form a group under acquisitons and mergers.
1.2 MFRS 127 defines ‘control’ as the power to govern the
financial and operating policies of an entity so as to obtain
benefits from its activities. The control is obtain when the
investor owns, directly or indirectly, more than one-halfof
the voting powerof an entity.
Non controlling Interest (minority interest) is the term
used for the group of shareholders who do not control an
entity.
1.3 A group can be defined as a parent company and all its
subsidiaries.
A. Holding/Parent Company
 A corporation that owns one or more subsidiaries.
Example: Sunway Group is the holding company of
Sunway Lagoon Bhd
TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS
- A holding company as stated under Sec 5 Companies
Act 2016 exists when:
 It controls composition of the board of
directors of another corporation(subsidiary)
 Controls more than half of the voting power in
a subsidiary
B. Subsidiary
 A corporation under the control of a holding company.
Example: TNB Distributors is a subsidiary of TNB
Bhd.
In Malaysia, sec 5(1) of the Companies Act 2016 states
that “a corporation shall be deemed to be a subsidiary
of another corporation, if:
(a) That other corporation –
(i) Controls the composition of the board of
directors
(ii) Controls more than half of the voting power
(iii) Holds more than half of the issued share
capital(excluding preference shares)
(b) Is a subsidiary of any corporation which is that
other corporation’s subsidiary.
1.4 With this, a group means the relationship that existed
between holding company and all its subsidiaries or
subsidiary. When this relationship exists, a holding/parent
company must prepare consolidated financial statements
fot its group.
1.5 This means, in the consolidated financial statements, the
financial statements of the holding/parent company and that of
the subsidiary/subsidiaries are consolidated /combined. For
example in the fixed assets account, there will be a total of the
fixed assets of both the holding and subsidiary companies.
Page 1
 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

2.0 PREPARATION OF CONSOLIDATED FINANCIAL STATEMENT
2.1 The consolidated (or group) financial statements present
the performance, financial position and changes in financial
position of the group as a single entity.
2.2 The consolidated statement of financial position is
prepared by combining the assets and liabilities of the holding
company and all of its subsidiaries, (eliminating all inter-company
balances, such as amounts to/by one member to another).
recognized”. Goodwill arises when the the fair value of the net assets of
the investee is less than the fair value of the investee’s equity shares as
held by all equity holders.
BARGAIN PURCHASE arises when the price paid for the fair value of the
equity shares of the investee is less than the fair value of the net assets of
the investee on the acquisition date.
STEP 4
Prepare Consolidated Statement of Financial Position.

3.0 STEPS IN PREPARING THE CONSOLIDATED FINANCIAL Example 1:

STATEMENTS
Given below is the Statement of Financial Position of J Bhd and B Bhd as
3.1 STEP 1 at 31 December 2013.
Compute the consideration transferred and measure the
non controlling interest J Bhd (RM) B Bhd (RM)
Land, Plant and Equipment (nett) 1,000 600
STEP 2 Investment in B Bhd 2,250 -_
Write off the investment account of holding company in a 3,250 600
subsidiary and transfer to Adjustment Account. Current Assets:
Bank 1,000 550
Dt. Adjustment a/c RM XX Other assets 5,000 1,400
Ct. Investment a/c RM XX 6,000 1,950
9,250 2,550
STEP 3 Financed by:
Write off share capital account and subsidiary general Ordinary share capital 5,000 1,500
reserve, revenue reserve and capital reserve and transfer Retained profits 2,750 750
to Adjustment account. 7,750 2,250
Current Liabilities:
Dt. Ordinary share capital RM XX Creditors 1,500 300
Preference share capital XX 9,250 2,250
Reserves XX
Retained profits XX On 31 December 2013, J Bhd took over B Bhd by acquiring all the
Ct. Adjustment account RM XX shares issued by B Bhd.
Prepare:
Goodwill is defined in MFRS3 as “an asset representing the future i. Adjustment Account
economic benefits arising from other assets asquired in a business ii. Consolidated Statement of Financial Position
combination that are not individually identified and separately

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 2

 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

Exercise 1:
Prepare Consolidated Statement of Financial Position for AA and group.
WEX 80 WEX 81

