6. Financial reporting by groups of companies

Question 1

How can control be exercised?

Answer 1

• direct/ indirect voting rights
• via a contract
• through control of the board of directors
• through de facto control

Question 2

What is the basic method of consolidation?

Answer 2

Parent produce consolidated accounts for parent + subsidiary

Present A, L, E, I, E and CF as single economic entity

Question 3

What is IFRS 3

Answer 3

Combinations to be accounted for using ‘acquisition method’

Question 4

What does IFRS 3 require the reporting entity to do?

Answer 4

Identify acquirer

Determine acquisition date

Recognise and measure identifiable assets and goodwill

Question 5

Two main methods for NCI valuation?

Answer 5

Fair value method

Proportion of the net assets method

Question 6

Fair value method

Answer 6

Accounting practice that measures assets and liabilities at their current market value

Question 7

What is goodwill?

Answer 7

Price paid for a company at acquisition

Normally exceed fair market value

Question 8

Events that can cause goodwill to drop below carrying value?

Answer 8

Adverse economic conditions

Increased competition

Legal implications

Loss of key personnel

Declining revenue

Market value

Question 9

What is IAS 28?

Answer 9

Equity method