Escolar Documentos
Profissional Documentos
Cultura Documentos
Table of Contents
RECOMMENDED CONSOLIDATION TECHNIQUE FOR CSOFP ............................................................ 2
RECOMMENDED CONSOLIDATION TECHNIQUE FOR CSOPL ............................................................ 2
NOTES ON COMPLETING A CONSOLIDATED STATEMENT OF PROFIT OR LOSS ..................... 3
NOTES ON COMPLETING A CONSOLIDATED STATEMENT OF FINANCIAL POSITION ........... 8
DISPOSAL OF AN ASSOCIATE .............................................................................................................. 11
ADDITIONAL ISSUES RE CSOFP ............................................................................................................... 22
Consolidated Financial Statements v Parent Co Financial Statements ........................................................... 26
Exemption From Preparing Group Accounts .................................................................................................. 28
Exclusion of a Subsidary from Consolidation ................................................................................................. 29
Summary of Trade Investments, Associates and Subsidiaries ........................................................................ 30
Goodwill and NCI............................................................................................................................................ 34
FURTHER POINTS WITH ASSOCIATES ................................................................................................... 40
CHANGES IN THE COMPOSITION OF A GROUP.................................................................................... 41
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If a subsidiary has been acquired during the year under review, the results of the subsidiary will need to be
time apportioned (i.e. from date of acquisition to the reporting date)
Example: If Date of Acq is 1 July and Reporting Date is 31 Dec, then bring in 6/12 of the Subsidiary’s
Results
NOTE 2: WORKINGS
Inspect notes to Question to Ascertain how NCI are accounted for This will impact on Fair Value
adjustments to S at date of Acquisition and How an Impairment charge on Consol Goodwill is dealt with.
(See Topic 7 of these notes)
Be Careful – Question may ask you to reduce the depreciation arising from fair value exercise
CSOPL e (i.e where Fair Value is less than carrying amount
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2. Intra Group Loan Note i.e. where Parent Issues a Loan to the Subsidiary
If loans are made between group companies then loan interest will be paid and received. The loan interest
must be excluded from the consolidated results.
Note: If the exam question tells you that the companies in the Group have accounted for interest
received/paid then such interest must be eliminated from the Consolidated STATEMENT OF PROFIT OR
LOSS
However
If the question does not specifically state that the interest received/paid has been accounted for, then no
adjustment is required.
DR Investment Income X
CR Retained Earnings X
being cancellation of Group Share of
Intra Group Dividend
* The only Dividend Payments included in the Consol SOCIE (Statement of Changes in Equity) are
Dividend Payments outside the Group as follows
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DR Turnover X
CR Cost of Sales X
with Gross Amount of Post Acquisition
Sale (i.e. the Invoice Value)
NOW BE CAREFUL
If P sells to S
SOFP
CR Inventory (S) X
DR Cost of Sales X
being cancellation of Unrealised Profit
If S sells to P SOFP
CR Inventory (P) X
DR Cost of Sales X
being cancellation of Unrealised Profit
BUT there will also be an adjustment in the NCI calculation for the NCI share of the Unrealised Profit
* In order to determine the Amount of the URP follow the instructions in the question
There is a difference between “Margin” (calculated on Final Selling Price) and “Mark Up” (applied to cost )
in terms of calculation
Only account for Post Acquisition Intra Group Trading. Trading between Group companies before the
group was formed is not relevant for the preparation of the Consolidated Accounts –
Separate Line in the STATEMENT OF PROFIT OR LOSS before “Profit Before Tax”
Also for the Associate, after the “Share of Profits of Associate”, if applicable, there will be a line called
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* Time Apportion Results of Sub if acquired during the year i.e. post acquisition period only
This is not allowed and it is the reason why we have NCI (i.e. we bring 100% of the Sub’s figures
irrespective of how much we actually own of the sub)
* Bring In Share of Associate Profits (Profit After Tax) less any impairment of investment in
Associate
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100% Consolidation
Allow for NCI
1. As a % of net assets at Reporting Rate (Traditional Method) (Goodwill Attributable to Group Only)
OR
NOTE 3: COMBINE 100% OF THE ASSETS AND LIABILITIES OF PARENT AND SUB AND
INCLUDE SHARE CAPITAL OF PARENT ONLY
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Inspect notes to Question to Ascertain how NCI are accounted for This will impact on Fair Value
adjustments to S at date of Acquisition and How an Impairment charge on Consol Goodwill is dealt with.
