Chapter 1: An introduction to group account

Question 1

An investor controls an investee if and only if the investor has all of the following:

3 things

Answer 1

1. Power over the investee ie ability to direct the relevant activities (decision making)
2. Exposure, or rights, to variable returns from its involvements with the investee
3. The ability to use its power over the investee to affect the amount of the investor’s returns

Question 2

Basic rules when preparing group statements of financial position

regarding:
-investment in the sub
-share capital
-assets and liabilities
-Goodwill
-Retained earnings

Answer 2

investment in the sub never appears in the consolidated accounts

share capital - parent only

assets and liabilities - add together

goodwill - needs to be calculated and shown as an intangible asset

Retained earnings - need to be calculated

Question 3

Goodwill def

Answer 3

difference between price paid to acquire a business and the fair value of the net assets of that business

Question 4

Group retained earnings

Answer 4

parents RE + share of sub RE post acq

Question 5

NCI - Proportionate or partial method

Answer 5

Goodwill working:

Cost of combination (investment)
Add back: NCI
Less: Sub net assets at acq

Add back the NCI after working out the net assets at acq of the sub

Question 6

3 choices of a parent recording investment in sub

Answer 6

-Cost

-Cost initially and then ‘revalued’ each year end to fair value

-Equity method

Question 7

Exemption from preparing group accounts

A parent need not to prepare group accounts if:

3 parts

Answer 7

-if the parent is a wholly-owned subsidiary, or it is partially owned and the other owners (NCI) do not object AND

-its debts and equity instruments are not publicly traded AND

-The ultimate or any intermediate parent produces group accounts that comply with IFRS standards

Question 8

Exclusion of a subsidiary from the group accounts

Answer 8

No grounds for exclusion

however, a sub that has been acquired exclusively with the view to resale is not consolidated

Question 9

Gain on a bargain purchase

Answer 9

pay less for a sub than the net assets

1. Reassess
2. If excess remains, credit Pnl

Question 10

Sub has other reserves ex. share premium, revaluation surplus

Answer 10

Treat same way as RE

if reserves move after acq date, need to do additional reserves working which looks similar to RE working

Group only entitled to share of post acq changes

impairment of goodwill is only shown in RE working