Theory Flashcards
List the elements of control
- Power over the investee
- exposure or rights to, variable returns from involvement with the investee
- The ability to use power over the investee to affect the amount of the investor’s return
What is the definition of power
Power is the existing rights that give the current ability to direct the relevant activities
What is a simple group
One parent and one subsidiary
What is a non controlling interest
The equity in subsidiary not attributable, directly or indirectly, to the parent
What is the definition of a business combination?
A transaction or other event in which an acquirer obtains control of one or more businesses by the transfer of cash, incurrence of liabilities, issue of equity interest or by contract alone.
Definition of control
Power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Definition of business
An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing return in the form of dividends, lower costs or other economic benefit directly to investors or other owners, members, or participants.
Definition of input
Any economic resource that creates or has ability to relate outputs when one or more processes are applied to it.
Define process
Any system, standard, protocol, convention, or rules that, when applied to an input or output, creates or has the ability to create outputs.
Define output
The result of input and the processes applied to those input that provide or have the ability to provide a return in the form of dividends, lower cost or other economic benefits directly to investors or other owners, members and participants
List the steps in acquisition method
- Identify the acquirer
- Determine the acquisition date
- Recognize and measure the identifiable assets acquired and the liabilities assumed and any non controlling interests in the acquiree
- Recognizing tend measuring goodwill or gain from bargain purchase
Who is the acquirer
The entity that obtains control of the acquiree
When is the acquisition date?
The date in which the acquirer obtains control of the acquiree
What is the recognition principle of a business combination?
IFRS3 determines that the acquirer shall, at the acquisition date, recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non controlling interests in the acquiree
What is the measurement principle of a business combination?
The acquirer shall measure the identifiable assets acquired and liabilities assumed at their acquisition date fair values.
What is the acquisition related costs and how should it be recorded?
These are the costs the acquirer incurs to effect the business combination. The acquirer shall account for acquisition related costs as expenses in the period in which the costs are incurred and services are received.
What is goodwill?
An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.
What is the requirement for recognition of dividend according to IAS10?
IAS 10 determines that if a dividend is declared after the reporting period but before the financial statements are authorized for issue, the dividend may not be recognized as liability at the end of the reporting period, because no obligation exist at the time.
What is the rule for bank overdraft in terms of consolidation?
On consolidation, the bank overdraft of one entity should only be set off against the favorable bank balance of another entity in the group, if both entities haven their accounts at the same bank and when one of the following conditions has been met:
- both entities have bank accounts at the same financial institute
- the bank itself would set off two accounts against each other in terms of an agreement between the two entities and the bank
- the group has the intention to settle accounts on a net basis
What does IFRS 1 framework state about offsetting?
An entity shall not offset assets and liabilities or income and expenses unless required…, as it detracts from the ability of users both to understand the transaction, other event and conditions that have occurred and to assess the entity’s future cash flow
What is a complex group?
More than one subsidiaries. Horizontal, vertical and mixed
What is a horizontal group?
Single level structure, one parent controls two or more subsidiaries
What is a vertical group?
Multiple level structure, where the parent owns the controlling equity of a subsidiary which in terms owns the controlling interest of a sub subsidiary
What is an associate?
A entity over which the investor has significant influence and that is neither a subsidiary nor an interest in joint venture
