Topic 1- Consolidated Flashcards
When is a group account required?
When an investment in shares is enough to give INFLUENCE over the investee company.
Having influence/control is being able to direct it’s activities and use that power to affect the amount of returns
what are the motives to acquire influence in another company? 4 reason
- To reduce competition in the market
- diversify into new markets- i.e. industry markets or geographical
- bring expertise in house e.g. retailer being manufacturing in house
- To benefit from synergies arising from the accquision?
What are the list of group accounting standards? there are 5
▪ 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 Arrangements’
What is defined as control by IFRS 10 ‘Consolidated financial statements’?
3things
very important
- Power over the investee, where the investor has existing rights that gives it the current ability to DIRECT ACTIVITIES that significantly affect the investee’s returns
- Exposure, or RIGHTS TO, variable returns from involvement in the investee; and (i.e. right to dividends)
- The ability to use power over the investee to AFFECT the amount of the INVESTOR’S Returns.
When is the following applicable?
‘majority of the voting rights but = NO power’?
When another entity has the right to direct the relevant activities, this could be due to the companies actions being subject to direction by government, court administrator, receiver, liquidator or regulator.
When is the following applicable?
‘minority of the voting rights but = YES power’?
E.g. you own 30% and the 70% are owned by 70 individual people who cannot make decisions together so they give you the power.
An investor can have power with less than a majority of the voting rights of an investee, for example, through:
A. A contractual arrangement between the investor and other vote holders.
B. Rights arising from other contractual arrangements.
C. The investor’s voting rights.
D. Potential voting rights; or
E. A combination of (a)–(d).
Which activities can affect a company’s return? Give 5 examples
A. Selling and purchasing of goods or services.
B. Managing financial assets during their life (including upon default).
C. Selecting, acquiring or disposing of assets.
D. Researching and developing new products or processes; and
E. Determining a funding structure or obtaining funding
what is an example of a decision being made regarding relevant activities?
give 2
A. Establishing operating and capital decisions of the investee, including budgets; and
B. Appointing and remunerating an investee’s key management personnel or service providers and terminating their services or employment.
From the Consolidated statement of financial position,
which things are added for Parent and Subsidary?
Intangible Assets
PPE
Inventories
Trade and other receivables
Cash and cash equivalents
Long term borrowings
Long term provisions
Trade and other payables
Short term borrowings
From the Consolidated statement of financial position,
which things are included from the Parent only?
Equity Share Capital
Other components of equity e.g. –Share Premium
What is ‘Purchased good will’?
The figure on the CSOFP is known as ‘purchased goodwill’ and is the difference between;
the cost of the parent Co investment at fair value
and
the fair value of the identifiable assets,liabilities,contingent liabilities
how often is good will reviewed for impairment?
It is reviewed annually for impairment
What is negative good will
Negative goodwill arises when the purchase consideration is less than the fair value of the net assets acquired.
how do you deal with negative good will?
When goodwill calculates as negative, an investor/ parent company must check the accuracy of the calculation. If it proved accurate it should be credited directly to the statement of profit or loss.
What are the 5 workings?
w1- Group Structure w2- Net Assets of Subsidary w3- Good Will w4- Non controlling Interest w5- Group retained earnings
What is Working 1?
Group structure:
- Percentage
- Date acquired
What is working 2
Net assets of subsidary i.e. (Assets-Liability= Equity/NA)
@date of Acq @reporting date
Equity share capital (+prem) Other components of equity Retained earnings FV Adjustments FV Depreciation PURP adjustment (S ->P)
*Difference between @ Acq and Reporting date is the post acquisition profit and that is split between Parent and NCI
What is working 3?
Good Will
Cost of Consideration
NCI interest at acquisition
Less: FV of net assets at acquisition
=Goodwill on acquisition
Less: Impairment to date
= Carrying value of goodwill in CSOFP
What are the methods used to measure GoodWill and Non controlling interest
Fair value method
Proportion of Net Assets method
What is FV method used to measure GW and NIC
Share price on the market X the number of shares NCI has
What is Proportion of Net Assets method used to measure GW and NIC
NCI % owned x FV of net assets at acquisition (W2)
