,Group Statements – Volume 1
Eighteenth edition
,
,Group Statements – Volume 1
Eighteenth edition
ZR Koppeschaar
DCom(Acc)(Pret) CA(SA)
Associate Professor of Accounting
University of South Africa
J Rossouw
MAcc(UFS) CA(SA)
Associate Professor of Accounting
University of the Free State
K Sihiya
MCom(Accounting)(UJ) CA(SA)
Senior Lecturer of Accounting
University of Johannesburg
C Wright
MCom(Forensic Acc)(Potchefstroom) CA(SA)
Senior Lecturer of Accounting
University of South Africa
,Members of the LexisNexis Group worldwide
South Africa LexisNexis (Pty) Ltd
www.lexisnexis.co.za
JOHANNESBURG Building 8, Country Club Estate Office Park, 21 Woodlands Drive, Woodmead, 2191
CAPE TOWN TBE Waterfront, 3 Dock Road, V & A Waterfront, Cape Town, 8001
DURBAN TBE Umhlanga, Block A, Park Square, Centenary Boulevard, Umhlanga, 4319
Australia LexisNexis, CHATSWOOD, New South Wales
Austria LexisNexis Verlag ARD Orac, VIENNA
Benelux LexisNexis Benelux, AMSTERDAM
Canada LexisNexis Canada, MARKHAM, Ontario
China LexisNexis, BEIJING
France LexisNexis, PARIS
Germany LexisNexis Germany, MÜNSTER
Hong Kong LexisNexis, HONG KONG
India LexisNexis, NEW DELHI
Italy Giuffrè Editore, MILAN
Japan LexisNexis, TOKYO
Korea LexisNexis, SEOUL
Malaysia LexisNexis, KUALA LUMPUR
New Zealand LexisNexis, WELLINGTON
Poland LexisNexis Poland, WARSAW
Singapore LexisNexis, SINGAPORE
United Kingdom LexisNexis, LONDON
United States LexisNexis, DAYTON, Ohio
© 2022
ISBN 978 0 639 00964 3 (softback)
978 0 639 00965 0 (e-book)
First edition 1975, Reprinted 1976 Tenth edition 2005, Reprinted 2007
Second edition 1982 Eleventh edition 2008
Third edition 1988, Reprinted 1992 Twelfth edition 2009
Fourth edition 1993, Reprinted 1995, 1996 Thirteenth edition 2010
Fifth edition 1997 Fourteenth edition 2011
Sixth edition 1998, Reprinted 1999, Revised reprint 1999 Fifteenth edition 2013
Seventh edition 2001, Reprinted 2002, 2003 Sixteenth edition 2015
Eighth edition 2003 Seventeenth edition 2017,
Ninth edition 2004 Reprinted 2018, 2019, 2020
Copyright subsists in this work. No part of this work may be reproduced in any form or by any means without
the publisher’s written permission. Any unauthorised reproduction of this work will constitute a copyright
infringement and render the doer liable under both civil and criminal law.
Whilst every effort has been made to ensure that the information published in this work is accurate, the editors,
publishers and printers take no responsibility for any loss or damage suffered by any person as a result of
the reliance upon the information contained therein.
Editor: Poovandren Nadasan
Technical Editors: Maggie Talanda
Printed by Pinetown Printers
, Preface
The purpose of this book is to set out the principles and conceptual issues of
consolidated financial statements based on International Financial Reporting Standards
(IFRSs). It focuses on the principles of control and consolidation techniques in
preparing consolidated financial statements for a group of entities. Furthermore, the
accounting treatment of an investor’s interests in associates and joint arrangements is
covered in Volume 2 of this work.
The Group Statements book focuses on providing detailed explanatory application
examples of the following IFRSs:
• IAS 27 Separate Financial Statements;
• IFRS 3 Business Combinations;
• IFRS 10 Consolidated Financial Statements;
• IAS 28 Investments in Associates and Joint Ventures;
• IFRS 11 Joint Arrangementes; and
• IFRS 12 Disclosure of Interests in Other Entities (by providing limited disclosure
examples of some core aspects).
