In this workout, DimSum group is preparing to spin off a subsidiary prior to the spinoff. The subsidiary will take on new debt and pay a dividend to the parent. So we're asked to do two things. Firstly, we need to adjust the group and subsidiary balance sheets for the new debt and dividend. And then after that, secondly, we adjust the group balance sheet for the spinoff.

So we've got our group balance sheet here that already includes all of our subsidiary figures, but we've also got the subsidiary figures shown separately. The first thing we need to do in step one is make some adjustments to find our group post that debt and dividend and the subsidiary post that debt and dividend. So to find out the group, I'll take the group's original figures and I'll add on some adjustments and I'm gonna copy that same formula down. So it's in line with all of the blue figures. Any subtotal I'll copy across because they sum vertically.

Okay, so we now need to put those adjustments through. Our first one was the new borrowing and the new dividends. The subsidiary new borrowing was 300, and the subsidiary dividend to the parent was 280. However, from the group's perspective, the only thing that will go through will be the 300. The group's debt goes up, the dividends paid from subsidiary to group is an internal transfer, and we won't see that in the group's figures. So all we have to do in this adjustment is have our cash go up by 300 and our debt go up by 300 as well. So that's the group post. Step one, we now need to do the subsidiary. So it'll start by just taking the subsidiary figure and then copying that down and again, subtotals or to copy across. Okay. Now I want to make some adjustments though. I want to have that extra cash coming in and then the cash being paid out from the subsidiary. So we're gonna have to take the old cash of 105. We're gonna add on the 300 minus the 280 of the dividend being paid out to the parent. So cash was 105, goes up to 125. So they've kept some of that cash that they've raised, but most of it paid up to the parent. The second adjustment will be the addition of the extra debt. We need to record that as a liability. So that will see our debts go up by 300. It was 70 up to 370, but we're still unbalanced. So the last thing we now need to do is the other half of the dividend paid. We already put the dividend paid through our cash. We showed our cash going down by the 280, but the other half of that balance sheet transaction will be equity going down by 280 as well.

So step one is done. We've managed to put the extra debt into our group balance sheets, and we've managed to put the debt and the dividend into the subsidiaries balance sheet. Now we move on to step two and step two is to spin off the subsidiary altogether. So I'll start by coming up with our group, excluding subsidiary column, which would be group plus adjustments and then copy it down. Whereas subtotals, I'll copy across.

In this spinoff, there are no cash flows being received or simply giving shares away for free to our shareholders. So there'll be no cash proceeds, there's no gain on sale, there's no tax that needs to be paid. So our only adjustment is going to be to de consolidate the subsidiaries figures. So my group did have 650 of cash. It's now gone down by the 125 subsidiary cash to 525. That's deconsolidating the subsidiary, quite literally taking its figures and separating them out. I can deconsolidate all of my assets and my liabilities, but strictly speaking, we should not de consolidate equity. When you acquire a subsidiary, you don't consolidate its equity. So when you divest of it, you don't deconsolidate its equity. But instead we do something very similar here. We're going to be paying a dividend in kind, so I'm now gonna be paying out 105 of dividends to my shareholders, which now gives me my group excluding the subsidiary. Let's see what's happened to some leverage ratios.

Originally, our group had 0.5 net debt to equity after step one. That didn't change because cash went up by 300, and debt went up by 300. So there's no change in your net debt. Our subsidiaries, net debt to equity went up substantially because they received in 300 of debt and then paid out 280 of that in cash, giving them a much larger liability. When we come to post step two, we now see that our group net debt equity has come down. It was at nought 0.5, it's now at nought 0.3. That's because even though the group cash has gone from six 50 to 5 2 5, its debt has gone down by more. It was 1,175. It's now gone down to eight five.