(See Topic 7 of these notes)
DR Inv in Sub X
CR Ordinary Share Capital (Nominal Value) X
CR Share Premium X
DR Inv in Sub X
CR Current Liabilities X
The Present Value of Deferred Consideration is the Amount Payable in the future, discounted by the
Company’s Cost of Capital
DR Inv in Sub X
CR Current Liabilities with PV of Deferred X
Consideration at Date of Acquisition
In each subsequent year, there is a finance charge for the deferred acquisition, which is included in finance
costs in the Consolidated STATEMENT OF PROFIT OR LOSS (“unwinding the provision”)
The Finance Charge is added to the deferred consideration which is a liability in the CSOFP
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3. Associate Company
20% - 50%
DR Inv in Associate X
CR OSC/Share Premium/Bank X
being Cost of Investment in Associate
DR Inv in Associate X
CR Retained Earnings X
being Investor share of post acquisition
profits of Associate
CR Inv in Associate X
DR Retained Earnings X
being share of post acquisition losses
DR Retained Earnings X
CR Inv in Associate X
being impairment of Investment in
Associate
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 the investment and the
investor’s share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as
follows:
(a) goodwill relating to an associate is included in the carrying amount of the investment. Amortisation of
that goodwill is not permitted.
(b) any excess of the investor’s share of the 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 is acquired.
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Appropriate adjustments to the investor’s share of the associate’s profits or losses after acquisition are also
made to account, for example, for depreciation of the depreciable assets based on their fair values at the
acquisition date. Similarly, appropriate adjustments to the investor’s share of the associate’s profits or losses
after acquisition are made for impairment losses recognised by the associate, such as for goodwill or
property, plant and equipment.
DISPOSAL OF AN ASSOCIATE
Sale Proceeds x
Less: Carrying
Amount of
Investment in
Associate in Group
FS at Date of
Disposal
Cost of Investment in Associate x
Add/(Less): Investor Share of Post x
Acquisition Profits/(Losses) of
Associate
Less: Accumulated Impairement of x (x)
Investment in Associate
Gain/(Loss) on x
Disposal of
Associate
The Gain/(Loss) on Disposal of Associate will be reflected in the STATEMENT OF PROFIT OR LOSS and
Retained
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4. Intra Group Loan Note Issued (which is unrelated to Cost of Acquisition of Subsidiary)
If Sub has paid Intra Group interest and Parent has not recorded the Intra Group Interest, then account for the
Intra Group Interest in P’s Accounts as follows
Note: A loan note issued by the parent as part of the cost of acquisition of the Sub, is a “promise/IOU”made
by the parent to pay an amount of money to the shareholders of the Sub in the future – hence it is a liability
of the parent (Dr Inv in Sub, Cr Liabilities )
Extra Depreciation
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BE CAREFUL! – NCI accounted for using Traditional Method , then the Fair Value adjustments are
split between NCI and Group as above
BUT – IF NCI are valued using the fair value approach (Where the Fair Value of the NCI is provided in the
question), then for fair value adjustments required at the acquisition date, do not apportion between Group
and NCI – Why? – Because Consol Goodwill (Where NCI are valued at Fair Value) reflects both Group
Share and NCI Share
HOWEVER – where NCI are valued at Fair Value and the method used is to provide the Fair Value of the
Goodwill attributable to NCI at the Acquisition date, then for fair value adjustments required at the date of
acquisition, in the Cost of Control account, account for P share of the adjustments only - Why? – Because
the Cost of Control account will already contain the NCI share of Goodwill
Do Not Offset
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BE CAREFUL! – When NCI is valued at fair value the journal to record the impairment of
consol goodwill will change to
CR NCI X
DR Cost of Control X
With fair value of NCI as given in
Question
Then you add on NCI share of Post Acquisition Profit of Sub as follows
CR NCI X
DR Retained Earnings X
Also, in Cost of Control, bring in 100% of Net Assets of Sub at Acquisition Date
