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SBR ACCA > Part D: Financial Statements Of Groups Of Entities > Flashcards

Part D: Financial Statements Of Groups Of Entities Flashcards

1
Q

3 Elements of a business

A

1 Inputs - an economic resource that creates outputs when one or more processes are applied to it

2 Process - a system when applied to inputs, creates outputs

3 Output - the result of inputs and processes

There must be a genuine acquisition of a business for a business combination to have occurred

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2
Q

Business combinations- Acquisition method steps

A

1 - identify the acquirer
2 - determining the acquisition date
3 - recognising and measuring the identifiable assets acquired, the liabilities assumed and any NCI
4 - recognising goodwill

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3
Q

Identifying an acquirer

A

Usually transfers cash or shares

Must consider also:

  • Relative voting rights in the combined entity
  • Large minority interest when no other owner has a significant voting interest
  • composition of the board and senior management of the combined entity
  • terms on which the entity interests are exchanged

Acquirer usually has the largest relative size

For combinations involving multiple entities, look for who initiated the combination and the relative sizes

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4
Q

How may control be evidenced by power if less than 50%

A

Getting the 50%+ by an arrangement with other investors

Governing the financial and operating policies

Appointing the majority of the board of directors

Casting the majority of votes

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5
Q

On acquisition, how are contingent liabilities measured?

A

Until settled, at the higher of:

1) the amount that would be recognised under IAS 37 Provisions
2) the amount less accumulated amortisation under IFRS 15 Revenue

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6
Q

Where in the SFP does NCI go?

A

As a separate line in equity

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7
Q

2 ways NCI can be calculated

A

1: proportion of FV of S’s Net assets
2: FV of NCI itself

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8
Q

What makes up an equity table? And for what periods/dates?

A
  1. Share capital
  2. Share premium
  3. Retained earnings
  4. Revaluation reserve
  5. Any other reserve

For SFP date, at acquisition, and post acquisition

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9
Q

Group income statement - 6 rules

A
  1. Add across 100% from revenue to PAT (excluding dividends from subs and associates)
  2. NCI line added at the end of the statement as NCI’s% x S’s PAT
  3. Associate shown as one line called “Share in associates profit after tax”
  4. Depreciation from equity table working put to admin expenses or where told (only current year charge)
  5. Time apportion (although not for adjustments such as unrealised profits or depreciation)
  6. Adjust for Unrealised profit
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10
Q

Groups - adjusting for unrealised profit on SFP

A

Reduce profit of seller —> reduce seller RE

Reduce inventory —> reduce buyers inventory

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11
Q

Groups - adjusting for unrealised profit on SOCI

A

Reduce profit of seller —> increase sellers COS

Reduce inventory —> no adjustment

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12
Q

Unrealised profit- when does it become realised?

A

When the stock leaves the group.

So unrealised profit is profit made between group companies and remains in stock

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13
Q

If an item is in transit for group ico, which company would you alter? Sender or receiver?

A

Always alter the receiving company

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14
Q

Intra-group trading - stock in transit treatment

A

In receiving company,

Dr inventory
Cr payable

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15
Q

Intra-group trading - cash in transit treatment

A

In receiving company,

Dr cash
Cr receivable

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16
Q

Intra-group dividends treatment

A

Eliminate all dividends paid/received to/from other entities within the group

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17
Q

Impairment of Goodwill (proportionate NCI)

A
  1. Compare the recoverable amount of S (100%) to..
  2. NET ASSETS of S (100%) + Goodwill (100%)
  3. Goodwill in SFP is only for parent so needs grossing up first
  4. The difference in the impairment but only show the parent % of the impairment
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18
Q

Impairment of goodwill (fair value NCI)

A
  1. Compare the recoverable amount of S(100%) to…
  2. NET ASSETS of S (100%) + Goodwill (100%)
  3. Then find the difference to get the impairment which is then split between the parent and NCI share
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19
Q

Impairment of Goodwill adjustment on the income statement

A
  1. Proportionate NCI - add it to P’s expenses

2. Fair value NCI - add it to S’s expenses

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20
Q

Normal consideration- treatment

A

Dr investment in S

Cr cash

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21
Q

Future consideration- treatment

A

Dr investment in S
Cr liability

Amount needs discounting down to PV

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22
Q

Contingent consideration- treatment

A

Dr investment in S
Cr liability

All at fair value

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23
Q

Provisional Goodwill

A

When FV of NAs are not certain at acquisition date.

Have 12m to change the goodwill figure.
Any info after the 12m does not change goodwill and differences would be written off to I/S

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24
Q

Goodwill - Contingent liabilities

A

When a sub is acquired it is brought into accounts at FV.

Contingent liability does have a FV (even if normally just disclosure in the accounts). Therefore must be recognised in consolidated accounts until actually paid.

  1. Bring in at FV
  2. Measure at this amount unless it becomes probable at which point it’ll be measured at full liability
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25
Q

Step acquisitions - when does consolidation occur?

A

Consolidation only occurs when control is eventually achieved.

At which point,

  • remeasure all previous holdings to FV
  • any gain or loss to income statement
26
Q

How to account for further acquisition after control is achieved?

A

Deemed to be a purchase from the NCI

FV consideration for extra % bought X
Decrease in NCI (X)
Difference goes to equity of the parent

27
Q

Partial disposal- how to treat

A

Proceeds from disposal X
Increase in NCI (X)
Difference to equity of parents

Increase in NCI:
Goodwill + net assets from equity table
MULTIPLY by % disposed

28
Q

What is a discontinued operation?

A
  • a separate major line of business or geographical area
  • is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area
  • is a subsidiary acquired exclusively with a view to resale
29
Q

How is a discontinued operation shown on the income statement?

