ias 27 consolidated financial statements l.
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IAS-27 Consolidated Financial Statements. Scope. This standard shall be applied- In preparation of consolidated financial statement for a group of a entities under the control of a parent.

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IAS-27 Consolidated Financial Statements


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scope
Scope

This standard shall be applied-

  • In preparation of consolidated financial statement for a group of a entities under the control of a parent.
  • In accounting for investment in subsidiaries jointly controlled entities and associates in separate financial statements.
separate financial statements
Separate Financial Statements
  • are those presented by parent, an investor in an associate or a venturer in jointly controlled entity.
  • the financial statements of an entity that does not have a subsidiary, associates or venturer’s interest in a jointly controlled entity are not separate financial statements.
presentation of consolidated financial statements cfs
Presentation of Consolidated Financial Statements(CFS)
  • a parent shall present CFS in which it consolidates its investments in subsidiaries in accordance with this Standard
  • Parent need not present CFS -

- the parent itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners do not object

- the parent’s debt or equity instruments are not traded in a public

presentation of consolidated financial statements cfs5
Presentation of Consolidated Financial Statements(CFS)
  • Parent need not present CFS -

- the parent did not file, nor is it in the process of filing with a securities commission or other regulatory organization.

- the ultimate or any intermediate parent of the parent produces CFS available for public use that comply with IFRS

scope of cfs
Scope of CFS
  • CFS shall include all subsidiaries of the parent.
  • a subsidiary is not excluded from consolidation simply because the investor is a venture capital organization, mutual fund, unit trust or similar entity.
  • a subsidiary is not excluded from consolidation because of dissimilar activities
control
Control
  • parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity.
  • when the parent owns half or less of the voting power of an entity –

- power over more than half of the voting rights by virtue of agreement with other investors.

control8
Control

- power to govern the financial and operating policies of the entity under a statute of an agreement

- power to appoint or remote the majority of the members of the board of directors

- power to cast the majority of votes at meetings of the board of directors or equivalent governing body.

control9
Control

Potential Voting Rights –

The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by another entity.

control10
Control
  • Temporary control – IFRS 5
  • Severe long-term restriction to transfer funds to the parent
consolidation procedure
Consolidation procedure

Combines the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income ad expenses.

consolidation procedure12
Consolidation procedure
  • The carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiaries are eliminated.
  • Non-controlling interests in the profit or loss of consolidated subsidiaries for the reporting period are identified
  • Non-controlling interests in the net assets of consolidated subsidiaries are identified
consolidation procedure13
Consolidation procedure
  • Intra-group balances, transactions, income and expenses shall be eliminated in full.
  • when potential voting rights exist, the proportions of profit or loss and changes in equity allocated to the parent and non-controlling interests are determined on the basis of present ownership interests.
uniform reporting date
Uniform reporting date

The financial statements of the parent and its subsidiaries used I the preparation of the consolidated financial statements shall be prepared as of the same reporting date unless it is impracticable to do so.

uniform accounting policies
Uniform accounting policies

CFS shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances.

non controlling interest
Non-controlling interest

Non-controlling interest shall be presented in the consolidated statements of financial position within equity, separately from the equity of the owners of the parent.

changes in parent s ownership
Changes in parent’s ownership

Changes in parent’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners).

loss of control
Loss of control

If a parent loses control of a subsidiaries, it

  • de-recognises the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost.
  • de-recognises the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost
loss of control19
Loss of control
  • Recognises the fair value of the consideration received, if any, from the transaction
  • Recognises any investment retained in the former subsidiary as its fair value at the date when control is lost.
  • reclassifies to profit or loss or transfers directly to retained earnings if any required in accordance with other IFRS
  • recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
loss of control20
Loss of control

On the loss of control of a subsidiary, any investment retained in the former subsidiary and any amounts owed by or to the former subsidiary shall be accounted for an accordance with other IFRS from the date when control is loss.

adjustment issues

ADJUSTMENT/ ISSUES

Goodwill

Non Controlling interest

Inter company balances

Unrealised profit

Dividends paid out of pre- acquisition profits

Mid-year acquisition

Revaluation of assets of Subsidiary

separate financial statement
Separate Financial Statement

When separate financial statements of a parent are prepared, the entity shall adopt a policy of accounting for all of its investments in subsidiaries, jointly controlled entities and associates that are not classified as held for sale either –

  • at cost, or
  • in accordance with IAS-39
separate financial statements23
Separate Financial Statements

Investment in jointly controlled entities and associates that are accounted for in accordance with IAS 39 in the consolidated financial statements shall be accounted for in the same way in the investor’s separate financial statements.