The text includes numerous illustrative and practical examples which expand on the
principles and conceptual issues of the standards above and related aspects of other
IFRSs. The approach of the book is to primarily make use of the analysis of owners’
equity in a table format. Extensive use is also made of pro forma consolidation journal
entries while illustrating the preparation of a group’s consolidated financial statements.
In addition, the worksheet approach is applied up to the end of chapter 4 and again in
the newly added chapter 17 on more advanced intragroup transactions. The text makes
use of commentary to explain important concepts. Disclosure requirements for the
consolidated financial statements are also illustrated in the examples.
Some general Taxation issues are also addressed to the extent that current and
deferred tax is applicable to certain accounting areas in the context of this book.
However, the book focuses on group statements under IFRSs, not on the detailed
discussion and illustration of tax matters. The book only deals with some general tax
aspects and does not aim to deal with all tax-specific aspects in detail.
The dates used in the text are indicated, for example, as 20.23 (not 2023). These dates
should be viewed as fictitious dates and not as actual dates (i.e. not as 2023).
v
,Preface
The book is aimed at:
• undergraduate and postgraduate university students registered for financial
accounting modules;
• members and students of professional bodies such as the South African Institute of
Chartered Accountants (SAICA), the South African Institute of Professional
Accountants (SAIPA), the Institute of Certified Professional Accountants (CPA), etc.;
and
• practising accountants and preparers of consolidated financial statements.
LexisNexis Passplus is still included for Volume 1 of this work. PassPlus is an
electronic assessment tool which allows students to continuously assess their own
understanding of, and progress through the textbook. All PassPlus questions are
automatically and immediately graded by the system, which allows students to receive
their feedback instantly. PassPlus also affords lecturers the opportunity to use the
system for continuous assessment purposes, without adding any additional marking to
their own workload. The most beneficial way for students to use PassPlus is to work
through each chapter in the textbook and then complete the accompanying questions to
test their progress.
During the latter part of 2017, the SAICA finalised its “syllabus overload” review, and
some aspects were excluded or moved to an “awareness level” for the sake of SAICA’s
professional assessment (the Initial Test of Competence (ITC)). The major aspects thus
affected relating to Group Statements were as follows:
• investment entities;
• some aspects relating to the identification of a business combination and the
acquirer;
• pre-existing relationships and reacquired rights in a business combination;
• some aspects relating to determining control (such as delegated power, principal/
agent consideration; control of specified assets);
• vertical groups (less detailed emphasis);
• subsidiaries classified as held for sale and subsidiaries acquired with a view to
resale;
• share buy-backs and rights issues of subsidiaries leading to loss of control or step
acquisition;
• joint operation accounting;
• parent recognising its investment in investees at fair value/under the equity method
in its separate financial statements (the update of this work focused on the parent
carrying the investment at cost);
• group reorganisations;
• changes in interests in associate (but still an associate); and
• associates held for sale.
This work was updated to still include a brief discussion of some of these aspects
(where relevant), but without very detailed explanatory examples thereof. Volume 2 was
mostly affected by these changes. This Edition retained these aspects with a brief
discussion or illustration for the sake of other stakeholders using the book.
vi
, Preface
The major updates in this 18th Edition include the addition of a new chapter on more
advanced intragroup transactions, such as transactions relating to non-financial assets
revalued/remeasured to fair value, financial assets, leases, and share trusts within a
group. Furthermore, the tax rate used to illustrate some tax effects relating to the group
statements was amended to 27%. As announced in the 2022 Budget Speech, the
corporate income tax rate will be reduced to 27% for years of assessment ending on or
after 31 March 2023 (28% before that). The tax expense in some examples may not
necessarily be equal to 27% of the accounting profit, as random numbers may have
been used. However, the tax effects of the consolidation adjustments were made with
the correct rate(/s) in mind.