A

The PAT and any gain/loss on disposal

A single line in I/S

30
Q

How is a discontinued operation shown on the SFP?

A

If not already disposed of yet, as a held for sale disposal group

31
Q

How is a discontinued operation shown on the cash flow statement?

A

Separately presented in all 3 areas - operating, investing and financing

32
Q

How do you calculate the gain or loss on a full disposal?

A

Proceeds

MINUS net assets (100%)

MINUS goodwill

PLUS NCI

PLUS FV of the remaining % (if any)

33
Q

What is the effect on income statement of Full disposal?

A

Consolidated until sale then treat as an associate (if we have significant influence)

Otherwise an FVTPL investment

34
Q

Associate definition

A

An entity over which the group has significant influence but not control

35
Q

Significant influence definition

A

When you own between 20-50% of the shares in a company but usually evidenced in one or more of the following:

  • representation on the board of directors
  • participation in the policy making process
  • material transactions between the investor and investee
  • interchange of managerial personnel
  • provision of essential technical info
36
Q

Exemptions for consolidated account preparation

A
  • the parent is itself a wholly owned sub
  • the parent is a partially owned sub (80%) and the other 20% owners allow it to not prepare consolidated accounts
  • the parents shares are not publicly traded
  • the parents own parent produces consolidated accounts
37
Q

Operating Profit

A

Sales

MINUS COS

MINUS admin expenses

MINUS distribution costs

38
Q

Cash flow statements - steps

A

1 - get profit from operating activities as starting point by going from PBT and reconciling to operating profit and place in “cashflow from operating activities”

2 - add back all non- cash items. But only those in operating profit (sales, Cos, admin and distribution costs) I.e. deprecation, impairments, profit on sale, payables, receivables and inventory)

3 - look at what’s left in income statement and find the cash

4 - look at SFP and find the cash (look at PPE and find the cash)

5 - find cash from share issues, bonus issues, loans

39
Q

Where do finance costs go on the cash flow statement?

A

Operating activities

40
Q

Where does taxation go in the cash flow statement ?

A

Operating activities

41
Q

Where does investment property go in the cashflow statement ?

A

Investing activities

42
Q

Cashflow statements - PPE

A

Work out the cash element of each PPE item and add to investing activities

43
Q

Where in the cashflow statement do share proceeds go?

A

Financing activities

44
Q

If there has been a bonus issue… treatment in cashflow statement

A

If debut went to…

Share premium - ignore the bonus issue and take balancing figure from SFP balances

Retained earnings - reduce the cash by the amount of the bonus issue

45
Q

Where do loans go in cashflow statement?

A

Financing activities

46
Q

Associates- accounting treatment

A

SFP

  • one line only “investment in associate” goes in under the NCA section
  • calculated as: cost + share of post acquisition reserves - impairment

Consolidated IS

  • one line “share of associates PAT (-impairment)
  • do not include any dividend from A
47
Q

Unrealised profits for an associate

A

1 - only account for the parents share
2 - adjust earnings of the seller

Adjustments on IS:

  • if A is seller - reduce “share of As PAT”
  • if P is the seller - increase Ps COS

Adjustments on SFP:

  • if A is seller - reduce As retained earnings and Ps inventory
  • if P is seller - reduce Ps retained earnings and the “Investment in Associate” line
48
Q

What is joint control?

A

The sharing of control where decisions about the relevant activities need unanimous consent

First see if the parties control the arrangement per IFRS 10

49
Q

Types of joint arrangements

A

Joint operation

Joint venture

50
Q

Joint operation definition

A

The parties have rights to the assets, and obligations for the liabilities, relating to the arrangement

51
Q

Joint venture definition

A

The parties have rights to the net assets of the arrangement

52
Q

Joint operations - on financial statements

A

A joint operator recognised:

  • it’s assets incl share of any assets held jointly
  • it’s liabilities incl share of jointly held
  • revenue from the sale of its share of the output by the joint operation
  • it’s expenses incl share of any jointly incurred
53
Q

Joint ventures accounting treatment

A

Uses equity method (as associate)

54
Q

JV unrealised profits

A

P to JV:
IS - increase Ps COS
SFP - decrease Ps RE and investment in JV

JV to P:
IS - decrease “share of JV PAT”
- decrease JVs RE
- decrease Ps stock

No elimination of payables and receivables

55
Q

IAS 27

A

When a new parent is inserted above an existing parent, the cost of investment in the sub can. It be it’s carrying value rather than FV

56
Q

IAS 27 relief limited to where…

A
  • new parent obtains control by issuing shares
  • assets and liabilities of the new group and original group are the same immediately before and after the reorganisation
  • the owners of the original parent before the reorganisation have the same absolute and relative interests afterwards
57
Q

A statutory demerger

A

Simpler of the two alternatives
Can only be used to split two or more trades

Either,
1) the shares in a sub are distributed out to the members
Or
2) the trade is transferred to a new company and shares in the new company are issued to the members of the old company

58
Q

What exchange rates are to be used for subsidiaries

A

IS - average rate
SFP - closing rate
All exchange rate differences to reserves

59
Q

Foreign exchange translation reserve

A

Opening NA @ closing rate
MINUS closing NA @ opening rate
MINUS profit @ average rate

60
Q

Foreign goodwill

A

Goodwill must be retranslated every year end (closing rate) and any exchange gain/loss to equity

61
Q

Functional currency

A

Results measured in this currency

  • influences sales price
  • used in the country where most competitors are and where regulations are made
  • influences labour and material costs
62
Q

Presentation currency

A

Foreign sub will usually present in the parents presentation currency

SBR ACCA (8 decks)

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