Corporate Reporting
,Ch 2 – Groups
Types of Investment
Control ( >50%)
• Control = Parent owns >50% of a company
o Has power over investee
▪ Have the current ability to direct the relevant activities
o Exposure/rights to variable returns from investee
o Ability to use power to impact Investor returns (i.e dividends paid)
Determined by:
• Does parent have majority of votes (>50%)
• Right to appoint majority of directors
• Agreements with other investors
o Pool together voting rights to get it over 50%
Significant Influence
• Significant influence = 20% - 50% of voting power
Can also exist via: (IAS 28, para 6)
• Representation on board of directors/equivalent governing body of investee
• Participation in policy- making processes, including participation in decidions
about dividends/other distributions
• Material transactions between entity and investee
• Interchange of managerial personnel
• Provision of essential technical information
Joint Control
• Contractually sharing of control of arrangement
o Decisions require consent of ALL parties sharing control
,Consolidated SOFP
Standard Workings:
Acquisitions Part way through reporting period
• May need to adjust profit to represent when acquisition happened for W2
• Acquired 1st August – 7/12 months reflected from opening balance
,COSFP Standard Adjustments
1) Intragroup
• Shouldn’t be reflected - Loans, Receivables/Payables
o Cancel out Receivable and Payable
Intragroup Transactions, Cash/Goods in Transit
Cash
• Cash paid by one and not received yet by other
o Cr receivables
o Dr Cash
Inventory
• Goods in transit
o Dr Inventory
o Cr Payables
• Cancel out Receivable/ Payable current accounts with remaining balances
2) Inventory PURP (Profit made by 1 party)
• If a profit made, need to get rid of it
o Work out profit element made (W5 if P, W2 if
S)
o Dr Retained Earnings, Cr Inventory
3) Non Current Assets PURP
• If NCA sold > or < CA, profit/loss is realized
o BUT Different depreciation amount also
accounted for
• Work out profit/loss and adjust RE – PURP
4) Fair Value Uplift of Net Assets
• Adjust Value of PPE upwards, and depreciate any extra amount
E.G. PPE CA = 1 mil, but FV = 4 mil
For W2
• FV adjustment = 3 mil @ RD and
Acquisition
• FV PPE depreciation = 3m/10 yrs
For SOFP
• Increase PPE by 3m – 300k depreciation in
SOFP
, Adjustments to Provisional FV’s of S’s Net Assets
• Usually, adjustment made by 1st YE after acquisition
o Sometimes, not possible
o If Acquisition in last month of the year
• If adjustment WITHIN measurement period ( <12m from acquisition
o Adjustment made Retrospectively & goodwill recalculated
• If OUTSIDE measurement period ( >12m)
o Adjustments are treated as change in accounting estimate
Fair Value of Consideration (W3)
Acquisition Costs
• Recognized in the P+L of group accounts
Cash Consideration
• Dr Investment, Cr Cash
• If cash paid later,
o Dr Cost of Investment, Cr PV of Liability
o Need to unwind and Dr Finance Cost (W5), Cr Liability
Share Consideration (ALL AT FV @ date of Acq)
• Dr Investment, Cr SC/SP
• If paid later, Dr Cost of Investment, Cr shares to be issued & MARKET VALUE AT
ACQUISITION
Deferred Consideration (ALL AT FV @ date of Acq)
• Contingent Cash = May be payable in a few years if meet targets
• Dr Investment (at PV) , Cr Provision if cash
o Unwind – Cr Liability, Dr Finance Costs
• Dr investment, Cr Shares to be issued if Shares
Adjustments to FV – DR/CR provision, CR/DR P+L
Goodwill Impairments
If using NCI proportionate % method
• % Method only recognizes Parent’s
Goodwill in SOFP
• Need to gross up to find full Goodwill
(x100/%owned)
• Carry out impairment review
• Recognize impairment loss as %
Owned x impairment
If using FV method
• Full goodwill value is already reflected
• Calculate impairment and then allocate
between RE and NCI on SOFP