Ordinary shares 600 300 Example 2

Shre Premium 50 20 Gol Bhd Gincu Bhd
Revenue Reserve 50 20 RM RM
General Reserve 30 20 Land, Plant and Equipment (nett) 800 600
Creditors 30 100 Investment in Gincu Bhd 2,500 3,300 - 600
Other liabilities - 760 145 605
Current Assets:
Bank 950 550
Investment in WEX 81 Bhd 360 - Other assets 5,000 5,950 1,400 1,950
Non current asset 340 545 9,250 2,550
Accounts receivables 32 35
Bank 10 15 Financed by:
Inventories 18 760 10 605 Ordinary share capital 5,000 1,500
Retained profits 2,750 750
Wex 80 Bhd acquired WEX 81 Bhd on 31 December 2014. Prepare Current Liabilities:
Consolidated Statement of Financial Position. Creditors 1,500 9,250 300 2,550

Exercise 2:
On 31 December 2010, Gol Bhd took over Gincu Bhd by acquiring
Given below is the Statement of Financial Position of AA dan BB just all the shared issued by Gincu Bhd.
after s AA acquired all the ordinarysheres issued by BB.
Prepare:
AA BB
RM RM i. Adjustment Account
Ordinary shares @RM1.00 per share 700,000 200,000 ii. Consolidated Statement of Financial Position
Share premium 100,000 -
Retained profits 100,000 150,000
Liabilities 20,000 20,000
920,000 370,000

Non current assets 350,000 100,000

Investment in BB at cost 350,000 -
Current asset (other than bank) 150,000 100,000
Bank 70,000 170,000
920,000 370,000

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 3

 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

Exercise 3: You are required to prepare:

Given below is the balance sheet of Bukit Bhd and two subsidiaries,
Kayu Bhd and Hitam Bhd as at 31 December 2015. 1. Calculate goodwill @ reserves from acquisition ofi Kayu Bhd and
Hitam Bhd.
Bukit Bhd Kayu Bhd Hitam Bhd 2. Statement of Consolidated financial position as at 31 December 2015.
RM RM RM RM RM RM
`000 `000 `000 `000 `000 `000

Non current assets

Freehold land 100 - -
Plant & machinery 80 65 40
Motor vehicles 42 35 28
Office equipments 30 15 20
252 115 88

Investment
Kayu Bhd
(150,000 units 200
ordinary shares)
Hitam Bhd
(150,000 units 150
ordinary shares)

Current assets
Inventories 74 51 39
Debtors 52 39 22
Bank 60 186 27 117 30 91

788 232 179

Financed by :
Ordinary shares @ 600 150 150
RM1.00 140 32 7
Revenue reserves
Current liabilities; 48 50 22
Creditors 788 232 179

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 4

 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

4.0 RESERVES
Assets:
 Reserves that existed at the time of acquisition is called pre- Other assets 150,000 120,000
acquisition reserves and reserves after acquisition is called Investment in Sepet Bhd 32,000 -___
post-acquisition reserves. 182,000 120,000
Prepare:
 Pre acquisition reserves are reserves that has been in the
subsidiaries account at the date of of acquisition. i. Adjustment Account
ii. Consolidated Profit& loss account
 It has to be written off (transferred to Cost Control Account) iii. Statement of Consolidated financial position as at 31
every time during preparation of consolidated financial December 2015
statement because it does not belong to the holding company.
Exercise 4
 Reserves after acquisition pula adalah subsidiaries profits KK KB
and losses earned after the date of acquisition. Ordinary share 600 300
Share premium 50 30
 The holding company is entitled to these profits and losses Revenue reserves 50 30
according to their percentage ownership on the subsidiary. General reserves 30 30
Creditors 30 20
Example 3: Other liabilities - 45
760 455
On 31 December 2015, Siput Bhd telah acquired 100% interest in
Sepet Bhd for the price of RM 32,000. On that date net assets of Investment in KB Bhd 360 -
Sepet Bhd represented by equities are as follows: Non current assets 340 395
Account receivables 32 35
Ordinary share capital RM 20,000 Bank 10 15
Generel reserves RM 10,000 Inventories 18 10
Retained profits RM 10,000 760 455
Additional information:
Given below are the financial statements of the two companies as
at 31 December 2014. KK Bhd bought all the ordinary shares in t KB Bhd on 31/12/15
Siput Bhd Sepet Bhd when the reserves in KB Bhd showed the following balances:
Equities and Liabilities: Share premium 30,000
Ordinary share @ RM1.00 50,000 20,000 Revenue reserves 10,000
Retained profits 60,000 35,000 General reserves 20,000
General reserves 50,000 15,000
Liabilities 22,000 50,000 You are required to prepare consolidated statement of
182,000 120,000 financial position for KK and group as at 31/12/16.