In 2022, SAICA revised the level at which some group aspects may be examined in its
ITC. This mainly includes the following changes in ownership:
• an associate becomes a subsidiary;
• a subsidiary becomes an associate;
• loss of significant influence over an associate or loss of joint control over a joint
venture; and
• rights issues and share buy-back by an investee.
These aspects are mainly covered in chapters 11, 13 and 14 of Volume 2. An example
of these events/transactions were mostly retained for the sake of other stakeholders
using this book. However, only one example (no longer multiple examples illustrating
various changes in ownerships) on rights issues and share buy-back transactions by
subsidiaries were retained in chapter 14.
Various smaller updates were made to the text where deemed necessary.
With the 18th Edition, we say goodbye to Prof Carol Binnekade and Prof Nerine
Stegman as authors following their retirement. We thank them for their dedication and
hard work in making this work possible. With this Edition, we welcome Mrs Karabo
Sihiya as co-author and look forward to her contributions.
We trust that users of this publication will find it beneficial.
THE AUTHORS
November 2022
vii
,
, Contents
Page
1 A group of entities and its financial statements: theory and background ....... 1
2 IFRS 3 Business combinations ....................................................................... 37
3 Consolidation at acquisition date .................................................................... 83
4 Consolidation after acquisition date ............................................................... 131
5 Intragroup transactions ................................................................................... 201
6 Adjustments and sundry aspects of group statements ................................... 323
7 Consolidation of complex groups ................................................................... 437
8 Interim acquisition of an interest in a subsidiary ............................................. 479
Legend
P/L = Profit or loss section of the statement of profit or loss and other
comprehensive income
SFP = Statement of financial position
SCI = Statement of profit or loss and other comprehensive income
SCE = Statement of changes in equity
OCI = Other comprehensive income section of the statement of profit or loss and
other comprehensive income
NCI = Non-controlling interests
ix
Eighteenth edition
,
,Group Statements – Volume 1
Eighteenth edition
ZR Koppeschaar
DCom(Acc)(Pret) CA(SA)
Associate Professor of Accounting
University of South Africa
J Rossouw
MAcc(UFS) CA(SA)
Associate Professor of Accounting
University of the Free State
K Sihiya
MCom(Accounting)(UJ) CA(SA)
Senior Lecturer of Accounting
University of Johannesburg
C Wright
MCom(Forensic Acc)(Potchefstroom) CA(SA)
Senior Lecturer of Accounting
University of South Africa
,Members of the LexisNexis Group worldwide
South Africa LexisNexis (Pty) Ltd
www.lexisnexis.co.za
JOHANNESBURG Building 8, Country Club Estate Office Park, 21 Woodlands Drive, Woodmead, 2191
CAPE TOWN TBE Waterfront, 3 Dock Road, V & A Waterfront, Cape Town, 8001
DURBAN TBE Umhlanga, Block A, Park Square, Centenary Boulevard, Umhlanga, 4319
Australia LexisNexis, CHATSWOOD, New South Wales
Austria LexisNexis Verlag ARD Orac, VIENNA
Benelux LexisNexis Benelux, AMSTERDAM
Canada LexisNexis Canada, MARKHAM, Ontario
China LexisNexis, BEIJING
France LexisNexis, PARIS
Germany LexisNexis Germany, MÜNSTER
Hong Kong LexisNexis, HONG KONG
India LexisNexis, NEW DELHI
Italy Giuffrè Editore, MILAN
Japan LexisNexis, TOKYO
Korea LexisNexis, SEOUL
Malaysia LexisNexis, KUALA LUMPUR
New Zealand LexisNexis, WELLINGTON
Poland LexisNexis Poland, WARSAW
Singapore LexisNexis, SINGAPORE
United Kingdom LexisNexis, LONDON
United States LexisNexis, DAYTON, Ohio
© 2022
ISBN 978 0 639 00964 3 (softback)
978 0 639 00965 0 (e-book)
First edition 1975, Reprinted 1976 Tenth edition 2005, Reprinted 2007
Second edition 1982 Eleventh edition 2008
Third edition 1988, Reprinted 1992 Twelfth edition 2009
Fourth edition 1993, Reprinted 1995, 1996 Thirteenth edition 2010
Fifth edition 1997 Fourteenth edition 2011
Sixth edition 1998, Reprinted 1999, Revised reprint 1999 Fifteenth edition 2013
Seventh edition 2001, Reprinted 2002, 2003 Sixteenth edition 2015
Eighth edition 2003 Seventeenth edition 2017,
Ninth edition 2004 Reprinted 2018, 2019, 2020
Copyright subsists in this work. No part of this work may be reproduced in any form or by any means without
the publisher’s written permission. Any unauthorised reproduction of this work will constitute a copyright
infringement and render the doer liable under both civil and criminal law.
