Concepts of Group Accounts

Question 1

Treat an entity as a Subsidiary if:

Answer 1

you Control it (= own more than 50% voting rights)

Even when less than 50%, control may be gained if the parent:
-influences the variable returns
-gets the 50%+ by an arrangement with other investors
-governs the financial and operating policies
-appoints the majority of the board of directors
-has the majority of votes

Question 2

Don’t consolidate if:

Answer 2

-The parent is itself a 100% subsidiary
-The parent isn’t a 100% sub but the other owners don’t mind the parent not preparing group accounts
-The parent’s loans or shares are not traded in a public market
-The parent didn’t file its accounts with a stock exchange (in order to issue shares)
-The ultimate parent already produces group accounts
-The parent loses control of the investment

Question 3

You have to consolidate even if

Answer 3

1. Poor performance of the subsidiary
2. Poor financial position of the subsidiary
3. Subsidiary’s activities are different from the rest of the group

Question 4

Y/E and accounting policies within a group?

Answer 4

-Ideally P and S should have the same year end (or 3 months apart)

-A Subsidiary does not need to adopt the accounting policies of the parent in its individual FSs

Question 5

Intra-group balances

Answer 5

Intra-group balances, transactions, income, and expenses should be eliminated in full.

Intra-group losses may indicate that an impairment loss on the related asset should be recognised.

The profit made by P on the sale of goods to S is only realised when the subsidiary sells the goods to a third party.

Unrealised profits within the group must be eliminated.