Group accounts: basic principles Flashcards
What is a group?
One company (Parent) buys shares in another company (Subsidiary) such that the P controls the S - power to govern financial and operating policies to gain benefits
Can be individuals, institutions
What are the 23 levels of investment, their control and treatment in group accounts?
Subsidiary - >50% control, consolidation
Associate - significant influence 20%+, equity method
Investment - asset held for accretion of wealth, at cost
What criteria are met for an investor to have control over an investee?
Power over investee
Exposure/rights to variable returns from investee
Ability to use power to affect amount of returns
When else does control exist?
Parent has more than 50% voting rights
Can govern financial/operating policies
Can appoint/remove members of board of directors
Can cast majority votes
What is non-controlling interest?
The part of S’s net assets and results included in consolidation which is not owned by P
(100-x)%
What proportions of the parent and subsidiary SFP are used to create the CSFP?
NCA - 100% of each
Share capital - parent only
Retained earnings - parent only
Liabilities - 100% of each
What is goodwill?
An intangible asset representing future economic benefit arising from other assets acquired in business combination
Tested for impairment
Loss recognised in CSPL
Retained earnings will be reduced
How is goodwill calculated?
Fair value of consideration transferred
+ Non-controlling interest at acquisition
- Fair value of net assets acquired
What is a bargain purchase?
When parent entity pays less to acquire subsidiary than represented by its share of the subsidiary’s net assets
It is negative goodwill recognised in P&L - retained earnings will increase
How is Non-controlling interest measured?
At NCI’s share of acquiree’s net assets (proportionate basis)
At fair value
