Investment in Subsidiaries and Associates

Question 1

How do we account for purchase of shares in other companies?

Answer 1

Using cash:

Dr Investment in xxx
Cr Cash

Using shares

no.of shares purchased x share basis x market price of parents share = cost of investment

Question 2

What is a group?

Answer 2

IFRS 1O uses the following definitions:

Parent - entity that controls one or more entities
Sub - entity controlled by another entity
Control of 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.

Question 3

When are group accounts required?

Answer 3

If the investment of shares gives enough influence of the investor in the investee. Here internal transactions must be off-set.

If there is not enough control, it will be treated per IFRS 9 as a basic investment in shares.

Question 4

How does IFRS 10 define control?

Answer 4

IFRS 10 adopts a principles based approach to determined whether control is exercised.

This may require the exercise of judgement.

Question 5

When does a company have an exception from preparing consolidated stats?

Answer 5

• The parent itself is a subsidiary and all its other owners do not object to the parent not preparing consolidated stats.
• The parent’s debt or equity instruments are not traded publicly
• The parent did not file its financial statements with a regulatory body.
• Any parent of the parent produced consolidated stats