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Group Accounts: IFRS 10 Consolidated Financial Statements

The document discusses group accounts and consolidation under IFRS 10. It defines a subsidiary as an entity controlled by another entity (parent) through owning more than 50% of voting rights. The parent must prepare consolidated financial statements that combine its financial information with its subsidiaries. This involves aggregating assets and liabilities on a line-by-line basis and accounting for non-controlling interests owned by other shareholders. Goodwill arises when the price paid for a subsidiary exceeds the fair value of its identifiable net assets and represents intangible assets acquired such as customer loyalty and reputation.

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207 views9 pages

Group Accounts: IFRS 10 Consolidated Financial Statements

The document discusses group accounts and consolidation under IFRS 10. It defines a subsidiary as an entity controlled by another entity (parent) through owning more than 50% of voting rights. The parent must prepare consolidated financial statements that combine its financial information with its subsidiaries. This involves aggregating assets and liabilities on a line-by-line basis and accounting for non-controlling interests owned by other shareholders. Goodwill arises when the price paid for a subsidiary exceeds the fair value of its identifiable net assets and represents intangible assets acquired such as customer loyalty and reputation.

Uploaded by

HunairArshad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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GROUP ACCOUNTS

IFRS 10 Consolidated Financial Statements


Subsidiary

A subsidiary is an entity that is controlled by another entity (parent).

An entity has control over an entity when it has the power to direct the activities, which is
assumed to be when the entity has > 50% of the voting rights.

The parent company must prepare consolidated financial statement if it has control over
one or more subsidiaries.

The underlying principles of consolidation are:


๏ Substance over legal form
๏ Control and ownership
Consolidated Financial Statements

1. Consolidated Statement of Financial Position

2. Consolidated Statement of profit or loss and other comprehensive

income
Basic steps- Consoliated SOFP
1-100% P + 100% S assets and liabilities, ignoring the investments in subsidiary

2-100% P share capital and share premium only (reporting to parent’s


shareholders)

3-Retained earnings:
Parent 100%
+
Subsidiary(Parent’s share of post acquisition Retained Earning’s)
(Post Acquisition R.E - Pre Acquisition R.E) x Ownership Percentage
Non-controlling interest

Control is exerted through a shareholding of greater than 50%, so therefore it is


not always necessary to fully own a subsidiary.

Shareholdings of 75% will still give the parent the power to direct the activities of
the subsidiary and therefore it must prepare consolidated financial statements.

As the parent’s 75% holding still maintains control, the assets and liabilities of the
subsidiary are consolidated 100% on a line-by-line basis.
Non-controlling interest(continued)
• It is necessary to account for 25% ownership interest in the subsidiary
which is referred to as the noncontrolling interest.
• It is shown in the equity section of the consolidated statement of
financial position.

• The non-controlling interest is measured using either of the


following methods:
๏ Proportionate share of net assets
๏ Fair value
NCI-Working
Proportionate share of net assets
%age of NCI X Subsidiary’s Net assets at reporting date

Fair value Method

%age of NCI X (Subsidiary shares in issue X subsidiary’s share


price(F.V)
Goodwill
On acquisition of a subsidiary, the parent will usually pay more for the
subsidiary than the value of the net assets (assets less liabilities). Why?
๏ Customer loyalty
๏ Good reputation

The difference between what the parent pays and what the net assets
are truly worth is referred to as goodwill.
Goodwill-Measurement
Rs.
FV of the consideration(Value paid by parent) X
Add: NCI at acquisition X

Less: Fair value of net asset at acquisition (X)


Goodwill X

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