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 5

 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

Exercise 5: 5.0 NON CONTROLLING INTEREST / MINORITY INTEREST

Given below are the statement of financial position of Coklat and  A holding company may not acquire 100% interest in its
Rice as at 31.12.2014 subsidiaries.

Coklat Rice  The balance of the shares not acquired by the holding
Ordinary share @RM1.00 400,000 160,000 company are therefore belongs to the noncontrolling
Share premium 100,000 50,000 interest or minority interest. Minority interest means
General reserves 40,000 20,000 shares belonging to other parties than the holding
Retained profits 100,000 30,000 company.
Other liabilities 100,000 50,000
740,000 310,000  Therefore, non controlling interest means net assets of
` subsidiary owned by outsider parties whether diredtly or
Investment in Rice Bhd 250,000 - indirectly.
(160,000 unit shares)
Non current asset 490,000 310,000  NCI will be recorded in consolidated balance sheet as
740,000 310,000 obligation @ net assets of subsidiary held by other
shareholders apart from the holding company.
 Coklat acquired all shares of Rice on 1.1.2011 when the
aaounts in Rice Bhd showed the following balances : Example 4:

Share premium 50,000 SS YY

Generel reserves 15,000 Ordinary share @ RM1.00 600,000 400,000
Retained profits 20,000 Preference shares - 50,000
Share premium 50,000 30,000
 Goodwill on acquisition will be written off over a period of Revenue reserves 50,000 30,000
8 years. General reserves 30,000 30,000
Creditors 30,000 20,000
Prepare consolidated statement of financial position for Other liabilities - 45,000
Kumpulan Coklat Bhd as at 31.12.2014. 760,000 605,000

Investment in YY Bhd 360,000 -

Non current assets 340,000 545,000
Accounts receivables 32,000 35,000
Bank 10,000 15,000
Inventories 18,000 10,000
760,000 605,000

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 6

 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

Additional information: Ali Baba

Ordianry shares @ RM1.00 600,000 200,000
Syarikat SS Bhd bought 300,000 units of ordinary shares and 50% Share premium 60,000 40,000
preference shares in syarikat YY Bhd on 31 Disember 2015, when the General reserve 150,000 80,000
reserves balances in Syarikat YY Bhd as at that date are as follows : Retained profits 150,000 30,000
960,000 350,000
RM Investment @ 150,000 units
Share premium 30,000 In Syarkat Baba Bhd 325,000
Revenue reserves 10,000 Non current assets 585,000 300,000
General reserves 20,000 Current assets 50,000 50,000
960,000 350,000
You are required to prepare the consolidated statement of Additional information:
financial position as at 31 December 2015.
On 1.1.2014 Ali Bhd bought ordinary shares in Baba Bhd when the
Example 5 accounts in Baba Bhd showed the following balances:

On 1 January 2015, Syarikat 333 acquired 75% interest in the shares of Share premium RM 40,000
syarikat RRR for the price of RM1.2 million. The statement of financial General reserve RM 50,000
positions of both companies after acquisition were as follows: Retained profits RM 10,000

Sy 333 Sy RRR Prepare the consolidated statement of financial position of Ali Bhd
Ordianry shares 2,800 800 and group as at 31.12.2014, with the assumption that goodwill on
Retained profits 700 600 acquisition will amortized from retained profits for 5 years.
Liabilities 850 500
4,350 1,900 Exercise 7

