lecture 1 Flashcards
what are the types of investments
subsidiary (<50%) and associate (20%-50%)
what accounting method is used for a subsidiary
acquisition method
what accounting method is used for a associate
equity method
What does IFRS 10 call a group
a parent and subsidiaries
What does IFRS 10 call a parent
an entity that controls one or more entities
What does IFRS 10 call a subsidiary
an entity that is controlled by another entity
why would they go for a subsidiary
multinational operations
- sperate legal operations, legal systems
tax
- may be tax advantages
control
-reflect hierarchical structure
chronological events
- reflects history
what is control
the power to govern accounting and financial policies
what is meant by control
control exists when an investor has
power over investee, rights to variable from its involvement, affects the amount of investors returns
what are the types of control
direct control >50% of voting right
indirect control <50% of voting right
what is indirect control
- agreement with investors give power over 50%
- power over financials by agreement
- power to appoint or remove board members
- power to cast majority of votes
what does the group control
All assets
all liabilities
of subsidiaries
why is group accounts needed
- sub is an investment
- profits from holding comp and dividends from sub
- inter company trading
- difficult to evaluate board of directors without
what are the reasons for preparing consolidated accounts
prevent manipulation
inflating sales
more meaningful EPS
better measurement of ROCE
how are accounts combined
line by line basis
how do you find net assets
equity
or
total assets - liabilities
Assets calculation
liabilities + equity
what does IFRS3 deal with
accounting for business combinations and the ongoing treatment of goodwill
what steps need to be taken when applying the acquisition method
- Identify the acquirer;
- Determine the acquisition date;
3.Recognise and measure the identifiable net assets acquired;
4.Recognise and measure any non-controlling interest; and - Recognise and measure goodwill or gain from a bargain purchase
what is meant by identify the acquirer
- over 50%
- power to govern by agreement
- power over the board
- voting control by agreement
- power over voting at board meetings
how do you identify the acquirer
FV of one business is bigger than other
exchange of voting right for cash
management of one enterprise dominates selection of combined teams
what is the acquisition date
the date which the acquirer obtains control
what is the goodwill
the difference between the cost of combination and FV of the net assets
what is fair value
the price that would be received to sell an asset or paid