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DR Equity Investments X
CR Retained Earnings X
Being increase on fair value
DR Equity Investments X
CR Retained Earnings (Group Share) X
CR NCI X
In order to make a profit for the group, group companies must trade outside the group, not with each other
If P sells to S
CR Inventory (S) X
DR Retained Earnings X
With unrealised Profit
If S sells to P
CR Inventory (P) X
DR Retained Earnings (Group Share) X
DR NCI X
With unrealised Profit
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Where Group Companies sell assets (i.e. Plant + Equipment) to each other
The easiest way to calculate the adjustment required is to compare the carrying value (CV) of the asset now
with the CV that it would have been held at had the transfer never occurred
Adjustment Required X
- Sale By Parent
Dr Group Retained Earnings
Cr Non Current Assets
With the profit on disposal less the additional depreciation (i.e. the Net URP)
- Sale by Subsidary
Cr Non Current Asset
Dr Group Retained Earnings (Group %)
Dr NCI (NCI %)
With the profit on disposal less the additional depreciation (i.e. the Net URP)
Journal to Correct:
(i.e. being removal of Net URP from P Retained Earnings & Restatement of Asset at its cost to the Group)
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P owns 80% of S
S sells plant to P on 1.1.x1for $100,000. The original cost of the plant to S was $80,000
The group depreciates plant over 5 years using the straight line method (assume $0 residual value)
Show journals required to prepare the Consol FS at 31.12.x1
Solution
The cost of the asset to the group is $80,000 – and the depreciation charge in the Consol Accounts should be
$16,000. In addition the URP of $20,000 must be eliminated from the Consol Accounts
Journals to Correct:
Example
P co owns 60% of S Co and on 1 January 20x1 S Co sells plant costing $10,000 to P Co for $12,500. The
companies make up accounts to 31 December 20X1, and the balances on their retained earnings at that date
are :
S P
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Journals to Correct:
Sale by Subsidary
Cr Non Current Asset
Dr Group Retained Earnings (Group %)
Dr NCI (NCI %)
With the profit on disposal less the additional depreciation (i.e. the Net URP)
At the year end, there might be a difference in the Intra Group Balances due to
- Cash in Transit
- Goods in Transit
The adjustment should be made in the accounts of the recipient – i.e. push the transaction through
Dr Cash (S)
CR Amounts Receivable from Parent (S)
Being recording of payment by P in S’s Accounts
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Dr Cash (P)
Cr Amounts Receivable from the Subsidary (P)
Being receipt of Cash from S in P’s accounts even though the cash has not yet been
physically received
13. Look out for contingent liabilities of the Sub at Acquisition Date – recognise at fair value in Cost of
Control account if fair value can be ascertained. This is an unusual situation/treatment but is
specifically mentioned in revised IFRS 3 so is likely to come up in exams.
CR Inv in S X
DR Cost of Control X
With Investment in Subsidiary
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Cr Cost Of Control
Dr Retained Earnings
Traditional Method NCI Share of Net Assets of Sub at the Reporting Date
OR
Again, every entry for NCI Share of O.S.C., Share Premium, Retained Earnings and Any Other Reserves
in NCI, must have an opposite + Equal Correspondence Entry
If Fair Value of NCI at date of Acquisiton has been provided, then the NCI Share of Post Acq Profits
will have to be Accounted for as Follows
Cr NCI
Dr Retained Earnings
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Negative Goodwill
Where the price paid to acquire the shares in a subsidiary is less than the fair value of the net assets required.
the acquirer should reassess the measurement of the Sub’s assets, liabilities and contingent liabilities and
possibly also the cost of the acquisition
After carrying out the re-assessment in (a), if negative goodwill persists, it should be accounted for as
follows
CR Retained Earnings X
DR Intangible Assets X
With the full amount of the negative
goodwill
Remember every entry for O.S.C., Share Premium and Retained Earnings in Cost of Control must have
an opposite and equal corresponding entry
Also, IFRS 3 Business Combinations says that negative goodwill should be credited to the acquirer, thus
none of it relates to non controlling interests.