disclosure
Disclosure
  • the nature of the relationship between the parent and a subsidiary
  • The reasons why the ownership, directly or indirectly through subsidiaries of more than half of the voting or potential voting power of an investee does not constitute control.
  • reasons for using a different date or period for consolidated the FS of subsidiary.
disclosure25
Disclosure
  • The nature and extent of any significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances.
  • Any changes in a parent’s ownership, interest in a subsidiary that do not result in a loss of control
disclosure26
Disclosure
  • If control of a subsidiary is lost, the parent shall disclose the gain or loss.
  • Explanation for exemption from consolidation has been used.
  • A list of significant investments in subsidiaries, jointly controlled entities and associates, including the name, county of incorporation or residence.
associate
Associate

An associates is an entity, including an unincorporated entity such as a partnership over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

significant influence
Significant influence

Significant influence is the power to participate in the financial and operating policy decisions of the associate but is not control or joint control over those policies :-

  • if an investor hold, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case.
significant influence30
Significant influence
  • Conversely, if the investor holds, directly or indirectly (e.g. through subsidiaries), less than 20% of the voting power of the investee, it is presumed that the investor does have significant influence, unless such influence can be clearly demonstrated.
measurement after initial recognition
Measurement after initial recognition
  • An investment in an associate shall be accounted for using the equity method except where –

- the investment is classified as held for sale in accordance with IFRS 5

- allowing a parent that also has been an investment in an associate not to present CFS applies.

measurement after initial recognition32
Measurement after initial recognition
  • the parent itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners do not object
  • the parent’s debt or equity instruments are not traded in a public
equity method
Equity method

The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee.

equity method34
Equity method

An investment in an associate is accounted for using the equity method from the date on which it becomes an associate. On acquisition of the investment any difference between the cost of investment and the investor’ share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as -

equity method35
Equity method
  • Goodwill relating to a associate is included in the carrying amount of the investment. Amortization of that goodwill is not permitted.
  • any excess of the investor’s share of net fair value of the associate’s identifiable assets and liabilities over the cost of the investment is included as income in the determination of the investor’s share of the associate’s profit or loss in the period in which the investment isacquired
equity method36
Equity method

If an investor’s share of losses of an associate equals or exceeds its interest in the associates, the investor discontinues recognising its share of further losses.

impairment losses
Impairment losses

After application of the equity method, including recognising the associate’s losses, the investor applies the requirements of IAS-39 to determine whether it is necessary to recognise any additional impairment loss with respect to the investor’s net investment in the associate.

separate financial statements38
Separate financial statements

An investment in an associates shall be accounted for in the investor’s separate financial statements in accordance of IAS-27

disclosure39
Disclosure
  • The fair value of investments in associates
  • Summarized financial information of associates
  • The reasons why the presumption that an investors does not have significant influence
  • the reasons why the presumption that an investor has significant influence is overcome
disclosure40
Disclosure
  • The end of reporting period of the financial statements of an associate.
  • The nature and extent of any significant restrictions
  • The un-recognised hare of losses of an associates, both for the period and cumulatively
  • The fact that an associate is not accounted for using the equity method
disclosure41
Disclosure
  • Investment in associates accounted for using the equity method shall be classified as non-current assets
  • Its share of the contingent liabilities of an associates incurred jointly with other investors
joint venture
Joint Venture

Joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.

joint control
Joint control

Joint control is the contractually agreed sharing of control over an economic activity and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the ventureres).

forms of joint venture
Forms of Joint Venture
  • Jointly controlled operations
  • Jointly controlled assets
  • Jointly controlled entities
jointly controlled operations
Jointly controlled operations

A venturer shall recognise -

  • the assets that it controls and the liabilities that it incurs; and
  • The expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture
jointly controlled assets
Jointly controlled assets

A venturer shall recognise -

  • Its share of the jointly controlled assets, classified according to the nature of the assets
  • Any liabilities that it has incurred
  • Its share of any liabilities incurred jointly with the other venturers in relation to the joint venture
jointly controlled assets48
Jointly controlled assets

A venturer shall recognise -

  • Any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture.
  • Any expenses that it has incurred in respect of its interest in the joint venture.
jointly controlled entities
Jointly controlled entities
  • Proportionate consolidation

alternative method

  • Equity method
exceptions to proportionate consolidation and equity method
Exceptions to proportionate consolidation and equity method

Interests in jointly controlled entities that are classified as held for sale in accordance with IFRS 5 shall be accounted for an accordance with that IFRS.

loss of joint control
Loss of joint control

When investment ceases to be jointly controlled entity is accounted for in accordance with IAS-39.

separate financial statement of a venturer
Separate financial statement of a venturer

An interest in jointly controlled entity shall be accounted for in a venturer’s separate financial statements in accordance with IAS-27.

