SBR Flashcards
Definition of control - subsidiaries (3)
Power over investee
Exposure or rights to variable returns from the investee
The ability to use power over the investee to affect the reporting entity’s returns from the other
company - dividends?
So usually 50%+ but can be lower if above are met
Principles of CSFP. Treatment, Reason
Goodwill
Intangible NCA. This represents assets of the acquired subsidiary
that are not separately identified/recognised e.g.
reputation.
Principles of CSFP. Treatment, Reason
Assets and liabilities
Add P + 100% S line by line
P controls all of S’s assets and liabilities (it is as if
they are a single economic entity)
Principles of CSFP. Treatment, Reason
Share capital and premium
P’s only
Group accounts are prepared for P’s shareholders
Principles of CSFP. Treatment, Reason
Consolidated reserves
P + Group % of S’s postacquisition reserves
To show reserves generated under the control of
the parent
Principles of CSFP. Treatment, Reason
NCI
Include in the equity section of CSFP
To show the proportion of the net assets of S
owned by external shareholders
Consolidated Profit and Loss basics
100% of subsidiary time apportioned added first
Profit then apportioned. Unrealised profit, movement in fair value and impairment of goodwill.
Intragroup transactions and balances P&S
Make balances agree, e.g cash/goods in transit
Cancel balances on rec/payables
Cancel sales/purchases
Remove unrealised profit on PPE, Inv. DR COS/RE, CR INV/PPE
Fair Value adjustments to subsidiaries net assets
PPE, Intangibles, Contingent Liability
At acqu’n - goodwill
Movement - retained earnings working (sub)
At year end - To individual asset/liability in SCFP
NCI at fair value (given, or shares x SP) - Goodwill, CSFP and CSPL
Goodwill - Recognise 100% of goodwill
CSFP - Deduct all impairment in GW
Deduct group share in RE
Deduct NCI share in NCI
CSPL - Add all impairment to expenses
Deduct impairment from subs PFY in NCI
NCI at proportionate share of subs net assets (sub net assets x NCI%) - Goodwill, CSFP and CSPL
Goodwill - Recognise only group % of goodwill - higher %
CSFP - Deduct all impairment in GW
Deduct all impairment in RE
CSPL - Add all impairment to expenses
Deduct impairment from subs PFY in NCI
CGU Impairment
First goes to Goodwill. If GW calc at net assets then need to gross this up and then back down when impairing
Exemption from preparing group accounts
It is itself a wholly-owned subsidiary, or partially-owned with the consent of the non-controlling
interest and
Its debt or equity instruments are not publicly traded and
The ultimate or any intermediate parent produces group accounts that comply with IFRS
Standards.
Fundamental Qualitative Characteristics
Relevance - capable of making a difference in decisions. Predictive value and confirmatory value
Faithful representation - showing economic substance of transactions not just legal form. Neutral, Free from Error, Complete
Enhancing Qualitative Characteristics
Verifiability - can be double checked
Comparability - same entity across periods, similar entities
Understandability - users of FS assumed to have reasonable business knowledge
Timeliness
Asset Definition
A present economic resource controlled by the entity as a result of past events
Economic resource
A right that has the potential to product economic benefits. Right - receive cash, or use
What is control - Asset
Present ability to:
Direct the use of the asset
Obtain economic benefits
Liability Definition
A present obligation of the entity to transfer economic resources as a result of past events
Obligation
A responsibility that the entity has no practical ability to avoid
Legal or contructive obligation (past practice creates expectation)
Goods/service are distinct if 2 conditions are met
Customer can benefit from the G/S on its own or together with other readily available resources
The entitys promise to transfer the G/S is separately identifiable from other promises in the contract. Integrating, modify/customise
Contract modification. How to treat
Scope increases because of addition of G/S
Price increases by amount that reflects stand alone selling prices - no discount
Yes - Account for as separate contract
No - termination of existing and creation of new contract
Sale and Repurchase. Call Option, forward and put option
Call option - seller has right to repurchase asset. can buy back if seller wants
Forward - obligation to repurchase the asset. seller must buy it back
Put option - obligation to repurchase asset only if customer requests
Sale and repurchase agreement. Call option and forward treatment
Original price less than repurchase price - loan
Repurchase price less than original price - lease
Sale and repurchase agreement. Put option treatment
Repurchase price higher than expected MV - obligation as will be forced to buy so either loan or lease
Expected MV higher than repurchase price - sale with right of return, refund liability could be recognised
Derivative meaning and treatment
EG forwards, futures, options etc. Change in exchange rate, interest rate etc
Measured at fair value through P/L, any transaction costs expensed to P/L
Financial Assets
Fair Value through OCI Equity
Not for trading (long term)
Initial: FV + transaction cost
Subsequent measures: FV gains/losses in OCI - NOT reclassified
Dividend income PL
Financial Assets
Fair value through P/L
Equity default
Debt - contractual cash flow solely principal and interest - NO. Or yes for ‘other (short term)’
Initial: FV
Transaction COSTS TO P/L
Subsequent measurement:
FV Gains/Losses in P/L
Dividend income in P/L (shares)
Coupons received in P/L (debt)
This also includes derivates at gain
Financial Assets
Fair value through OCI - Debt
Assets contractual cash flows solely principal and interest - yes
Business model - held to collect and sell
Intitial: FV + transaction cost
Subsequent: Draw FVOCI table
FV Gains/losses in OCI - are reclassified
Interest income in P/L