Q1 Apr 15 (CSOPLOCI)
Q1 Apr 14 (CSOFP)
Q3 (8) Apr 14 (IFRS 10)
Q1 Aug 13 (CSOCI)
Q1 Apr 13(CSOFP)
Q1 Apr 13 (IFRS 10)
Q1 Aug 12 (CSOFP)
Q3 (8) Apr 12 (IFRS 3)
Q1 Apr 12 (CSOCI)
Q2 Aug 11 (CSOCI)
Q3 Aug 11 (CSOCI)
Q1 Apr 11 (CSOFP)
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In an acquisition of a Subsidiary, there will be some costs directly related to the acquisition such as the fees
of accountants and solicitors
treated as an expense
and
Contingent Consideration
Where the buyer agrees with the selling shareholder that a part of the purchase consideration should be
dependent on a future outcome or particular event – e.g. post acquisition earnings target
Per IFRS 3, the parent company should recognise all contingent consideration as part of the acquisition price
paid for the subsidiary
A the acquisition date, the fair value of contingent consideration will be recognised as part of the Investment
in the Subsidary by the parent
It is possible that the fair value of the contingent consideration may change after the acquisition date. If this
is due to additional information obtained that effects the position at the acquisition date, then goodwill
should be remeasured
If the change is due to events after the acquisition date (such as a higher earnings target has been met so
more is payable) it should be accounted for under IAS 37 as an increase in a provision if it is cash (or under
IFRS 9 if the consideration is in the form of a financial instrument)
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If the contingent consideration is not paid in the future, or the full amount is not payable, perhaps because
the conditions for its payment are not met, then the movement in the contingent consideration (i.e. between
the acquisition date and the reporting date) is recognised in profit or loss
Example: Intellectual Property which has a value at acquisition date Legislation passed after
acquisition date which means that at reporting date IP 15 worthless Compensation to be received from
Government
DR Current Assets
CR Retained Earnings
CR NCI (if applicable)
Dividends
Wire Ltd has approved a final dividend for the year end 31/10/08 of €10m
Texet has not accounted for the dividend receivable in its financial statements
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Journal
Dr Receivables(Texet) €2.5m
Cr Retained Earnings (Texet) €2.5m
However, in the CSOCI, Parent share of Dividend from Associate is not shown separately as the Parent will
include its share of the Associate’s Profit after Tax and therefore the dividend from the Associate is
“included” in this figure.
The reason seems to be that the present obligation from a past event creates a risk, that the subsidary would
pay to remove...hence the risk can be reliably measured and so, this is the one example where a contingent
liability (with a present obligation from a past event and a reliable estimate can be made of the outflow (even
though, the probability of the outflow is not known)) is accounted for , (as opposed to simply being
disclosed)
IFRS 3 Business Combinations and IAS 38 Intangible Assets addresses the recognition of separable
intangible assets. Once an intangible asset of a Subsidiary is “identifiable” and has a reliable “fair value”,
then it can be recognised as an Intangible Asset on the acquisition of a Subsidiary.
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So for example, €1m spent on a research project , and for which a reliable fair value of €1.2m has been
estimated by the purchasing company directors, can be recognised as an intangible asset in the context of a
business combination.
Likewise, if a subsidiary has a “customer list” which could be sold to other companies and the fair value of
this “customer list” can be reliably measured at €3m, then this too can be recognised as an intangible asset ,
but again, only in the context of a business combination
So, in summary, items can be recognised as intangible assets in a business combination scenario, once they
are “identifiable” and have a “fair value which can be reliably measured”
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When a large part of the assets of the parent consists of investments in subsidiaries, it is difficult for the
users of the financial statements of the parent, to understand anything about the investment in subsidiaries
Why?