transactions between a venturer and a joint venture
Transactions between a venturer and a joint venture
  • When venturer sells assets to joint venture it shall recognise only that portion of the gain or loss that is attributable to the interests of the other ventureres. The venturer shall recognise the full amount of any loss when the contribution or sale provides evidence of an impairment loss.
transactions between a venturer and a joint venture54
Transactions between a venturer and a joint venture
  • When a venturer purchases assets from a joint venture, the venturer shall not recognise its share of the profit of the joint venture from the transaction until it resells the assets to an independent party. A venturer shall recognise its share of the losses resulting from these transactions in the same way as profits except that losses shall be recognised immediately when they represent a reduction in the net realizable value of current assets or an impairment loss.
disclosure55
Disclosure

An investee in JV shall disclose the aggregate amount of the following contingent liabilities –

  • has incurred in relationship to its interests in joint ventures and its share in each of the contingent liabilities
  • for which it is contingently liable
disclosure56
Disclosure
  • contingently liable for the liabilities of the other venturers of a joint venture.
  • the aggregate amount of its commitments relating to joint ventures.
  • a listing and description of interests in significant joint ventures.
  • the method it uses to recognise its interests in jointly controlled entities.
slide57

CASE 1Parent acquired 60% of subsidiary on 1 January 2008 for $100,000 cash payable immediately and $121,000 after 2 years. The fair value of subsidiary ‘s net assets at acquisition amounted to $ 300,000. Parent’s cost of capital is 10%. The deferred consideration was completely ignored when preparing group accounts as at 31 December 2008.Required: Calculate the goodwill arising on acquisition and show how the deferred consideration should be accounted for in parent’s consolidated financial statements.

solution
SOLUTION

Cost of investment in subsidiary at acquisition: $ 100,000+$ 121,000/1.21= $ 200,000

Goodwill $ 000

Cost 200

Share of net assets acquired(60%x 300,000) (180)

-----------

20

-----------

Deferred consideration

Double entry at 1 January:

Dr Cost of investment in subsidiary $ 100,000

Cr Deferred consideration $ 100,000

On 31 December, due to unwinding of discount, the deferred consideration will equal $ 121,000/1.1= 110,000

Dr Group retained earning $ 10,000

Cr Deferred consideration $ 10,000

In the consolidated statement of financial position, the cost of investment in Subsidiary will be replaced by goodwill of $20,000; the deferred consideration will equal $ 110,000.

case 2
CASE 2

As at 31 December 2008

Parent Subsidiary

$ $

Non-current assets:

Tangibles 1,800 1,000

Cost of investment

In Subsidiary 1,000

Current assets 400 300

----------- -----------

3,200 1,300

----------- -----------

Issued Capital 100 100

Retained earnings 2,900 1,000

Current liabilities 200 200

----------- ---------

3,200 1,300

---------- --------

Further information:

Parent bought 80% of Subsidiary on the 31 December 2006.

At the date of acquisition Subsidiary’s retained earnings stood at $600 and the fair value of its net assets were $ 1,000. The revaluation was due to an asset that had a remaining useful economic life of 10 years as at the date of acquisition.

Goodwill has been impaired by $40 since acquisition. Non- controlling interest is to be valued at its proportionate share of the identifiable net assets.

Required:

Prepare the consolidated statement of financial position of Parent as at 31 December 2008.

solution60
SOLUTION

As at 31 December 2008

Non-current assets: $

Goodwill 160

Tangibles

(1,800+(1,000+300-[²/10X 300])) 3,040

Current assets(400+300) 700

----------

3,900

----------

Issued capital 100

Retained earnings 3,132

Non- controlling interests 268

Current liabilities(200+200) 400

---------

3,900

--------

case 3
CASE 3

Parent acquired, during the current year, a 40% holding in Associate for $ 18,600. Goodwill on acquisition was calculated as $ 1,000 and there has been no impairment of goodwill during the year. The fair value of Associate’s net assets of the year end is $ 48,000.

Required:

Calculate the investment in Associate to be included in the consolidate statement of financial position and state the amount of Associate’s profits to be included in the consolidate statement of comprehensive income for the current year.

solution62
SOLUTION

Net assets on acquisition

Cost of investment $

Less: Goodwill 18,600

(1,000)

------------

40% of Associate’s net assets on acquisition 17,600

Gross up to 100% x100/40

-----------

44,000

-----------

Investment in Associate

Cost of investment 18,600

Plus:40% of post acquisition profits(48,000-44,000) 1,600

Less: Goodwill impaired (–)

-----------

20,200

-----------

OR

40% of Associate’s net assets at year

end(48,000x 40%) 19,200

Plus: Goodwill not yet impaired 1,000

------------

20,2 00

------------

Income from associate included in consolidated statement of comprehensive income.

40% of post acquisition profits(48,000- 44,000)

case 4

CASE- 4

Prepare the consolidated statement of financial position at 31December 2008 incorporating the interest in jade using proportionate consolidation.

slide65
THANK

YOU

CA, D.S.RAWAT

Partner, BANSAL & Co.