Bank 250 100 David Bhd bought 400,000 units of ordinary shares in Beckham Bhd on
Investment in syarikat RRR 1,200 1.1.2014. The retained profits and general reserves upon acquisition
Other assets 2,900 1,800 showed balances of RM80,000 dan RM60,000 each consequtively.
4,350 1,900
Statement of Financial Position as at 31.12.2014
You are required to prepare the consolidated statement of David Beckham
financial position as at 1 January 2015. Ordinary shares @RM1.00 500,000 500,000
Share premium 100,000 -
Exercise 6 General reserves 150,000 100,000
Retained profits 85,000 100,000
Given below were the statement of financial position s of Ali Bhd dan 835,000 700,000
Baba Bhd as at 31.12.2014
Investment in sy Beckham 550,000 -

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 7

 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

Non current assets 150,000 580,000  If a holding company has acquird any part of the debentures in
Current assets (nett) 135,000 120,000 a subsidiary, the cost of investment in debentures will be
835,000 700,000 offset against the nominal value of the debentures.

*Goodwill will be amortized over a period of two years.  The nominal value of the debentures not held by the holding
company is not credited to the non controlling interest
Prepare the consolidated statement of financial position for David account but disclosed as a long term liability in the
Bhd and group as at 31.12.2014. consolidated statement of Financial Position.

6.0 PREFERENCE SHARES Example 6

 Apart from ordinary shares, the subsidiary/subsidiaries may The statement of financial position for Bon Bhd and its subsidiary Jovi
also issue preference shares. The holding compay may/may Bhd on 31.12.2008
not hold part or all of these preference share capital.
Bon Jovi
 However, the holding of preference shares does not affect the RM RM
controlling interest. Therefore, if holding company acquire Ordinary shares @ RM1.00 400 300
preference shares in subsidiaries, it will not affect the control 10% preference shares @ RM1.00 - 100
percentage of holding company on the subsidiaries. Share premium account 50 60
Retained profits 50 45
 In the preparation of the consolidated accounts, the cost of 8% Debentures - 100
investment in preference shares will be cancelled against the Other liabilities 20 15
nominal value of the preference shares. 520 620

 Nominal value of preference shares held by other than the

holding company will form part of the non controlling interest. Land, plant & equipment 135 620
Investment in ordinary shares of Jovi 290 -
 If the holding company does not hold any of the preference Investment in preference shares of Jovi 75 -
shares issued in the subsidiary, then the non controlling Investment in RM20, 000 8% Debentures 20 -
interest will own all those preference shares in the sunsidiary. 520 620

7.0 DEBENTURE
 The debentures in a subsidiary are treated as any other
liability, and shown as a liability of the group in the
consolidated statement of Financial Position.
Additional information:
Bon Bhd bought 200,000 ordinary shares, 75,000 10% preference
shares and RM20, 000 8% Debentures in Jovi Bhd pada 1.1.12007 when
tha balances shown in the books of Jovi Bhd were as follows:

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 8

 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

Prepare the consolidated statement of financial position for

Premium shares account RM60, 000 Kumpulan Michael Bhd as at 31.12.2005.
Retained profits RM30, 000
Exercise 9
According to company’s policy goodwill need to be amortized for 6
years. A Statement of financial position prepared as at 31.12.2005.