Because, in the parent company’s accounts, the investment in a subsidiary would be contained in one line
called
Consolidated Financial Statements overcome the above weakness by showing the financial performance and
position of the group as if it was a single economic entity.
Consolidated financial statements shall include all subsidiaries of the parent (See Ifrs 5 exception – Sub’s
held for resale)
Control is the key factor in a parent subsidiary relationship. IFRS 10 defines control as when the investor is
exposed to variable returns from its involvement with the investee and the investor has the ability to affect
those returns through power over the investee
Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than
half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that
such ownership does not constitute control. Control also exists when the parent owns half or less
of the voting power of an entity when there is
(a) power over more than half of the voting rights by virtue of an agreement with other investors;
(b) power to govern the financial and operating policies of the entity under a statute or an agreement;
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(c) power to appoint or remove the majority of the members of the board of directors or equivalent
governing body and control of the entity is by that board or body; or
(d) power to cast the majority of votes at meetings of the board of directors or equivalent governing body
and control of the entity is by that board or body.
The important point is that control is not determined by a percentage holding, but by the ability to affect
returns through the exercise of power
1. They identify the nature and classification of the subsidiary assets i.e. intangible, land and buildings,
cash etc.
2. They identify the subsidiary’s debt (in the parent company financial statements, this would not be
possible because the investment in the subsidiary would be a net figure). This allows group liquidity
and gearing to be assessed.
4. The cost of the investment may be a fair representation of its value at the date of purchase, but with
the passage of time, its value might increase.
This increase would not be reflected in its original cost (in the parents financial statements)
BUT
Would be reflected in the Consolidated Financial Statements via an increase in the net assets of the
subsidiary (i.e. an increase in reserves).
5. The cost of investment in subsidiary does not reflect the size of the subsidiary.
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A parent need not present consolidated financial statements if and only if all of the following hold:
(a) The parent is itself a wholly owned (i.e. 100%) or it is a partially (<100%) owned subsidiary of
another entity and its other owners do not object to the parent not presenting consolidated financial
statements.
(b) Its securities are not publicly traded
(c) It is not in the process of issuing securities in public securities markets and
(d) The ultimate or intermediate parent publishes consolidated financial statements that comply with
IFRS
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Temporary Control: IAS 27 did originally allow a subsidiary to be excluded from consolidation
where control is intended to be temporary. This exclusion was removed by IFRS 5, whereby
subsidiaries held for sale are accounted for as Non Current Assets Held for Sale
Dissimilar Activities: It has been argued in the past that subsidiaries should be excluded from
consolidation on the grounds of dissimilar activities i.e. activities of the subsidiary are so different to
the activities of the other companies within the group that to include its results in the consolidation
would be misleading. IAS 27 rejects this argument: exclusion on these grounds is not justified
because better (relevant) information can be provided about such subsidiaries by consolidating their
results and then giving additional information about the different business activities of the subsidiary
Severe Long Term Restrictions: The previous version of IAS 27 permitted exclusion where the
subsidiary operates under severe long term restrictions and these significantly impair its ability to
transfer funds to the parent. This exclusion has now been removed. Control must actually be lost for
exclusion to occur.
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OR where despite owning 20% - 50% of the share, a significant influence is not actually exercised
Account for a Trade Investment under IAS 39 Financial Instruments: Recognition and Measurement
Initially record at carrying amount and then carry at fair value thereafter
Participating Interest
Participating Interest:
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Note: Under IAS 28, significant influence is assumed to exist when a holding reaches 20%.
However, this can be rebutted in the light of further evidence.
Example
Answer:
Is a method of accounting that brings an associate investment into the parent company financial statements
initially at cost. The carrying amount of the investment is then adjusted in each period for the group share of
profit of the associate.
