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IFRS 10
IAS 27
Key definitions
Consolidated financial statements Financial statements of a group in which A, L, OE, I and E of parent and its subsidiaries are presented as those of a single economic entity Parent An entity that controls one or more entities Subsidiary An entity that is controlled by another entity Control
(IFRS 10: Appendix A)
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Control
IFRS 10 identifies three elements of control 1. Power over investee 2. Exposure, or rights to variable returns from involvement with the investee 3. Ability to use power over the investee to affect the amount of the investors returns
(IFRS 10:7)
An investor must possess all three elements to conclude it controls an investee. Conclusion is reassessed if there is an indication to at least one of the three elements.
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The investor has existing rights that gives it the ability to direct
the relevant activities (activities that significantly affect the investees returns) Power arises through
Voting rights such as when power over an investee is obtained directly and solely from the voting rights granted by equity instruments such as shares (often straightforward) Contractual arrangements when power results from one or more contractual arrangements (often more complex)
(IFRS 10:11)
Investees operations are dependant on the investor Investees key management personnel are current or previous
employees of the investor Significant portion of the investees activities are conducted for the investor.
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Gives holder practical ability to exercise the rights when decisions need to be made
investee
Considerations relating to voting rights Power with a majority of voting rights Majority of voting rights but no power Power without a majority of voting rights
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the majority of the voting rights, or a majority of the members of the governing body that directs the relevant activities are appointed by a vote of the holder of the majority of the voting rights
(IFRS 10: B35)
relevant activities
If another entity has existing rights that provide that entity with
the right to direct the relevant activities and that entity is not an agent of the investor, the investor does not have power over the investee. An investor does not have power over an investee, even though the investor holds the majority of the voting rights in the investee, when those voting rights are not substantive.
Eg, if the relevant activities are subject to direction by a
vote holders rights arising from other contractual arrangements the investors voting rights potential voting rights a combination of the above
(IFRS 10: B38)
directed through voting rights are generally its operating and financing activities.
May be situations where voting rights are less relevant
because rights relate to administrative tasks only Analysis of investors contractual and non-contractual rights may be necessary
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of a business combination
IFRS 3 defines a business combination as a transaction or
event in which the acquirer obtains control of one or more businesses IFRS 3 requires acquisition method to be used
Identification of acquirer Determination of acquisition date Recognition and measurement of Identifiable assets and liabilities assumed Any non-controlling interest in subsidiary Recognition and measurement of goodwill or gain from bargain purchase option
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asset When goodwill is purchased in a business combination, it may be recognised as an intangible asset
GW is defined in IFRS 3 as the excess of the acquisition date fair value of the consideration transferred over the acquisition date fair value of the net amount of identifiable assets acquired and liabilities assumed
(this definition will be modified when dealing with partly-owned subsidiaries and non-controlling interests)
that are not capable of being individually identified and separately recognised.
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S plc
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20X1
(c)
125 25
Other assets
120
30
105 45
30 30
150
150
100 50 150
100 50 150
20 10 30
On 31 December 20X1 P Limited acquired 100% of the ordinary share capital of S plc for (a) 30 (b) 45 (c) 25 The other assets of S plc consist of inventory and accounts receivable which are considered to be fairly valued. Required: Prepare a consolidated SOFP at 31 December 20X1.
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Eg 1 - Procedure
Analyse equity of subsidiary for at acquisition adjustments Offset (eliminate) the carrying amount of the parents investment in the subsidiary (in Ps records as a Dr balance) against the capital and reserves of S at date of acquisition (in Ss records as Cr balances) Combine like items of assets, liabilities, equity, income and expenses of the parent with those of its subsidiary
(IFRS 10:B86)
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Eg 1- Workings
Analysis of equity of S At acquisition
(a)
SC RE Inv in S 20 10 30 30 -
(b)
20 10 30 45 15 GW
(c)
20 10 30 25 (5) BPO
Inv in S
Gain
30
45
25
5
20
Eg 1 - Solution
P & S GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20x1 (a)
Other assets Goodwill Share capital (120 + 30) / (105 + 30) / (125 + 30) [15 (Dr GW)] 150 [100 + 30 30 (Dr SC)] 100 150
(b)
135 15 150 100
(c)
155 155 100
Retained earnings
(a) + (b) [50 + 10 -10 (Dr RE)] (c) [50 + 10 -10 (Dr RE) + 5 Cr Gain]
50
150
50
150
55
155
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Principles learnt
On consolidated SOFP,
Group share capital is the share capital of P only
Group RE is RE of P, plus RE of S
together
the records of P or S
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ownership of shares in a subsidiary may be a reliable indicator of major asset held by the subsidiary Adjustments are made to identifiable tangible assets on the basis of
specific information regarding the valuation of those assets implied information by examining the SOFP of the
subsidiary
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S plc
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20X1 125
25 150
120
30
105
45 150
25
5
100 50 150
100 50 150
On 31 December 20X1 P Limited acquired 100% of the ordinary share capital of S plc for (a) 30, when FV of land is 25 (b) 45, when FV of land is 40 (c) 25, when FV of land is 20 Required: Prepare a consolidated SOFP at 31 December 20X1. Ignore tax
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Eg 2 - Workings
Analysis of equity of S At acquisition
SC RE (a) 20 10 30 (b) 20 10 (c) 20 10
12
42
(5)
25
45
3 GW
25
-
Cr
Dr
20 10 12 3
Cr
Dr
20 10
Cr
5 45
25 25
Eg 2 - Solution
P & S GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20x1 (a)
Land Goodwill Other assets (25) / [25 + 12 (Dr Land)] / [25 5 (Cr Land)] [3 (Dr GW)] (120 + 5) / (105 + 5) / (125 + 5) 125 150 25
(b)
37 3 110 150
(c)
20 130 150
Share capital
Retained earnings
100
50 150
100
50 150
100
50 150
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Principles learnt
The change in the fair value of the land
has not been recorded in the financial statements of S
has been recorded as a consolidation adjustment only.
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to establish the fair value of the identifiable net assets of the subsidiary to calculate goodwill or bargain purchase option
the start of the current financial year to establish the post-acquisition profits or losses of the subsidiary attributable to the parent company for adjustments at beginning of current year The current year profit of the subsidiary company and any dividends paid for current year adjustments
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S plc
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20X1
Net assets
30 30 20 10 30
On 1 January 20X2 P Limited acquired 100% of the share capital of S Limited for 30.
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250
47
190
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Eg 3 - Workings
Analysis of equity of S
31/12/20x3
At acquisition SC RE Inv in S Beginning of year 20 10 30 30 15 (31/12/x2)
Cr Pro-forma Dr Dr
31/12/20x2
Pro-forma
20 10 30 30 10
Dr Dr
Cr
Beginning of year
RE at boy (31/12/x1)
(10)
5 12
(10)
5
31
Eg 2 Workings . . .
Pro-forma consolidating j/e
20x3 Dr At acq SC RE Inv in S 20 10 30 20 10 30 Cr Dr 20x2 Cr
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Eg 3 - Solution
P & S GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20x3
Profit for the period 72 (60 + 12) 45
20x2
(40 + 5)
P & S GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER
20x3
SC Bal at boy Profit for period Bal at eoy 100 100 RE 95 72 167 100 (90 + 15 10)
20x2
SC 100 RE 50 45 95 (50 + 10 10)
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Eg 3 Solution . . .
P & S GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20x3
Net assets 267 267 (220 + 47) 195 195
20x2
(160 + 35)
Share capital
Retained earnings
100
167 267
100
95 195
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Principles learnt
Group RE at beginning of year =
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