Consolidated Statement of Financial position 1 Flashcards
Definition of a Parent:
An entity that controls one or more entities
Definition of a Group as per IFRS10 Consolidated Financial Statements:
A parent and its subsidiaries.
Definition of a Subsidiary as per IFRS10:
An entity that is controlled by another entity
What is the criteria for control of a parent(investor) over a subsidiary(investee):
- Power over investee to direct relevant activities
-Exposure, or rights, to variable returns from its involvement with the investee - Ability to use its power over investee to affect amount of investor’s returns
When a parent buys shares in subsidiary, it records an INVESTMENT in Non-current Assets, in SOFP. IAS27 (investment in subsidiary) offers a choice of 3 possible methods to measure this investment:
1.) At cost
2) At fair value
3.) Using the equity method as described in IAS28 Investments in Associates and Joint Ventures
How do we record dividends received from subsidiary?
Are recorded in INVESTMENT INCOME in parent’s SOPL.
If investment in subsidiary (or associate/joint venture) is measured at fair value, remeasurement gains or losses will also be recorded in PL or OCI.
What does the additional set of accounts referred to as Group(consolidated) financial statements do:
- Present the results and financial position of a group of companies as if it was a single economic entity
- Are issued to the shareholders of the parent
- Are issued in addition to and not instead of parent’s own financial statements.
- Provide information on all companies controlled by the parent
Definition of Consolidated Financial Statements:
The financial statements of a group in which the assets, liabilities, equity,income, expenses and cashflows of parent and its subsidiaries are presented as those of a single economic entity.
What are the two procedures of Consilidating financial statements:
1.) Add together assets and liabilities of parent and each subsidiary on a line-by-line basis
2.) Eliminate intragroup items.
What is Goodwill?
When a parent pays more to acquire control over a subsidiary that the value of subsidiary’s net assets.The difference between price paid and value of net assets purchased is called GOODWILL.
Definition of Goodwill as per IFRS3:
An asset representing the future economic benefits arising from other assets acquired in business combination that are no individually identified and separately recognised.
Definition of Non-controlling Interests (IFRS10):
The equity in a subsidiary not attributable, directly or indirectly to a parent.
What is the impact of NCI on the consolidated statement of financial position:
- Add across parent’s net assets and 100% of subsidiaries net assets line by line to show extent to which assets and liabilities of subsidiary are controlled by parent
- In ‘equity’ section include new heading called “non-controlling interests” to show the extent to which subsidiary’s net assets are owned by other parties. Required by IAS1.
Measuring of NCI at acquisition date (2 ways) according to IFRS3:
1.) At proportionate share of the fair value of subsidiary’s net assets (partial goodwill method). This does not result in recognising any goodwill in relation to NCI because goodwill is not recognised in subsidiary’s financial statements as it is internally generated
2.) At fair value (full goodwill method). This is calculated as number of shares owned by NCI multiplied by share price of one share in subsidiary and results in recognising goodwill in relation to NCI, as share price will include a premium for the reputation of the business.
