16. Consol: Associates and Joint Arrangements

Question 1

Consol: Associates: Definition

Answer 1

‘Significant influence’

20%-50% shareholding

Question 2

Consol: Joint Arrangements: Definition

Answer 2

Contractual arrangement specifying joint control

Question 3

Consol: Joint Arrangements: 2 types

Answer 3

1. Joint operations
2. Joint ventures

Question 4

Consol: Associates and Joint Arrangements: Accounting treatment type

Answer 4

Equity accounting

Question 5

Consol: Joint Arrangements: What type is any JA that isn’t structured though a separate entity?

Answer 5

Joint Operation

Question 6

Consol: Joint Arrangements: Are accounts usually prepared for joint arrangements?

Answer 6

No

Question 7

Should a party to a joint operation recognise its share of the assets, liabilities, income and expenses of the JO?

Answer 7

Yes

Question 8

Consol: Joint Arrangements: Joint venture: Definition

Answer 8

Separate legal entity

Maintains own FS
(Own assets, expenses etc.)

Question 9

Consol: Joint Arrangements: How should each venturer with joint control account for their share of the joint venture?

Answer 9

Recognize their share in their consol

Question 10

Consol: Joint Arrangements: Equity accounting: Basic principle

Answer 10

No addition of assets/liabilities
(of the associate)
(as parent doesn’t have control)

Question 11

Consol: Joint Arrangements: Equity accounting: How is the associate treated?

Answer 11

Non-current asset investment

(As a single line)

Question 12

Consol: Joint Arrangements: Equity accounting: ‘Investment in associate’ line in the accounts calculation

Answer 12

1. Original cost of the investment

PLUS

2. P’s % of A’s post-acquisition movement in NAs

MINUS

3. Impairments to date

Question 13

Consol: Joint Arrangements: Equity accounting: ‘Investment in associate’ line calculation: Two things included in NA movement line?

Answer 13

1. Post-acquisition profits

MINUS

2. Dividends paid by A

Question 14

Consol: Joint Arrangements: Adding to consol: Optional W2A working?

Answer 14

Net assets of associate:

Share capital and retained earnings at RD, Acq & RE PA

Question 15

Consol: Joint Arrangements: Adding to consol: W5: Additional lines

Answer 15

1. P% of A’s post-acquisition RE mov
2. LESS Associate impairment to date

Question 16

Consol: Joint Arrangements: W6

Answer 16

Other group reserves:

100% P’s reserve

PLUS

P% of S’s PA reserve mov

PLUS

P% of A’s PA reserve mov

Question 17

Consol: Joint Arrangements: W7

Answer 17

Investment in associate:

Original cost of investment

PLUS

P% A’s PA NA mov (W2A)

LESS

Impairment losses to date

Question 18

Consol: Joint Arrangements: Adjustment when FV of the A’s NAs exceed the carrying amount?

Answer 18

Additional depn charged on the effective uplift

So subsequently deducted from the investment in the associate in the SFP

Extra line:

Less P% of FV depn

Question 19

Consol: Joint Arrangements: P&L

Answer 19

No 100% addition of income & expenses

(Because no control)

Question 20

Consol: Joint Arrangements: P&L: Do you include dividends from the associate

Answer 20

No

INSTEAD, INCLUDE:

group share of the associate’s profit for the year less any impairment for the year

Question 21

Consol: Joint Arrangements: CSPL: Extra line for the Associate consol

Answer 21

Share of profit of associate

Question 22

Consol: Joint Arrangements: CSPL: Share of profit of associate line: Calculation

Answer 22

1. A% A’s profit

MINUS

2. A% A’s FV depn

MINUS

3. Impairment of A

Question 23

Consol: Joint Arrangements: Treatment: intra-company balances between group companies and the associate in the CSFP

Answer 23

Remain

Question 24

Consol: Joint Arrangements: Treatment: intra-company sales/purchases between group companies and associate in CSPL

Answer 24

Remain

(Not eliminated)

Question 25

Consol: Joint Arrangements: Treatment: Unrealized profit in inventory

Answer 25

Adjusted: 1. Calculate PURP as with subs 2. Multiply by *P%*

Question 26

Consol: Joint Arrangements: DE: Unrealized profit in inventory: P selling to A

Answer 26

CSFP: DR Group RE CR **Investment with A** CSPL: *Add* P's share of unrealized profit to COS

Question 27

Consol: Joint Arrangements: DE: Unrealized profit in inventory: A selling to P

Answer 27

CSFP: DR group RE CR **Group inventory** CSPL: **Deduct** P's share of unrealized profit from 'share of profit of associate'

Question 28

Consol: Joint Arrangements: Treatment: Divs paid by the associate

Answer 28

Remove divs paid from associate to the parent (W2) (Same as for subs)

Question 29

Consol: Joint Arrangements: UK GAAP difference

Answer 29

Goodwill: Amort over 10y like subs Even though no separate figure So additional working required

Question 30

Consol: Joint Arrangements: UK GAAP goodwill extra calc

Answer 30

1. Consideration paid MINUS 2. P% NA at acq = GW at acq 3. **amort/impair to date** (W5)