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Financial Reporting > Investments in Subsidiaries and Associates > Flashcards

Investments in Subsidiaries and Associates Flashcards

1
Q

Double entry for one company purchasing shares in another

A

DR Investment in XX

CR Cash

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2
Q

Other form of consideration used to buy shares in another firm (apart from cash)

A

Share issue

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3
Q

What is a group

A

If one company owns more than 50% of the ordinary shares of another. Has enough voting power to appoint all directors of second company.

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4
Q

Definition of parent (IFRS 10 - Consolidated financial statements)

A

An entity that controls one or more entities

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5
Q

Definition of subsidiary (IFRS 10 - Consolidated financial statements)

A

An entity that is controlled by another entity (parent)

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6
Q

If investment in shares is enough to give influence over the investee company…

A

In addition to preparing individual company accounts, investor company must prepare group accounts also (consolidated financial statements)

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7
Q

Control =

A

Sole basis for consolidation

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8
Q

Control comprises three elements:

A
  • Power over investee
  • Exposure or rights to variable returns from involvement with investee
  • Ability to use power over investee to affect amount investor’s returns
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9
Q

Circumstances to consider whether control over investee has been gained or lost (4)

A
  • Exercise of majority of voting rights in an investee
  • Contractual arrangements between investor and other parties
  • Holding less than 50%, but with remainder held by numerically large, dispersed and unconnected group
  • Potential voting rights (eg share options/ convertible loans) may result in investor gaining/ losing control at some specific date
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10
Q

Exemptions from preparing financial statements (4)

A
  • Parent itself is wholly owned subsidiary, and all owners do not object to not preparing financial statements
  • Parent’s debt/ equity instruments not traded in public market
  • Parent did not file financial statements with securities commission/ other regulatory organisation
  • Ultimate/ immediate parent produces consolidated financial statements available for public use that comply with IFRS.
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11
Q

IFRS stands for

A

International Financial Reporting Standards

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12
Q

Key principle of underlying group accounts

A

Need to reflect economic substance of relationship

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13
Q

Acquisition method

A

Parent includes all assets of subsidiary in consolidated balance sheet, and all revenues and expenses on consolidated revenue and expenses

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14
Q

Single entity concept

A

Business combinations consolidate the results and net assets of group members so as to display group’s affairs as a single economic entity

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15
Q

Purchased goodwill

A

Difference between purchase consideration and the fair value of identifiable assets, liabilities and contingent liabilities

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16
Q

Goodwill recognised at

A

Cost on date acquisition as intangible non-current asset

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17
Q

Goodwill reviewed

A

Annually for impairment

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18
Q

Negative goodwill arises when

A

Purchase consideration less than fair value of net assets acquired

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19
Q

Negative goodwill treatment

A

CR Income statement

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20
Q

Inherent/ non-purchased goodwill

A

Never included in SFP

21
Q

Goodwill methods (2)

A
  • Fair value

- Proportion net assets

22
Q

Fair value method

A

FV NCI’s interests calculated using market value subsidiary’s shares at date acquisition or other valuation techniques. (Given in exam)

23
Q

Proportion net assets method

A

NCI holding measured by calculating share of fair value of subsidiary’s net assets at acquisition (W2)

24
Q

Impairment of goodwill double entry

A

DR Impairment expense

CR Goodwill

25
Q

Impairment loss Fair value method

A 
DR NCI (by NCI % of impairment loss)
DR GRE (by parent's % of impairment loss)
CR Goodwill (by full impairment loss)
26
Q

Impairment loss Proportion of net assets method

A 
DR GRE (by full impairment loss)
CR Goodwill (by full impairment loss)
27
Q

Receivables Interco SFP

A

100% P + 100% S - Interco balance

28
Q

Payables Interco SFP

A

100% P + 100% S - Interco balance

29
Q

Cash in transit SFP Receivables

A

100% P + 100% S - Cash in transit

30
Q

Cash in transit SFP Bank

A

100% P + 100% S + Cash in transit

31
Q

PUP calculation MARK UP

A

Unsold (closing) inventory x Mark up / (100 + Mark up)

32
Q

P sells to sub

A

Downstream

33
Q

Downstream double entry

A 
DR GRE (W5)
CR Inventory
34
Q

Sub sells to parent

A

Upstream

35
Q

Upstream double entry

A

DR Net assets

CR Inventory

36
Q

PUP calculation MARGIN

A

Selling price of inventory x %

37
Q

Fair value adjustment =

A

Market value - CV

38
Q

Fair value amount =

A

Amount asset could be exchanged (or liability settled) between knowledgeable, willing parties in an arm’s length transaction

39
Q

Fair value adjustment double entry

A

DR Asset

CR Net assets

40
Q

Fair value SFP extract

A

PPE (100% P + 100% S + FV adj - Depn)

41
Q

Fair value adjustments go into..

A

W2 (Net assets)

42
Q

Direct costs of acquistion

A

Cannot be capitalised (must be expensed)

43
Q

Contingent consideration

A

Obligation of acquirer to transfer additional assets/ equity interests to former owners as part of exchange for control of acquiree if specified future events occur, or conditions are met

44
Q

Profit element Unrealised profit - NCA

A

Selling price - CV

45
Q

Depreciation element Unrealised profit - NCA

A

Profit / Remaining UEL

46
Q

Associate shareholding

A

Between 20% to 50%

47
Q

PUP Inventory downstream Associate > double entry

A

DR GRE

CR Investment in associate

48
Q

PUP Inventory upstream Associate > double entry

A

DR GRE

CR Group Inventory

Financial Reporting (3 decks)

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