Part D: Financial Statements Of Groups Of Entities Flashcards
(62 cards)
3 Elements of a business
1 Inputs - an economic resource that creates outputs when one or more processes are applied to it
2 Process - a system when applied to inputs, creates outputs
3 Output - the result of inputs and processes
There must be a genuine acquisition of a business for a business combination to have occurred
Business combinations- Acquisition method steps
1 - identify the acquirer
2 - determining the acquisition date
3 - recognising and measuring the identifiable assets acquired, the liabilities assumed and any NCI
4 - recognising goodwill
Identifying an acquirer
Usually transfers cash or shares
Must consider also:
- Relative voting rights in the combined entity
- Large minority interest when no other owner has a significant voting interest
- composition of the board and senior management of the combined entity
- terms on which the entity interests are exchanged
Acquirer usually has the largest relative size
For combinations involving multiple entities, look for who initiated the combination and the relative sizes
How may control be evidenced by power if less than 50%
Getting the 50%+ by an arrangement with other investors
Governing the financial and operating policies
Appointing the majority of the board of directors
Casting the majority of votes
On acquisition, how are contingent liabilities measured?
Until settled, at the higher of:
1) the amount that would be recognised under IAS 37 Provisions
2) the amount less accumulated amortisation under IFRS 15 Revenue
Where in the SFP does NCI go?
As a separate line in equity
2 ways NCI can be calculated
1: proportion of FV of S’s Net assets
2: FV of NCI itself
What makes up an equity table? And for what periods/dates?
- Share capital
- Share premium
- Retained earnings
- Revaluation reserve
- Any other reserve
For SFP date, at acquisition, and post acquisition
Group income statement - 6 rules
- Add across 100% from revenue to PAT (excluding dividends from subs and associates)
- NCI line added at the end of the statement as NCI’s% x S’s PAT
- Associate shown as one line called “Share in associates profit after tax”
- Depreciation from equity table working put to admin expenses or where told (only current year charge)
- Time apportion (although not for adjustments such as unrealised profits or depreciation)
- Adjust for Unrealised profit
Groups - adjusting for unrealised profit on SFP
Reduce profit of seller —> reduce seller RE
Reduce inventory —> reduce buyers inventory
Groups - adjusting for unrealised profit on SOCI
Reduce profit of seller —> increase sellers COS
Reduce inventory —> no adjustment
Unrealised profit- when does it become realised?
When the stock leaves the group.
So unrealised profit is profit made between group companies and remains in stock
If an item is in transit for group ico, which company would you alter? Sender or receiver?
Always alter the receiving company
Intra-group trading - stock in transit treatment
In receiving company,
Dr inventory
Cr payable
Intra-group trading - cash in transit treatment
In receiving company,
Dr cash
Cr receivable
Intra-group dividends treatment
Eliminate all dividends paid/received to/from other entities within the group
Impairment of Goodwill (proportionate NCI)
- Compare the recoverable amount of S (100%) to..
- NET ASSETS of S (100%) + Goodwill (100%)
- Goodwill in SFP is only for parent so needs grossing up first
- The difference in the impairment but only show the parent % of the impairment
Impairment of goodwill (fair value NCI)
- Compare the recoverable amount of S(100%) to…
- NET ASSETS of S (100%) + Goodwill (100%)
- Then find the difference to get the impairment which is then split between the parent and NCI share
Impairment of Goodwill adjustment on the income statement
- Proportionate NCI - add it to P’s expenses
2. Fair value NCI - add it to S’s expenses
Normal consideration- treatment
Dr investment in S
Cr cash
Future consideration- treatment
Dr investment in S
Cr liability
Amount needs discounting down to PV
Contingent consideration- treatment
Dr investment in S
Cr liability
All at fair value
Provisional Goodwill
When FV of NAs are not certain at acquisition date.
Have 12m to change the goodwill figure.
Any info after the 12m does not change goodwill and differences would be written off to I/S
Goodwill - Contingent liabilities
When a sub is acquired it is brought into accounts at FV.
Contingent liability does have a FV (even if normally just disclosure in the accounts). Therefore must be recognised in consolidated accounts until actually paid.
- Bring in at FV
- Measure at this amount unless it becomes probable at which point it’ll be measured at full liability
