Group Flashcards

Question

What is a joint arrangement & joint operation

Answer 1

J.A is when This is when two or more people have joint control, a contractual agreement where decisions about relevant activities require unanimous consent. J.O is where both parties have direct access to the asset and direct obligations of the liability. - Unincorporated business. Each joint operator will recognise 50% of the assets, liability, revenue and expenses of the joint operation. - Right to net assets and obligation J.V is when a business is incorporated and investors have shares in the company and this is accounted for using equity accounting. - Right to net assets

Answer 2

The parent company has a choice on how to record the investments in subs, associates and J.V's 1. At cost 2. Equity accounting 3. as a financial asset (F.V under IFRS9) Dividend from associate is also recognised as income in the P&L

Answer 3

From the Joint venturer perspective, this is a disposal at F.V which is transferred to the J.V at F.V. Profit or loss could arise on transfer

Answer 4

This could be from financial asset or associate to subsidiary Process - 2 investments 1. Both transactions must be at fair value 2. Revalue initial investment in sub to F.V 3. Revalued initial investment is added to calculation of goodwill 4. Gain is recognised in P&L

Answer 5

This is when the parent loses control (PEA) acquisition accounting must stop (goodwill, NCI Net assets), this could be in a few way 1. Total shareholding is sold 2. Control is lost but significant influence remains 3. Control is lost but financial asset remains Profit on disposal must be calculated Derecognise goodwill and NCI and Net assets deduct any impairment on goodwill work through NCI from opening balance to closing balance % of 3 positive numbers will always add up to a 100% ( Proceeds, NCI, Residual holding) Disposal Proceeds X Less: goodwill X less: F.V of net assets X add: NCI X add residual holdings X Profit on disposal X *add profit going to comprehensive income Parent F.S Proceeds X Less: cost of investment (X) Profits X Parent is just derecognising an investment

Answer 6

Subsidiary to Subsidiary (up or down) Impact 1. No change to goodwill as goodwill is recognised and derecognised on control 2. No profit or loss will arise in group accounts as it is a transaction between the owners of equity. It will only give rise to positive and negative difference 3. Difference in money coming in and out and derecognition of NCI is taken to equity. Proforma - when selling shares to NCI Proceeds X Increase in NCI balance (NCI%* Full goodwill + net Assets X difference going directly to Equity X * If NCI is measured at proportion of Net assets, goodwill is not included in calculation. When buying more shares from NCI Cash Out X Reduction in NCI balance (proportion) X Difference going to Equity X

Answer 7

Transactions in a foreign currency Functional currency, rules to apply Functional currency is the currency of the primary economic environment where the entity operates, all other currencies are foreign. There are three primary indicators of the functional currency 1.Currency revenue is invoiced 2. Currency of the country that regulates entity 3. Currency costs are incurred in including labour. If it is an overseas operation and primary indicators do not provide clear result, consider secondary factors - check if autonomous or direct extension Secondary factors 1. The level of transactions between the two (if lots this suggests direct extension) 2.whether foreign operation generates enough cashflow to meet its cash needs (if it does this suggests autonomy) 3.wheher the cashflows directly affect those of reporting entity - if it does it suggest direct extension If overseas operation is an autonomous operation functional currency will be local currency .If the overseas operation is a direct extension of the parents' activities. Functional currency will be the same as parents Exam advice Define functional currency Apply primary indicators consider the facts - check if autonomous or direct extension

Answer 8

Rule 1 - If transaction is carried out in a foreign currency, then this must be translated to the functional currency using the rate of exchange on the day of the transaction i.e. spot rate. If transactions happen over a period of time( week or month, the average rate is permitted. Rule number 2 - Foreign currency monetary balances e.g. loans, cash, receivables, payables. SOFP should be up to date. Transactions should be retranslated at the closing rate. This gives rise to an exchange difference. Rule number 3 - Foreign currency exchange differences. These are recognised in P&L, If they arise on retranslation of loans, this is added to finance costs. Rule number 4 - Foreign currency non monetary balances e.g. PPE and inventory. These remain at the historical rate and are not translated 1. Transactions at spot rate 2. monetary balances at closing rate 3. FX differences to P&L 4. Non monetary balances remain at historical rate

Answer 9

Presentational currency is the currency the entity chooses to present its group financial statements. Results and Overseas sub may require translation into presentational currency of the group. Group Stage rules Rule 1 - Assets and Liabilities Assets and liabilities are translated at the closing date. Rule 2 - Income and expenses throughout the year at average rate The income and expenses of the overseas entity are translated at the exchange rates at the dates of the transactions or average rate. Rule 3 - Goodwill Goodwill is regarded as an overseas asset, this is translated at the closing rate. Rule 4 - Exchange differences. This arises on the retranslation of assets at closing rate. This goes to equity NOT P&L as in individual companies. If goodwill is measured at proportion of net assets, this exchange rate differences are are only attributable to parent in equity where NCI is measured at fair value, the exchange rate differences are split with NCI. Group exchange differences are recycled to the P&L on disposal 1. Assets and liabilities at closing rate 2. Income and expenses at average rate 3. Goodwill at closing rate 4. group FX differences goes to equity and recycled on disposal.