16 Principles of consolidated financial statements

Question 1

What is a group?

Answer 1

When one company owns more than 50% of another company

Question 2

What is the purpose of consolidated accounts?

Answer 2

Present financial information about a parent undertaking and it’s subsidiary undertakings as a single economic unit

Question 3

What are the three IFRSs needed for F7 relevant to the preparation of consolidated financial statements?

Answer 3

IFRS 3
IFRS 10
IAS 28

Question 4

What is IFRS 3 full name?

Answer 4

IFRS 3 Business combinations

Question 5

What is IFRS 10 full name?

Answer 5

Consolidated financial statements

Question 6

What is IAS28 full name?

Answer 6

IAS 28 Investments in Associates and Joint Ventures

Question 7

What is the definition of a parent?

Answer 7

An entity that controls one or more entities

Question 8

What is the definition of a subsidiary?

Answer 8

An entity that is controlled by another entity

Question 9

What is the definition of ‘control of an investee’?

Answer 9

An investor controls an investee when the investor is exposed, or has rights, to variable returns from when its involvements with the investee and has the ability to affect those returns through its power over the investee

Question 10

What does IAS 10 outline?

Answer 10

The circumstances in which a group is required to prepare consolidated financial statements

Question 11

When should consolidated financial statements be prepared?

Answer 11

When the parent company has control over the subsidiary (50%)

Question 12

What is control identified as in IAS 10?

Answer 12

The sole basis for consolidation

Question 13

What are the three elements of control in IFRS 10?

Answer 13

1. Power over the investee
2. Exposure, or rights to variable returns from its involvement
3. The ability to use its power over the investee to affect the amount of the investors return

Question 14

What circumstances need to be considered when determining whether or not an investor has power over an investee?

Answer 14

1. Exercise of the majority of voting rights in an investee
2. Contractual rights between the investor and other parties
3. Holding less than 50% of the voting shares, with all other equity interests held by numerically large, dispersed and unconnected group
4. Potential voting rights may result in an investor losing or gaining control

Question 15

When will a parent not need to present consolidated statements?

Answer 15

1. The parent itself is wholly owned subsidiary or a partially owned subsidiary and its owners have agreed
2. The parents debt or equity are not traded in the public market
3. The parent did not file it’s financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market
4. The ultimate parent company produces consolidated financial statements

Question 16

What does IAS 27 require?

Answer 16

1. The fact that consolidated financial statements have not been presented
2. A list of significant investments including % holding, principle place of business and country of incorporation
3. the bases on which those investments listed above have been accounted for in its own statements

Question 17

When might a subsidiary not be included?

Answer 17

When the subsidiary is held for resale or materiality

Question 18

What is the accounting treatment of a subsidiary held for resale?

Answer 18

Held as a current asset investment at the lower of carrying amount and fair value less costs to sell

Question 19

If there is non-coterminous dates, how is this treated?

Answer 19

The subsidiary may be asked to prepare accounts to match the parents date or IFRS 10 allows three months either side but adjustments for significant transactions between the dates