Principles of consolidated financial statements

Question 1

A Parent company is

Answer 1

‘an entity that controls one or more entities’

Question 2

A Subsidiary is

Answer 2

an entity that is controlled by another entity’

Question 3

Control - IFRS 10 states that an investor’s control comprises three elements:

Answer 3

(a) power over the investee
(b) exposure, or rights to, variable returns from its involvement with the investee and
(c) the ability to use its power over the investee to affect the amount of the investor’s returns’

Question 4

What is the Single entity concept

Answer 4

Although both the parent and subsidiary are separate legal entities, the economic substance of the relationship is that they are a single economic unit due to the fact that the parent controls the subsidiary

Question 5

In treating the two companies as a single entity it becomes necessary to

Answer 5

remove any intra-group transactions or balances in order to present consolidated financial statements.

Question 6

It is essential that consolidated financial statements are produced with X accounting policies throughout the group, although this does not prevent the subsidiary from applying accounting policies which differ from those of the parent within its own individual financial statements. Where the subsidiary has policies that differ from that of the group, adjustments will be necessary as part of the consolidation process to ensure X

Answer 6

Uniform
Consistency