W7/W8 - Consolidated financial statement

Question 1

What is control?

Answer 1

Control isn’t necessarily the same as ownership

Three elements in defining control:
- power over the investee from existing rights;
- exposure, or rights, to variable returns from the investee; and
- the ability to use power to affect the amount of the investor’s returns that the investor receives

Question 2

What is associate, what is subsidiary?

Answer 2

Associate: Acquirer exercises significant influence over acquiree

Subsidiary: Acquirer controls acquiree

Question 3

How are assets measured on acquisition?

Answer 3

Fair value

Question 4

How should non-controlling interest in equity be displayed?

Answer 4

Separately, and added to form total equity in consolidated sheets

Question 5

Comment calculer goodwill ?

Answer 5

Considération + NCI - Control obtenu (souvent le total de ce que possède le subsidee) = goodwill ON ACQUISITION

Question 6

What happens to pre-acquisition reserves of subsidiary?

Answer 6

Pre-acquisition reserves of subsidiary are not available for distribution to group shareholders
~ ‘Frozen’ at point of acquisition
~ Cancel out in calculation of goodwill:

Question 7

How to proceed when we don’t know net asset of subsidiary on acquisition?

Answer 7

We use equity of company on acquisition, which is often share capital + retained earnings on acquisition + REVALUATION RESERVE IF ANY

Question 8

What happens to post-acquisition reserves of subsidiary?

Answer 8

CONTROLLING INTEREST of post-acquisition reserve is added to retained earning of the group in consolidated financial statement

Question 9

How do we treat additional depreciation on acquisition?

Answer 9

Lessen assets, lessen post-acquisition reserve pro-rata of controlling interest, lessen equity NCI

Question 10

What do to with intragroups debt?

Answer 10

Cancel them, cancel receivable in P and payable in S

Question 11

How do you treat Unrealised profits in inventories – downstream sale

Answer 11

Eliminate profit realised by P on unsold goods by S – eliminate this “unrealised profit” from inventory as well

Question 12

How do you treat Unrealised profits in inventories – upstream sale

Answer 12

Eliminate parent’s share of unrealised profit from consolidated retained earnings, and eliminate NCI’s share from NCI balance