A great SHORT summary for FAC2602

FAC2602

,Table of Contents
Study Unit 1: Provisions in respect of companies in a group context ...................................................................... 2

Study Unit 2: Consolidation of a wholly-owned subsidiary at date of acquisition ................................................... 3

Study Unit 3: Consolidation of a partly-owned subsidiary at date of acquisition .................................................... 4

Study Unit 4: Consolidation of a wholly-owned subsidiary after date of acquisition .............................................. 5

Study Unit 5: Consolidation of a partly-owned subsidiary after date of acquisition ................................................ 6

Study Unit 6: Acquisition of an interest in a subsidiary during the year .................................................................. 7

Study Unit 7: Elimination of intragroup transactions ............................................................................................... 8

Study Unit 8: Treatment of dividends during consolidation .................................................................................. 10

Study Unit 9: Treatment of preference shares during consolidation ..................................................................... 10

SHORT SUMMARY .................................................................................................................................................. 11




pg. 1

, Study Unit 1: Provisions in respect of companies in a group
context

• Business combination defined as bringing together of separate entities into one
reporting entity – regulated by IFRS 3 Business combinations.

Parent company holds more than half of the issued equity share capital and more than half of
the voting rights of the subsidiary.

When parent linked with subsidiary to form larger economic unit then entity is a group.
• Simple groups – only one subsidiary

• Complex groups – more than one subsidiary

• Business combination – transaction or other event in which acquirer obtains control of
one or more business.

• Parent – member of the subsidiary and holds majority of the voting rights in the
subsidiary and has the right to control the composition of the board of directors of the
subsidiary.

• Subsidiary – entity which is controlled by another entity (parent entity).

• Sub-subsidiary – subsidiary of a subsidiary.

Companies Act says that a company that is not a wholly owned subsidiary of another company
must submit group financials to the AGM at the end of the financial year, should be presented
as consolidated annual financials unless directors of the parent think that the required
information could be more effectively and meaningfully shown in an alternative form.


Group financials don’t need to deal with subsidiary if directors think that:
• would be impractical or of no real use to members (if sums were insignificant) or the
cost of delay would be out of proportion to the usefulness of members
Need • results would be misleading or prejudicial to the affairs of the parent or other
Registrar’s
permission subsidiaries
• operations of the parent and subsidiary are so different that they could not reasonably
be treated as a single enterprise
Group annual financials aren’t required when the parent is also a wholly-owned subsidiary of
another company.




pg. 2

, General provisions of the Companies Act:
• group statements should be fair reflection of the state of affairs of the parent and its
subsidiaries as at the accounting date
• profits / losses that have arisen because of transactions in the group must be
eliminated if they have not been realised outside the group
• all intercompany balances must be eliminated by determining total assets and liabilities
of the group
• dividends declared by subsidiary out of pre-acquisition profits don’t form part of the
parent’s profits that are available for distribution
• elimination of the carrying amount of the parent’s investment in the subsidiary
• provisions of the Companies Act must be complied with.




Study Unit 2: Consolidation of a wholly-owned subsidiary
at date of acquisition
Parent company and subsidiary company draft their financials and then these individual
statements are adjusted with consolidation adjustments and then the consolidated
statements are compiled.

Basic consolidation techniques:
• elimination of common items
• elimination of intercompany items
• consolidation of remaining items

Elimination of common items
• Need to eliminate the investment in the parent’s books and the shareholder’s equity
section in the subsidiary books as at the date when the investment was made by:
o DT share capital of subsidiary out of parent’s books and
o CT investment in subsidiary

• Share capital in the consolidated Statement of Financial Position is always only the
parent’s share capital.

• Profits made by the subsidiary after the date of acquisition become part of the
retained earnings of the group and are shown as retained earnings in the
consolidated statements.

• Profits made by the subsidiary before the date of acquisition cannot form part of the
retained earnings of the group – the parent pays for the profits

• If the parent obtained its interest in the subsidiary at the date of incorporation then
there can't be any retained earnings in the books of the subsidiary.




pg. 3