Week 10 Everything

Question 1

AASB10

Answer 1

Requires a parent entity to include in its consolidated financial statements, all the entities that it controls.

Question 2

Control is defined as

Answer 2

A parent controls a company when the parent is exposed or has rights to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary.

Question 3

The parent entity is required to prepare

Answer 3

Consolidated financial statements for the group, consisting of the parent entity + all of its subsidiaries to provide a true and fair view of the performance and the financial position of the group as a single economic entity

Question 4

Consolidated Statement of Profit or Loss

Answer 4

The Consolidated Statement of Profit or Loss shows the
profit earned by the group, resulting from transactions with
external parties outside the group. The effect of all intragroup transactions (transactions between two members of the group) must be eliminated in the consolidated process, because a group cannot earn profits by trading with itself. Therefore, only the profits resulting from transactions withexternal parties are included in the Consolidated Statement of Profit or Loss

Question 5

Consolidated Statement of Financial Position

Answer 5

The Consolidated Statement of Financial Position shows all the assets under the control of the parent entity and all the liabilities of the group owed to external parties outside the group. The effect of all intragroup debts (amounts owing between two members of the group) must be eliminated in the consolidated process, because a group cannot owe money to itself, nor be entitled to receive money from itself. Therefore, only liabilities owed by the group to external parties outside the group and receivables payable to the group by external parties are included in the Consolidated Statement of Financial Position

Question 6

The consolidation process involves the following steps:

Answer 6

1) Recognise any unrecognised identifiable assets and liabilities of the subsidiary, and revalue identifiable assets of subsidiary to fair value at acquisition date
2) Calculate the amount of goodwill (or gain on bargain purchase) arising from the business combination
3) Substitute the Investment in Subsidiary account (in parent’s accounts) with the identifiable assets and liabilities of the subsidiary and recognise goodwill (or gain on bargain purchase)
4) Eliminate all intragroup transactions and debts.

Question 7

Examples of intragroup transactions include:

Answer 7

➢ Payment of dividends by a subsidiary to its parent entity

➢ Payment of management fees to another entity in the group

➢ Intragroup sales of inventory

➢ Intragroup sales of non-current assets

➢ Intragroup loans and interest

Question 8

Consolidation adjustments for intragroup transactions:

Answer 8

Typically eliminate these intragroup transactions by reversing the original accounting entries made to recognise the transactions in the accounts of separate entities comprising the group. Such eliminations can also introduce temporary tax differences into the consolidated accounts, which require the recognition of deferred tax liabilities and deferred tax assets