S2 - consolidation Flashcards
what is the single entity concept
parent and subsidiaries
Part of the subsidarys net assets not owned by the parent is the non controlling interest
what is control between P and S
investor controls an investee if:
Power over the investee
Exposure or rights to variable returns from its involvement with the investee
Ability to use power over the investee to affect the amount of the investors variable return
assumed parent has control if over 50% of voting rights
If less than 50%, could still have control if:
in agreement with other investors gives power
Power over financial and operating policies by an agreement
Power to appoint or remove majority of board members
Power to cast majority of votes in board meeting
what are group statements
reflect economic substance of the relationship between companies
Purchase of a company is recoded as an investment cost
Single entity - economic substance
Produce a fair picture
Reflect distinction between resources controlled and ownership of those resources
SOFP, SOPL, SOCIE, SOCF
what is cSOFP
line by line to add together
Some adjustments
Goodwill
Acquisition costs
what is goodwill
an asset representing the future economic benefit arising from other assets acquired in a business combination that are not individually identified or separately recognised
Amount by which consideration paid exceeds the fair value of the share of net assets purchased
Fair value of consideration = cash, shares, combination
Fair value of net assets = subsidiary’s assets - liabilities
Positive = intangible asset with no amortisation, annual impairment review in accordance with IAS36
Negative = review of fair value of net assets to ensure no over or under statement of assets or liabilities, recognise immediately in SOPL
Treatment = recognise in CSOFP as intangible non current asset. Not amortised in CSOPL but annual impairment review carried out - impairment loss recognised in CSOPL
what are acquisition costs
must be expensed
Not part of consideration paid and not included in goodwill working
External costs
Share issue costs are deducted from equity
methods for NCI
method 1 - proportionate share
Share of net assets of subsidiary at reporting date
method 2 - fair value
Share of net assets of subsidiary plus goodwill apportioned to the non controlling interest
what is cSOFP post acquisition
treat reserves separately
Group share of any post acquisition movement in all reserves to be recognised in CSOFP
what is the question technique for partly owned subsidiaries
establish group structure
Set out net assets of the subsidiary
Calculate goodwill
Calculate any accounting policy adjustments
Calculate non controlling interest at year end
Calculate retained earnings
what is goodwill impairment
reserves made after date of acquisition will increase groups reserves
Impairment loss in relation to goodwill is accounted for by reducing both the goodwill figure and group reserves by the amount of the loss
what is trading within the group
lend each other money
Buy goods on credit
Credit account
On consolidation, we need to remove any inter-company transactions to reflect the group as a single entity
Add across parent and subsidiary revenue and cost of sales
Eliminate intra group sales
Dr revenue
Cr cost of sales
- no effect on profit
what happens to unrealised profits
assets shown in the financial statements of a group company may include items acquired from another group company - intra company
Unrealised profit must be eliminated in the group accounts whether wholly or partly owned
Sell asset to subsidiary - unrealised profit subtracted from group retained earnings
Unrealised because profit hasn’t been earned yet from external customer
Sell asset to parent - unrealised profit is allocated proportionately between group retained earnings and the non controlling interest
Profit remaining in group
Dr cost of sales
Cr inventory
- increase cost of sales for this unrealised profit for the seller
what is done with different year end dates
subsidy should produce statements which along with the parents accounting period end date
If not possible, most recent statements are used and significant transactions are adjusted for
