Group consolidations

Question 1

Group

Answer 1

exists where one company controls another (directly or indirectly)

Question 2

Acquisitions

Answer 2

a company acquired by another company. the company being acquired would continue to exist (keep its own assets and liabilities)

Question 3

Merger

Answer 3

A company may be formed in order to absorb one or more existing companies (physically take over the assets and liabilities of the companies absorbed)

Question 4

investments

Answer 4

• acquisition of shares in another company
• formation of a new company to acquire shares of other entities

Question 5

reasons entities invest

Answer 5

• growth
• prevent takeovers
• synergies
• acquire new sources of supply
• increase their borrowing capacity
• reduce competition

Question 6

control IFRS10

Answer 6

• when the parent has power over the subsidiary
• the parent should own >50% of the voting power in an entity (with exceptions)
• once control exists the subsidiary needs to be consolidated

Question 7

when does the parent control the subsidiary

Answer 7

• when its exposed to variable returns from its involvement with the subsidiary
• when it has the ability to affect those returns through the power over the subsidiary

Question 8

direct control

Answer 8

parent directly owns shares in subsidiary company

Question 9

indirect control

Answer 9

parent has control of a company through owning shares in a company that has control in another.

Question 10

consolidation/ acquisition method

Answer 10

• combines financial statements of two or more companies controlled by the same owner
• assets, liabilities, revenues and expenses of each subsidiary are added
• uniform accounting policies

Question 11

why are group accounts required?

Answer 11

• investor protection
• prediction (more meaningful EPS figures)
• Accountability (better measurements of performance of parent’s management)

Question 12

wholly owned subsidiaries

Answer 12

• parent owns all the issued shares of the subsidiary
• ownership interest of the parent in the subsidiary may be acquired as a result of a single or several transactions.

Question 13

partially owned subsidiaries

Answer 13

• parent owns less than all the issues shares of the subsidiary.
• existence of non controlling interest