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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This standard shall be applied-
- 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
- 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
- power over more than half of the voting rights by virtue of agreement with other investors.
- 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.
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.
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.
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.
CFS shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances.
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 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).
If a parent loses control of a subsidiaries, it
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.
Non Controlling interest
Inter company balances
Dividends paid out of pre- acquisition profits
Revaluation of assets of Subsidiary
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 –
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.
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 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 :-
- 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.
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.
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 -
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.
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.
An investment in an associates shall be accounted for in the investor’s separate financial statements in accordance of IAS-27
Joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to 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).
A venturer shall recognise -
A venturer shall recognise -
A venturer shall recognise -
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.
When investment ceases to be jointly controlled entity is accounted for in accordance with IAS-39.
An interest in jointly controlled entity shall be accounted for in a venturer’s separate financial statements in accordance with IAS-27.
An investee in JV shall disclose the aggregate amount of the following contingent liabilities –
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.
Cost of investment in subsidiary at acquisition: $ 100,000+$ 121,000/1.21= $ 200,000
Goodwill $ 000
Share of net assets acquired(60%x 300,000) (180)
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.
As at 31 December 2008
Tangibles 1,800 1,000
Cost of investment
In Subsidiary 1,000
Current assets 400 300
Issued Capital 100 100
Retained earnings 2,900 1,000
Current liabilities 200 200
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.
Prepare the consolidated statement of financial position of Parent as at 31 December 2008.
As at 31 December 2008
Non-current assets: $
(1,800+(1,000+300-[²/10X 300])) 3,040
Current assets(400+300) 700
Issued capital 100
Retained earnings 3,132
Non- controlling interests 268
Current liabilities(200+200) 400
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.
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.
Net assets on acquisition
Cost of investment $
Less: Goodwill 18,600
40% of Associate’s net assets on acquisition 17,600
Gross up to 100% x100/40
Investment in Associate
Cost of investment 18,600
Plus:40% of post acquisition profits(48,000-44,000) 1,600
Less: Goodwill impaired (–)
40% of Associate’s net assets at year
end(48,000x 40%) 19,200
Plus: Goodwill not yet impaired 1,000
Income from associate included in consolidated statement of comprehensive income.
40% of post acquisition profits(48,000- 44,000)
Prepare the consolidated statement of financial position at 31December 2008 incorporating the interest in jade using proportionate consolidation.
Partner, BANSAL & Co.