Whilst every effort has been made to ensure that the information published in this work is accurate, the editors,
publishers and printers take no responsibility for any loss or damage suffered by any person as a result of
the reliance upon the information contained therein.
Editor: Poovandren Nadasan
Technical Editors: Maggie Talanda
Printed by Pinetown Printers
, Preface
The purpose of this book is to set out the principles and conceptual issues of
consolidated financial statements based on International Financial Reporting Standards
(IFRSs). It focuses on the principles of control and consolidation techniques in
preparing consolidated financial statements for a group of entities. Furthermore, the
accounting treatment of an investor’s interests in associates and joint arrangements is
covered in Volume 2 of this work.
The Group Statements book focuses on providing detailed explanatory application
examples of the following IFRSs:
• IAS 27 Separate Financial Statements;
• IFRS 3 Business Combinations;
• IFRS 10 Consolidated Financial Statements;
• IAS 28 Investments in Associates and Joint Ventures;
• IFRS 11 Joint Arrangementes; and
• IFRS 12 Disclosure of Interests in Other Entities (by providing limited disclosure
examples of some core aspects).
The text includes numerous illustrative and practical examples which expand on the
principles and conceptual issues of the standards above and related aspects of other
IFRSs. The approach of the book is to primarily make use of the analysis of owners’
equity in a table format. Extensive use is also made of pro forma consolidation journal
entries while illustrating the preparation of a group’s consolidated financial statements.
In addition, the worksheet approach is applied up to the end of chapter 4 and again in
the newly added chapter 17 on more advanced intragroup transactions. The text makes
use of commentary to explain important concepts. Disclosure requirements for the
consolidated financial statements are also illustrated in the examples.
Some general Taxation issues are also addressed to the extent that current and
deferred tax is applicable to certain accounting areas in the context of this book.
However, the book focuses on group statements under IFRSs, not on the detailed
discussion and illustration of tax matters. The book only deals with some general tax
aspects and does not aim to deal with all tax-specific aspects in detail.
The dates used in the text are indicated, for example, as 20.23 (not 2023). These dates
should be viewed as fictitious dates and not as actual dates (i.e. not as 2023).
v
,Preface
The book is aimed at:
• undergraduate and postgraduate university students registered for financial
accounting modules;
• members and students of professional bodies such as the South African Institute of
Chartered Accountants (SAICA), the South African Institute of Professional
Accountants (SAIPA), the Institute of Certified Professional Accountants (CPA), etc.;
and
• practising accountants and preparers of consolidated financial statements.
LexisNexis Passplus is still included for Volume 1 of this work. PassPlus is an
electronic assessment tool which allows students to continuously assess their own
understanding of, and progress through the textbook. All PassPlus questions are
automatically and immediately graded by the system, which allows students to receive
their feedback instantly. PassPlus also affords lecturers the opportunity to use the
system for continuous assessment purposes, without adding any additional marking to
their own workload. The most beneficial way for students to use PassPlus is to work
through each chapter in the textbook and then complete the accompanying questions to
test their progress.