,Ch 2 – Groups
Types of Investment
Control ( >50%)
• Control = Parent owns >50% of a company
o Has power over investee
▪ Have the current ability to direct the relevant activities
o Exposure/rights to variable returns from investee
o Ability to use power to impact Investor returns (i.e dividends paid)
Determined by:
• Does parent have majority of votes (>50%)
• Right to appoint majority of directors
• Agreements with other investors
o Pool together voting rights to get it over 50%
Significant Influence
• Significant influence = 20% - 50% of voting power
Can also exist via: (IAS 28, para 6)
• Representation on board of directors/equivalent governing body of investee
• Participation in policy- making processes, including participation in decidions
about dividends/other distributions
• Material transactions between entity and investee
• Interchange of managerial personnel
• Provision of essential technical information
Joint Control
• Contractually sharing of control of arrangement
o Decisions require consent of ALL parties sharing control
,Consolidated SOFP
Standard Workings:
Acquisitions Part way through reporting period
• May need to adjust profit to represent when acquisition happened for W2
• Acquired 1st August – 7/12 months reflected from opening balance
,COSFP Standard Adjustments
1) Intragroup
• Shouldn’t be reflected - Loans, Receivables/Payables
o Cancel out Receivable and Payable
Intragroup Transactions, Cash/Goods in Transit
Cash
• Cash paid by one and not received yet by other
o Cr receivables
o Dr Cash
Inventory
• Goods in transit
o Dr Inventory
o Cr Payables
• Cancel out Receivable/ Payable current accounts with remaining balances
2) Inventory PURP (Profit made by 1 party)
• If a profit made, need to get rid of it
o Work out profit element made (W5 if P, W2 if
S)
o Dr Retained Earnings, Cr Inventory
3) Non Current Assets PURP
• If NCA sold > or < CA, profit/loss is realized
o BUT Different depreciation amount also
accounted for
• Work out profit/loss and adjust RE – PURP
4) Fair Value Uplift of Net Assets
• Adjust Value of PPE upwards, and depreciate any extra amount
E.G. PPE CA = 1 mil, but FV = 4 mil
For W2
• FV adjustment = 3 mil @ RD and
Acquisition
• FV PPE depreciation = 3m/10 yrs
For SOFP
• Increase PPE by 3m – 300k depreciation in
SOFP
, Adjustments to Provisional FV’s of S’s Net Assets
• Usually, adjustment made by 1st YE after acquisition
o Sometimes, not possible
o If Acquisition in last month of the year
• If adjustment WITHIN measurement period ( <12m from acquisition
o Adjustment made Retrospectively & goodwill recalculated
• If OUTSIDE measurement period ( >12m)
o Adjustments are treated as change in accounting estimate
Fair Value of Consideration (W3)
Acquisition Costs
• Recognized in the P+L of group accounts
Cash Consideration
• Dr Investment, Cr Cash
• If cash paid later,
o Dr Cost of Investment, Cr PV of Liability
o Need to unwind and Dr Finance Cost (W5), Cr Liability
Share Consideration (ALL AT FV @ date of Acq)
• Dr Investment, Cr SC/SP
• If paid later, Dr Cost of Investment, Cr shares to be issued & MARKET VALUE AT
ACQUISITION
Deferred Consideration (ALL AT FV @ date of Acq)
• Contingent Cash = May be payable in a few years if meet targets
• Dr Investment (at PV) , Cr Provision if cash
o Unwind – Cr Liability, Dr Finance Costs
• Dr investment, Cr Shares to be issued if Shares
Adjustments to FV – DR/CR provision, CR/DR P+L
Goodwill Impairments
If using NCI proportionate % method
• % Method only recognizes Parent’s
Goodwill in SOFP
• Need to gross up to find full Goodwill
(x100/%owned)
• Carry out impairment review
• Recognize impairment loss as %
Owned x impairment
If using FV method
• Full goodwill value is already reflected
• Calculate impairment and then allocate
between RE and NCI on SOFP
