Chapter 10 - Vertical Complex Groups Flashcards
Complex Groups
Where a parent company indirectly invests in another company through a subsidiary
Control
Parent has some influence or control in an Investment made by its subsidiary
Sub-subsidiary
Subsidiary of another subsidiary
Vertical Group
Where there is clear control from the parent to subsidiary to sub-subsidiary
Mixed Groups
Parent group directly owns shares in a sub-subsidiary which is also controlled by the subsidiary
Indirect Associate
Subsidiary’s Investment does not give overall control, yet allows significant influence
Vertical Group
Parent [>50% - control]»_space;
Subsidiary [>50% - Control]
»
Sub-subsidiary
Mixed Group
Parent [>50% - control] >> Subsidiary [>50% - Control] >> Sub-subsidiary >> Parent [1% - 50% - control in sub-subsidiary]
Indirect Associate
Parent [>50% - control]»_space;
Subsidiary [20%-50% - Influence]
»
Sub-Associate
Effective Ownership Percentage
Multiply the parent’s share of its subsidiary with its subsidiary’s share of the sub-subsidiary
Accounting for Sub-subsidiary
So long as control is achieved by the ultimate parent the sub-subsidiary will be consolidated as if it were an ordinary subsidiary
Accounting for sub-Associate
Indirect Associate is accounted for using the equity method
Consolidation of Vertical Groups
As subsidiary is indirectly controlled by the ultimate parent, sub-subsidiary will be consolidated into the group
Group Structure
Control
Percentage Ownership
Date of Acquisition
Effective Ownership
P owns 80% of S
S owns 75% of Q
80% x 75% = 60%
P indirectly controls Q
Non-Controlling Interest
P owns 80% of S
S owns 75% of Q
Non-controlling interest in S = 20%
Non-controlling interest in Q = 40%
Date of acquisition
Effective date of acquisition of the sub-subsidiary is the date the direct sub-subsidiary is acquired
Single Stage Acquisition
Parent acquires pre-existing group
Effective date: date of acquiring direct subsidiary or pre-existing group
Two-stage Acquisition
Parent acquires subsidiary and then subsidiary acquires sub-subsidiary
Effective date: consolidation is done on the individual acquisition dates
Points to note on complex groups
> Non-controlling interest in a sub-Subsidiary
Effective Date of Acquisition of Sub-Subsidiary
Goodwill on Consolidation of Sub-Subsidiary
intra-Group Investment and Investment Income in non-controlling interest
