Chapter 14 - Group Accounts, Basic Principles Flashcards
0
Q
WHAT IS THE PURPOSE OF A SET OF CONSOLIDATED ACCOUNTS?
A
- to present financial information about a parent undertaking and it’s subsidiary undertakings as a single economic unit
- to show the economic resources controlled by the group
- to show the obligations of the group
- to show the results the group achieves with its resources
1
Q
DOUBLE ENTRY
WHEN A PARENT COMPANY BUYS SHARES IN ONE OF ITS SUBSIDIARY’S
A
DR Investment
CR Cash
The subsidiary’s books are not affected
2
Q
WHAT ARE THE STEPS TO PREPARE A CONSOLIDATED STATEMENT OF FINANCIAL POSITION?
A
(1) Consolidate 100% of assets of P and S with the exception go the investment in P’s SFP
(2) Include P’s share capital only in equity
(3) Consolidate all of P’s retained earnings but only consolidate P’s share of S’s retained earnings since acquisition
(4) Reflect the non-controlling interest (NCI) if P does not own 100% of S
3
Q
WHAT CRITERIA SHOULD BE MET TO ESTABLISH CONTROL OVER A SUBSIDIARY?
A
- power over 50% of the voting rights
- statutory or other power to govern financial/ operating policies of S
- power to appoint/ remove majority of directors of S
- power to cast majority of votes at meetings
- if P owns >50% voting rights in S but believes it does not have control, it must demonstrate that this is the case to avoid consolidation