Financial Reporting by Groups of Companies

Question 1

Group Structure & Consolidated Accounts

Answer 1

• Large businesses operate through a group structure
• Consolidated FS are required when a parent company owns a majority, or all voting shares in its subsidiaries
• IFRS 10 outlines the requirements for preparing consolidated FS

Question 2

IFRS 10 - Elements of Control for Consolidated FS

Answer 2

1 - Power
2 - Variable Returns
3 - Ability to use Power to Affect Returns

Question 3

Accounting for Business Combinations - IFRS 3

Answer 3

When an acquirer obtains control (e.g., through an acquisition or merger), it must use the acquisition method for business combinations:

Fair Value Measurement: Assets and liabilities of the acquired business are measured at fair value.

Consolidation Process: Combine the parent and subsidiary financial statements

Question 4

Consolidation Process Adjustments

Answer 4

1) Intra-group transactions and balances (eliminate)

2) Unrealised profits from intra-group trading (eliminate)

3) Alignment of accounting policies

4) Recognition of Goodwill: Difference between the acquisition price and the fair value of the subsidiary’s net assets. Goodwill is capitalized and reviewed annually for impairment (IAS 36).

5) Non-controlling Interests (NCIs): Represented in the consolidated statements.

Question 5

Steps for Consolidating FS

Answer 5

1) Combine parent and subsidiary financial statements.

2) Adjust for intra-group transactions.

3) Eliminate unrealised profits from intra-group trading.

4) Align accounting policies.

5) Recognize and present goodwill and NCIs.

Question 6

Associate Companies

Answer 6

A company in which the parent has 20-50% equity ownership and can exercise significant influence, but not control.

Question 7

Equity Method - Associates IAS 28

Answer 7

Recognize the investment at cost initially.

Adjust the carrying amount with changes in the investor’s share of post-acquisition profits or losses.

Question 8

Joint Ventures - IFRS 11

Answer 8

Recognized similarly to associates, but with joint control.

Question 9

Simple Investments

Answer 9

If no significant influence (less than 20%), these are treated as trade investments, not subject to consolidation.

Question 10

Exemption from Consolidation

Answer 10

Certain exemptions from consolidation apply. For example, if a parent has less than 50% voting rights, it may not need to consolidate.

If exempted, the parent must still comply with IAS 27 (Separate Financial Statements).