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Cost of Investment
Add: Group share of post acquisition retained profit
Less: Accumulated Impairment Losses
Note:
The Investor Share of an Associates “Other Comprehensive Income” should be consolidated if applicable
Example: Minton Plc is an Associate of Rednut Plc (30% holding). Post Acquisition Period is 6 months.
Minton has Other Comprehensive Income for the Year of 18.
2.7 (18*30% *6/12) will be disclosed in the CSOCI under Other Comprehensive Income (Share of Other
Comprehensive Income of Associate)
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Subsidiary
Ask the question does the Parent have control/(power to govern) over the Subsidiary
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The option to value NCI at fair value is introduced by the revised IFRS 3, but it is just an option. Companies
can choose to adopt it or to continue to value NCI at share of net assets.
“the Pyrax group values its non controlling interests for all acquisitions at its proportionate share of fair
value of the relevant company’s identifiable net assets” – this is the traditional method ( Consol G/w is
group share only)
“the Pyrax group values non controlling interest at full (fair) value” – this is the fair value method (consol
G/w is both Group & NCI share)
Goodwill in the CSOFP relates to the Parent share of the Sub only
In the Cost of Control account we compare the Inv in S made by P to P share of the net assets of S at
acquisition date.
NCI are valued as a share of the fair value of net assets of S as at the reporting date.
N.B.: Fair value adjustments required to S as at the date of acquisition are split between Group and NCI
N.B. Impairment of Consolidated Goodwill is accounted for by P only (since Consol Goodwill is Group
Share only)
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Note: Traditional Method Variation: There may be a variation on the traditional method, whereby the
question will say “ It is group policy to measure NCI at acquisition at their proportionate share of the fair
value of the identifiable net assets of the subsidiary”
In this variation, NCI share of Net Assets at Acquisition Date will be Debited to Cost of Control but equally
will be credited (i.e. contained within 100% of Net Assets of S at acquisition Date) so the net effect is that
G/w calculated at acquisition date will be the Group share only
Finally in this variation , NCI at reporting date will be
NCI Share of Net Assets at Acquisition Date + NCI Share of Post Acquisition Retained Earnings
Treatment of Impairment and Fair Value Adjustments at Acquisition Date same as with Traditional Method
Above
Goodwill in the CSOFP relates to the Parent share of S and the NCI share of S at acquisition date.
DR Cost of Control X
CR NCI X
with fair value of G/W attributable to
NCI at the acquisition date
CR NCI X
DR Equity/Retained Earnings X
with NCI share of Net Assets of S as at
reporting date
* NB By adopting the above formula, NCI are valued at “fair value” at the reporting date
i.e. Book value plus Attributable Goodwill, and by including the Goodwill Attributable to NCI, it means that
the figure for Goodwill in the CSOFP is made up of the Group Share and NCI Share.
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N.B. :Fair Value adjustments required to S as at the Date of Acquisition will relate to the Group share of S
only (because the NCI goodwill has already been provided)
N.B. : Also, if Consolidated Goodwill is subsequently impaired, the journal entry to record the impairment is
DR Cost of Control
CR NCI
with fair value of NCI at Acquisition
Date
To determine the value of NCI at the Reporting Date, calculate the NCI share of the post acquisition results
of S and account for as follows:
CR NCI
DR Retained Earnings
Group and
NCI
N.B.: Any fair value adjustments required as at the date of acquisition (i.e. fair value adjustments relating to
S) are not split between Group and NCI.
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N.B. :Also, if Consolidated Goodwill is subsequently impaired, the journal entry to record the impairment is
Fair value is generally similar to carrying amount plus attributable goodwill The value that a potential
investor would have to pay if he wanted to purchase the NCI share of the entity i.e. Market value.