Prepare the consolidated statement of financial position for Indah Water

Kumpulan Bon Bhd as at 31.12.2008 RM RM
Ordinary shares @ RM1.00 750 600
10% preference shares @ RM1.00 100 -
Exercise 8 9% preference shares @ RM1.00 - 200
Share premium account 50 60
The statement of financial position prepared as at 31.12.2005 Retained profits 90 60
General reserves 60 90
Michael Jackson 10% Debentures - 100
RM RM 1,050 1,110
Ordinary shares @ RM1.00 800 500
10% preference shares @ RM1.00 200 200 Non current assets 450 900
Share premium account 150 70 Current assets 60 210
Retained profits 300 150 Investment in ordinary shares 500 -
8% Debenture 300 - RM40, 000 10% Debentures 40 -__
10% Debenture - 200 1,050 1,100
Current liabilities 100 50 Indah Bhd bought 400,000 ordinary shares in Water Bhd valued at
1,850 1,170 RM500, 000 on 1.1.2003 when the balances in the accounts of Water
Bhd as at that date was:
Land, plant & equipment 1,100 1,170
Investment in ord shares @400,000 unit 650 - Share premium account RM60, 000
Investment in pref shares @300,000 unit 30 - General reserves RM30, 000
Investment in RM70, 000 Debentures 70 -__ Retained profits RM12, 000
1,850 1,170
Goodwill need to be amortized for 8 years.
Michael bought shares and debentures in Jackson on1.1.2004 when the
retained profits in Jackson at that time was RM 200,000 (ct) and share Prepare the consolidated statement of financial position for
premium account showed a balance RM70, 000. Kumpulan Indah Bhd as at 31.12.2005.

Goodwill need to be amortized for 4 years.

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 9

 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

ADDITIONAL EXERCISES Prepare the consolidated statement of financial position for Honey
QUESTION 1 Bhd dan Star Bhd as at 31.12.2016

Given below were the statement of financial positions of Honey Bhd

and Star Bhd as at 31.12.2016: COMPREHENSIVE EXERCISE:
Honey Bhd Star Bhd
RM RM On 31 December 2005, the statement of financial position of of three
Ordinary shares 600,000 400,000 companies were as follows:
Share premium 40,000 30,000 Merah Bhd Putih Bhd Hitam Bhd
Revenue reserves 60,000 30,000 RM RM RM
General reserves 30,000 30,000 Non current assets
Creditors 28,000 18,000 Land & Buildings (cost) 40,000 100,000 65,000
Rent payable 2,000 2,000 Plant & Machinery (nett) 80,000 34,000 27,000
760,000 510,000 Investment in subsidiary
Putih Bhd (cost) 115,000
Investment in Star Bhd on 31.12.13 80,000 - Hitam Bhd (cost) 70,000
Investment in Star Bhd on 31.12.15 180,000 -
Non current assets 540,000 500,000 Current assets
Accumulated depreciation on fixed assets (100,000) (50,000) Inventories 57,000 68,000 54,140
Accounts Receivables 30,000 30,000 Debtors 96,340 43,245 42,190
Rent receivables 2,000 5,000 Bank 44,250 110,425 11,670
Bank 10,000 15,000 502,590 355,670 200,000
Stock 18,000 10,000
760,000 510,000 Ordinary share capital 200,000 90,000 100,000
Additional information: @RM1.00 each
Share premium 20,000 40,000 -
Honey Bhd bought 20% ordinary shares in Star Bhd on 31.12.2013 for Revenue reserves 57,744 42,000 32,000
the price of RM80, 000 and later bought an additional 40% ordinary Creditors 224,846 183,,670 68,000
shares in Star Bhd for the price of RM180, 000 on 31.12.2015. 502,590 355,670 200,000

Given below were the statement of financial positions of Star on the Additional information:
dates as stated below:
31.12.2013 31.12.2015 In the year 2000, Merah Bhd bought 40,000 units of ordinary shares in
RM RM Putih Bhd and in the year of 2002, an amount of,23,000 units of
Share Premium Account 20,000 20,000 ordinary shares in Putih Bhd thas been acquired to increase the control
Revenue Reserve (credit) 5,000 10,000 ofMerah Bhd in Putih Bhd. On the date of acquisition, the reserves of
General reserve 10,000 30,000 Putih Bhd were as follows:
2000 2002
Share premium account RM 20,000 RM 40,000

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 10

 DPA6013 - FINANCIAL ACCOUNTING 4

_________________________________________________________________________________________________________________________________________________

Revenue reserves account (ct) RM 16,000 RM 24,000

Merah Bhd also bought 75,000 units of ordinary shares in Hitam Bhd in
the year 2001 when the revenue reserves showed a debit balance of
RM6, 000.

You are required to prepare:

i. Adjustment account
ii. Non controlling interest account
iii. A consolidated statement of financial position of Merah
Bhd and its subsidiary.

TOPIC 5: INTRODUCTION TO GROUP ACCOUNTS Page 11