T1 &T2 Consolidated Statements Flashcards
What are consolidated accounts?
They are an additional set of accounts that are prepared for groups. where all the companies are added together to give a real value of the group.
Why would a parent company purchase a subsidary?
Reduce competition, Diversify into new market, Bring in expertise in-house, Benefit from synergies arising from the acquisition E.g one company could have the money and one could have an established customer base.
What are the following accountancy standard?
IFRS 10
IFRS 3
IAS 27
IAS 28
IFRS 11
IAS 38
IFRS 10 - Consolidated Financial statements
IFRS 3 - Business Combinations
IAS 27 - Separate Financial Statements
IAS 28 - Investment in Associates and Joint Ventures
IFRS 11 - Joint Arrangment
IAS 38 - Carrying value of Intangible assets
What is IFRS 10 - Consolidated Financial Statements?
It covers the issue of control and how to identify control. It it comprised of 3 elements -
1.) Power over investee
2.) Exposure, Right to have returns
3.) The ability to use power over the investee to affect teh amount of the investors return.
Do you have full control over a company if you have over 50% of the controlling shares?
No, IFRS 10 says what the stipulations are. Voting Rights shares are key.
Can you have majority of voting righst and no power?
Can an investor have less than 50% voting rights yet still have majoprity power.
1.) Yes if company is being liquidated so now the liquidator has full control
2.) Yes, The other investors to teh company could have alot smaller percentage but teh amount of them make up the rest of the shares
What are the different relevant activities that can significantly affect the returns to an investor?
1.) Selling and purchasing of goods and services
2.) Managing financial assest during their life (Including default)
3.)Selecting, Aquiring or disposing of assest
4.) Researching and developing new products or processes
5.) Determining a funding structure or obtaining funding
IAS 1
IAS1 Presentation of Financial Statements
What is the Proforma for a single entity concept?
Workings 1
W1) Group Structure - How much we owner of teh subsidary and the date we acquired it (to help with pro-rating later on)
Workings 2
Net assets of Subsidiary - We calculate the difference between assets at the date of acquision and at the reporing date (Year-End). The section we are comparing are as follows: Equity share capital, Reserves, Other components of equity and Retained earnings (fair value adjustment, Fair value depreciation, PUP Adjustment). We use the total of aquistioin date for goodwill in W3.
Working 3
W3 - Goodwill
Cost of parent holding (Investment) at a fair value X
Non-controlling interest at aquisition X
(Less)
Fair Value of net assets at aquisition (W2)
= Goodwill on acquision
(less) Impairment to date
= Carrying value of goodwill in CSOFP
Working 4
W4) Non Controlling Interest
NCI at acquision
(Add)
NCI’s % of subsidiary’s post acquision retained earnings (W2)
(Less)
Impairment (Only if policy is to measure goodwill at Fairvalue
= Carrying Value of NCI in CSOFP.
Working 5
W5 - Group retained earnings
100% Parent retained earnings
less - Purp
Less - Impairment (fair value method = Parent %, proportionate method = 100%)
What are ways of valuing non controlling interest?
Fair Value - We calculate by finding the how many shares the NCI has and then multiplying it by the teh share price at Acquisition
Proportionate method - Just multiplying the net assets by the NCI’s to give a proportion of the total.
How to calculate the fair value of net assets
Inventories = Selling price - disposal price
Working in progress = selling costs - completion costs - disposal costs
Raw materials = Current replacement value.
Receivables = Present value of amount expected to be receieved (Sale - Bad debt and early settlement discounts)
Paybale = Present value of amount expected to be receieved (Sale - Bad debt and early settlement discounts)
How can goodwill be impaired?
A subsidary is not performing as well as expeceted so the parent company overpaid so the goodwill will need writing down. e.g Impairment.
What is the difference between Fair value impairment and proportionate impairment?
Fair Value Impairment = Spliting the value of the impairment between the group retained earnings and the NCI (DR) and then putting it against Goodwill to bring the value down (CR)
Proportionate Impairment = taking the whole value of the impairment off the Group retained earnings (DR) and putting it against Goodwill (CR)
What are the other types of considerations?
Immediate transfer of Cash
Immediate transfer of shares
Deferred Cash
Deferred Shares
Contingent deferred cash
Contingent deferred shares.
How to deal with deferred Cash?
Discount the amount by the discount ^ how mnay years the money is deferred for.
what is Intra group Transactions?
Any transactiosn between parent a group we would need to eliminate any Intra group transcations as it would over state the assets and liabilities.
How to eliminate intra company balances
Cancel any inter-company balances e.g Subsisdary - DR Trade payables, Parent - CR Trade receivables
Provision for unrealised profit (PUP) - When a parent/subsidary sell between themselves, the sale is not external so can not be recognised as a real sale.
How to work out mark up?
How to calculate margin?
Mark up on cost. Cost was 100% we want sales price to be 120%
Margin is based on revenue Cost is 80% and want sales price to be 100%.
What is the difference between if the Parent was selling to the subsidary VS Subsidary selling to the parent?
Parent to Subsisdary affect W5
Subsidary to Parent affects W2
What happens with cash and goods in transit?
Sub has paid the parent but Parent still has them in trade payable at the period end. The money was paid but not yet receieved but we no it has been paid from the subs acounts so we treat it as paid in the parent accounts by chnaging bank and trade payables
IAS 28 states that signifacant influence can be shown. How?
Representation on teh board of directors
Participation in the policy making processes
material transactions between the investor and investee
Interchange of managerial personnel
Provision of essential information.
What is a joint Arragement - IFRS 11
It’s is used when talking about joint ventures or Joint operations.
Joint ventures is when one or more companies join together to create a new company for both parties to run with equal influence.
When two or more parties join together for a project eg one bring money and one bring expertise. Whatever they spend individually goes on thier won accounts
What does SPLOCI? and what do we use it for?
Statement of profit or loss and other comprehensive income.
It is used when a sub is acquired part way through the year and we only consolidate the P&L item from the acquisition onwards and the NCI is split at the end of the P&L.
What is the profirma for SPLOCI?
Revenue ( 100% of P + 100& of S - Intercompany sales)
COS ( 100% of P + 100& of S - Intercompany sales)
Gross Profit
Operating Expeneses (100% of P and S - Impairment of goodwill)
Profit from operations
Share of profit/loss of an associated company
Investment Income (100% P and S - Intercompany Interest - Dividends income to parent)
Finance Costs (100% P and S - Intercompany Interest)
Profit before Tax
Income tax expense (100% Pand S)
Profit for the year
Other Comprehensive income
Revaluation Gains
Total Comprehensive Income.
Profit Attributable to:(Uses Profit for the year)
NCI
Group (Balancing Figure)
Total Comprehensive Income Attributable to: (Uses Total Comprehensive Income)
NCI
Group (Balancing figure
What is the NCI Split in the SPLOCI proforma?
The NCI percentage is the remining amount that we do not own (E.G we own 80% so the NCI owns 20%)
How to deal with disposal of an subsidary?
Stop adding through subsidary P&L on the date of disposal.
