Consolidated Financial Statement Flashcards
IFRS 3 Business Combinations
When an acquirer obtains control of a business.
Are accounted for using the acquisition method.
Generally requires assets acquired and liabilities assumed to be measured at their fair values except e.g contingent liabilities, income taxes, employee benefits etc.
At the acquisition date.
Goodwill
Consideration transferred + amount of non-controlling interests + fair value of previous equity - net assets recognised
- if negative, gain on bargain purchase
- Difference between fair value of consideration and fair value of net assets acquired.
Control under IFRS 10
An investor controls an investee when:
- the investor is exposed or has rights to variable returns from its involvement with the investee; and,
- has the ability to affect those returns through its power over the investee
First element of control under IFRS
POWER
Over the investee
- voting rights
- Rights to appoint, reassign, remove key personnel
- Rights to direct the investee into, or veto any changes to transactions for the benefit of the investor
Second element of control under IFRS 10
EXPOSURE OR RIGHTS TO VARIABLE RETURNS
Returns include dividends, interest, change in value of investment
Can be positive or negative
Must have the potential to vary with investee’s Performance
Third element of control under IFRS 10
Ability
Ability to use its power to affect the amount of the returns
IFRS must be applied when accounting for business combinations, but does not apply to:
The formation of joint arrangement.
The acquisition of an asset or group of assets that is not a business.
Combinations of entities or businesses under common control.
Acquisitions by an investment entity of a subsidiary that is required to be measured at fair value through profit or loss under IFRS 10
Why consolidate?
Treats the group as a single economic entity
Replace investments in subsidiaries with subsidiaries assets and liabilities
Eliminate intra-group transactions
Comparable accounting despite different legal structures
Following conditions need to be met, to not need to present consolidated financial statements.
1) The parent company is itself a wholly or partially-owned sub of another entity and it’s other owners, including those not otherwise entitled to vote, have been informed about and do not object to, the parent not presenting consolidated FS
2) The parent’s debt or equity instruments are not traded in a public market
3) the parent company did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market.
As B/S consolidation:
Only show transactions of all group members with companies/individuals outside the group.
Exclude transactions between group members
Show control and non controlling interests
Non controlling interest as per B/S
Show 100% of sales, cost of sales etc
Part of profit after tax belongs to Non comprehensive income
Show non controlling interest ownership as a single line after profit after tax
If control: subsidiary and group accounts
Show 100% all assets, liabilities, income statement items.
Show G/W and NCI
If no control: investment and no group accounts
Show investment in parent B/S ONLY
IAS36 impairment of assets
Test annually or more frequently for impairment.
At cash generating unit level. CGU=
Check if carrying amount> recoverable amount
RA = higher of value in use and net sale price
Value in use = discounted future cash flows - risk adjusted interest rate
Net sale price = fair value less cost to selL
If Carrying amount < recoverable amount charge impairment to income statement
