BLOCK 1
, 01
Accounting II Revision
, Topic: CONSOLIDATIONS all
Date:
Combined financial Statements • present financial information
• about two or more entities
• that are controlled by a single investor
• as a single economic entity
• include the entities under the common control of a single investor
• BUT do not include the controlling investor itself
Presentation of Consolidated A parent need not present consolidated FS if:
(a) both of the following conditions are met:
Financial Statements
• the parent is itself a subsidiary
• its ultimate parent (or any intermediate parent) produces consolidated
general purpose financial statements that comply with full IFRSs or with this
IFRS
IFRS for SMEs does not require the presentation of separate financial
statements
The different accounting polices that the parent can use to account for
Parent Company Accounting
various investments in its separate financial statements are:
Policy
• Fair value through profit or loss
• Cost less impairments (requires to be tested for impairments)
Control is presumed to exist when the parent owns, directly or indirectly
Control through subsidiaries, more than half of the voting power of an entity. That
presumption may be overcome in exceptional circumstances if it can be clearly
demonstrated that such ownership does not constitute control. Control also
exists when the parent owns half or less of the voting power of an entity but it
has:
• power over more than half of the voting rights by virtue of an agreement
with other investors
• power to govern the financial and operating policies of the entity under a
statute or an agreement
• power to appoint or remove the majority of the members of the board of
directors or equivalent governing body and control of the entity is by that
board or body
• power to cast the majority of votes at meetings of the board of directors
or equivalent governing body and control of the entity is by that board or
body
Control can also be achieved by having options or convertible instruments that
are currently exercisable or by having an agent with the ability to direct the
activities for the benefit of the controlling entity, thus management’s intention
is irrelevant
Goodwill vs. Bargain Purchase Fair value of NAV > purchase price = bargain purchase gain
Gain Fair value of NAV < purchase price = goodwill
, Topic: CONSOLIDATIONS Date:
⑳
Goodwill • is an asset belonging to the group
• is amortised over its useful life
• BUT if useful life can not be reliably determined then an estimate may be
used which is limited to 10 years
• to amortise the asset: Cr Goodwill (A)
• amortisation is an expense: Dr Goodwill Amortisation (E) - goes to profit
or loss and not OCI
• If this expense has already occurred in a prior period, this would go to
retained earnings (also a debit as prior expenses would decrease income)
Bargain Purchase Gain • is an income item
• recognised in income in year of acquisition
• recognised in retained earnings in subsequent years
• is not an asset thus is not amortised
Asset Undervalued at If the asset of the subsidiary is undervalued at acquisition:
Acquisition • asset value is now higher from the perspective of the group than the
subsidiary
• group needs to increase its depreciation expense: Dr Depreciation
• asset needs to decrease: Cr Asset
• if this was done in prior periods, the expense for the prior periods should
go to retained earnings
• once the asset has been fully written off, there is no depreciation for the
current year and the whole initial adjustment must go to retained earnings
Intragroup Inventory If there are intragroup transactions relating to inventory:
Balances • sales income from these transactions needs to be removed from the
perspective of the group: Dr Sales (I)
• cost of sales relating to this transaction needs to be removed: Cr COS (E)
• need to remove unearned profit from inventory: Cr Inventory (A)
• the opposite debit for this is: Dr COS (E)
• if unearned profit removed in the prior year, that inventory is sold first
in the current year thus the associated profit is earned now
• to earn profit there must be a credit to SOCI: Cr COS
• to remove profit from last year, it goes to retained earnings which is an
income account which increases with a credit so to decrease this: Dr
retained earnings
, 01
Accounting II Revision
, Topic: CONSOLIDATIONS all
Date:
Combined financial Statements • present financial information
• about two or more entities
• that are controlled by a single investor
• as a single economic entity
• include the entities under the common control of a single investor
• BUT do not include the controlling investor itself
Presentation of Consolidated A parent need not present consolidated FS if:
(a) both of the following conditions are met:
Financial Statements
• the parent is itself a subsidiary
• its ultimate parent (or any intermediate parent) produces consolidated
general purpose financial statements that comply with full IFRSs or with this
IFRS
IFRS for SMEs does not require the presentation of separate financial
statements
The different accounting polices that the parent can use to account for
Parent Company Accounting
various investments in its separate financial statements are:
Policy
• Fair value through profit or loss
• Cost less impairments (requires to be tested for impairments)
Control is presumed to exist when the parent owns, directly or indirectly
Control through subsidiaries, more than half of the voting power of an entity. That
presumption may be overcome in exceptional circumstances if it can be clearly
demonstrated that such ownership does not constitute control. Control also
exists when the parent owns half or less of the voting power of an entity but it
has:
• power over more than half of the voting rights by virtue of an agreement
with other investors
• power to govern the financial and operating policies of the entity under a
statute or an agreement
• power to appoint or remove the majority of the members of the board of
directors or equivalent governing body and control of the entity is by that
board or body
• power to cast the majority of votes at meetings of the board of directors
or equivalent governing body and control of the entity is by that board or
body
Control can also be achieved by having options or convertible instruments that
are currently exercisable or by having an agent with the ability to direct the
activities for the benefit of the controlling entity, thus management’s intention
is irrelevant
Goodwill vs. Bargain Purchase Fair value of NAV > purchase price = bargain purchase gain
Gain Fair value of NAV < purchase price = goodwill
, Topic: CONSOLIDATIONS Date:
⑳
Goodwill • is an asset belonging to the group
• is amortised over its useful life
• BUT if useful life can not be reliably determined then an estimate may be
used which is limited to 10 years
• to amortise the asset: Cr Goodwill (A)
• amortisation is an expense: Dr Goodwill Amortisation (E) - goes to profit
or loss and not OCI
• If this expense has already occurred in a prior period, this would go to
retained earnings (also a debit as prior expenses would decrease income)
Bargain Purchase Gain • is an income item
• recognised in income in year of acquisition
• recognised in retained earnings in subsequent years
• is not an asset thus is not amortised
Asset Undervalued at If the asset of the subsidiary is undervalued at acquisition:
Acquisition • asset value is now higher from the perspective of the group than the
subsidiary
• group needs to increase its depreciation expense: Dr Depreciation
• asset needs to decrease: Cr Asset
• if this was done in prior periods, the expense for the prior periods should
go to retained earnings
• once the asset has been fully written off, there is no depreciation for the
current year and the whole initial adjustment must go to retained earnings
Intragroup Inventory If there are intragroup transactions relating to inventory:
Balances • sales income from these transactions needs to be removed from the
perspective of the group: Dr Sales (I)
• cost of sales relating to this transaction needs to be removed: Cr COS (E)
• need to remove unearned profit from inventory: Cr Inventory (A)
• the opposite debit for this is: Dr COS (E)
• if unearned profit removed in the prior year, that inventory is sold first
in the current year thus the associated profit is earned now
• to earn profit there must be a credit to SOCI: Cr COS
• to remove profit from last year, it goes to retained earnings which is an
income account which increases with a credit so to decrease this: Dr
retained earnings