Then given that NCI is valued at its fair value as at the date of acquisition, then to value NCI at its fair value
as at the reporting date, we simply add on to the NCI, the NCI share of the Post Acquisition results of S as
follows
CR NCI
DR Retained Earnings
Also, when we bring in NCI at its fair value at acquisition date, then be careful to ensure that any
adjustments required for S as at the date of acquisition are not split between the Group and NCI
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the investor entity might owe money to the associate or vice versa
Closing Inventory might contain unrealised profit due to trading between the investor entity and the
associate
Accounting Treatment
Inter Entity Balances: Any amount owed by the investor entity to the associate or vice versa, should be
included in the CSOFP
If the unrealised profit is held in inventory of the investor, the inventory should be reduced in value
by the amount of the investor share of the unrealised profit (CR Inventory (SOFP), DR Retained
Earnings (i.e. Closing Inventory in Cost of Sales))
The Non Investor Share is a trade outside the Group and so does not require elimination. But the Investor
Share of the URP is Intra Group and so is eliminated
If the unrealised profit is held in inventory of the associate, the investment in the associate should be
reduced by the investor share of the unrealised profit (DR Retained Earnings (i.e. Share of Profit of
Associate in CSOPL ), CR Investment In Associate)
The Investor Share of Profit Earned by Trading with the Associate, is profit earned with a related party and
so is eliminated as a Consolidation Adjustment.
Note: Because the associate is NOT a group company, there is no concept of cancellation of revenue nor cost
of sales.
The only affect is the elimination of the group’s share of any URP arising on a transaction with the associate
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DISPOSAL OF INVESTMENT
Lets consider the situation where the parent disposes of all of its investment in a subsidary
The effective date of disposal is when control passes – The consolidated STATEMENT OF PROFIT OR
LOSS (statement of comprehensive income) should include the results of a subsidary up to the date of its
disposal (opposite to acquisition of a Sub during the year under review)
Where a parent sells its entire holding in a subsidiary, we require 2 workings to calculate the gain (or loss)
on disposal in both the parent’s own financial statements and the Group financial statements
Gain In Parent
This gain in an exam, may be taxable – the examiner will tell you
X
% Sold Say 80% (X)
X
Less: Goodwill less any NCI in (X)
G/w at Date Control Lost
Gain in the Group X
Tax (X)
Net Gain in the Group X
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Why do we deduct Group Share of Consol Goodwill?? – Because remember Goodwill is the difference
between the Purchase Consideration and the Net Assets acquired - so the Goodwill is not reflected in the
Net Assets of the Sub in the Sub ‘s own accounts (Internally Generated G/W cannot be capitalised – IAS 38)
and needs to be separately deducted
The Net Assets of the Sub are reflected in the Consol A/c’s as follows
NCI get their share of Sub Reserves
Consol Retained Earnings includes Group Share of Sub’s Post Acq
Group Share of Pre Acq Reserves and Group Share of all other Reserves are included as part of the Goodwill
figure
Therefore in essence, 100% of the Equity of the Sub is included in the Consol A/c’s but not all of it is
Disclosed (i.e. partially hidden in Goodwill)
Remember Net Assets = Total of Equity/Shareholders Funds
Of course, the easier way to think of the Sub’s net assets at Date of Disposal is Total Assets Less Non
Current & Current Liabilites
The Disposal of a Sub during the reporting period, may constitute a Discontinued Operation as Per IFRS 5 –
Impact on Disclosure in the STATEMENT OF PROFIT OR LOSS
Longford Co Westmeath Co
€’000 €’000
Non Current Assets 360 270
Investment in Westmeath 324
Co
Current Assets 370 370
Total Assets 1054 640
Equity & Liabilities
Equity
€1 Ordinary Shares 540 180
Retained Earnings 414 360
Current Liabilties 100 100
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CPA P1 Corporate Reporting
Solution
Consolidated Statement of Financial Position as at 30.9.08
€’000
Consolidated STATEMENT OF
PROFIT OR LOSS for Year End
30.9.08
Profit Before Tax (153 + 126) 279
Profit on Disposal (W2) 182
Tax (45+36) (81)
Profit After Tax 380
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CPA P1 Corporate Reporting
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CPA P1 Corporate Reporting
Disposal of Associate
Same principle as for the disposal of a subsidiary
Group Profit/Loss X
45
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CPA P1 Corporate Reporting
Solution
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CPA P1 Corporate Reporting
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