9. Consolidated statement of Financial Position Flashcards
Define PARENT or Holding comapny
An entity that controls one or more entitiesd
Define Group
A parent and its subsidaries
Define Subsidiary
An entity that is controlled by another entity
What is the criteria for control
- Power over investee to direct activity
- Exposure or rights to variable returns
- A biilty to use its power to affect the amount of returns
What are examples of having power over subsidiary over relevant activities
- Voting shares above 50%
: rights to appoint or remove key management personnel
:decision making rights are written in contract
Relevant activities:
- Selling purchasing
- Selling or acuiring assets
- R&D of new products
- Funding decision
What are other types of investments apart from subsidiaries
- Joint Control: 20%-50% of investment
- Significant influence: 20% - 50% of investment as associate
- No influence: 0% - 20% of investment as a financial asset
What are the options IAS 37 offers to measure investment in a subsidiary/associate/joint venture
- At Cost
- At fair value ( as a financial asset )
-Using equity method
How are dividends recieved from subsidiaries recorded in financial statementws
As investment Income
In SPLOCI
-If measured at FV, the loss or gain recorded in SPLOCI
What is the purpose of group financial statments
Bridge information gap to show substance over form
- To record the substance of its relationship with subsidiaries as a single economic entity rather than legal form as spearate entities
In consolidated accounts:
- Group companies shown as one entity
- Issued to the shareholders of parent
- Are issued in addition to other ifnancial statements
- Provide information on all companies controlled by parent
What is the process of the consolidation process
- Add togetehr all the assets and liabilities fo the parent and each subsidiary on a line by line basis
- Eliminate intragroup items
Describe the treatment of different elements in consolidated accounts
- Add together assets and liabilities (excluding investment in subsidiary)
- Investment in subsidiary: cancel with share capital and pre-acquisition reserves of subsidiary
- Share capital and share premium: only show parents
- Reserves: Parents + Group share of PAR of subsidiary
What is PAR
Post Acquisition reserves
What is the equation for assets and equity
Net Assets = equity
Net assets (Assets - Liabilities) = Equity (Share Capital +Share premium+Reserves
What is goodwill
A asset representing the future economic benefits arising from the other assets acqiured in a business - price difference beyween price paid and value of assets
What is the calculation of goodwill
Consideration transferred
+ Non controlling interest
Less Fair value of net assets at acquisition:
-Share capital
-Share premium
-Retained Earnings
-Revaluation surplus
= Goodwill at acquisition
What is meant by bargain purchase
When there is negative goodwill
What is accounting treatment for goodwill
Purchased Positive Goodwill: Capitalise as an intangible non current asset and test annually for impairement
Purchased Negative Goodwill: Reasss assets and liabilities and Credit remainder to profit or loss and to retained earnings
How is impairement of positive goodwill accounted for
Debit Expenses (reduce consolidated retained earnings
Credit Goodwill
What is the recaluclation for retained earnings fter impairement of goodwill
RE at year end of P
Less RE of S at acquisition
= PAR
x Group %
=Retained Earnings
Less imapirment losses
=Group RE at year end
What is Non controlling interest
The equity in a subsidiary not attributatble directly or indirectly to a parent
Shares not owned by parentW
What is the impact of NCI on consolidated statement of financial position
- Add 100% of subsidiary net assets and liabilities
- In the quity section only adding in the owned bits
- This means there is a mismatch
- So you add in new heading called ‘Non Contrlling asstes”
What are the methods of measurement of NCI at acquisition date
- Partial goodwill method
- Full goodwill method
Can be decided on transaction by transaction choice
What is the Partial goodwill method
- Measure the NCI at propportionate share of fair value of the subsidiary’s net assets
What is the full goodwill method of NCI
Measure NCI at Fair value
Fair Value: Number of shares owned by NCI x Share price
How do you calculate NCI
NCI at acquisition
Add NCI share of post-acquisition reserves = Year end reserves - reserves at acquisition) x NCI%
Less NCI share of impairment losses
When subsidiaries are obtained mid year what are is an assumption to make
That profits are evenly accrued throughout the year
How do you calculate retained at acquisitions
RE at start of year
+ Profit for year from start to acquisition
How do you calculate profit
Profit for year x M/12
m= MONTHS FROM START OF YEAR TO ACQUISITION DATE