During the latter part of 2017, the SAICA finalised its “syllabus overload” review, and
some aspects were excluded or moved to an “awareness level” for the sake of SAICA’s
professional assessment (the Initial Test of Competence (ITC)). The major aspects thus
affected relating to Group Statements were as follows:
• investment entities;
• some aspects relating to the identification of a business combination and the
acquirer;
• pre-existing relationships and reacquired rights in a business combination;
• some aspects relating to determining control (such as delegated power, principal/
agent consideration; control of specified assets);
• vertical groups (less detailed emphasis);
• subsidiaries classified as held for sale and subsidiaries acquired with a view to
resale;
• share buy-backs and rights issues of subsidiaries leading to loss of control or step
acquisition;
• joint operation accounting;
• parent recognising its investment in investees at fair value/under the equity method
in its separate financial statements (the update of this work focused on the parent
carrying the investment at cost);
• group reorganisations;
• changes in interests in associate (but still an associate); and
• associates held for sale.
This work was updated to still include a brief discussion of some of these aspects
(where relevant), but without very detailed explanatory examples thereof. Volume 2 was
mostly affected by these changes. This Edition retained these aspects with a brief
discussion or illustration for the sake of other stakeholders using the book.
vi
, Preface
The major updates in this 18th Edition include the addition of a new chapter on more
advanced intragroup transactions, such as transactions relating to non-financial assets
revalued/remeasured to fair value, financial assets, leases, and share trusts within a
group. Furthermore, the tax rate used to illustrate some tax effects relating to the group
statements was amended to 27%. As announced in the 2022 Budget Speech, the
corporate income tax rate will be reduced to 27% for years of assessment ending on or
after 31 March 2023 (28% before that). The tax expense in some examples may not
necessarily be equal to 27% of the accounting profit, as random numbers may have
been used. However, the tax effects of the consolidation adjustments were made with
the correct rate(/s) in mind.
In 2022, SAICA revised the level at which some group aspects may be examined in its
ITC. This mainly includes the following changes in ownership:
• an associate becomes a subsidiary;
• a subsidiary becomes an associate;
• loss of significant influence over an associate or loss of joint control over a joint
venture; and
• rights issues and share buy-back by an investee.
These aspects are mainly covered in chapters 11, 13 and 14 of Volume 2. An example
of these events/transactions were mostly retained for the sake of other stakeholders
using this book. However, only one example (no longer multiple examples illustrating
various changes in ownerships) on rights issues and share buy-back transactions by
subsidiaries were retained in chapter 14.
Various smaller updates were made to the text where deemed necessary.
With the 18th Edition, we say goodbye to Prof Carol Binnekade and Prof Nerine
Stegman as authors following their retirement. We thank them for their dedication and
hard work in making this work possible. With this Edition, we welcome Mrs Karabo
Sihiya as co-author and look forward to her contributions.
We trust that users of this publication will find it beneficial.
THE AUTHORS
November 2022
vii
,
, Contents
Page
1 A group of entities and its financial statements: theory and background ....... 1
2 IFRS 3 Business combinations ....................................................................... 37
3 Consolidation at acquisition date .................................................................... 83
4 Consolidation after acquisition date ............................................................... 131
5 Intragroup transactions ................................................................................... 201
6 Adjustments and sundry aspects of group statements ................................... 323
7 Consolidation of complex groups ................................................................... 437
8 Interim acquisition of an interest in a subsidiary ............................................. 479
Legend
P/L = Profit or loss section of the statement of profit or loss and other
comprehensive income
SFP = Statement of financial position
SCI = Statement of profit or loss and other comprehensive income
SCE = Statement of changes in equity
OCI = Other comprehensive income section of the statement of profit or loss and
other comprehensive income
NCI = Non-controlling interests
ix
