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consolidated
financial
statements
Presented by:
Obisike Francis Emezi
Consolidated financial
statements
Learning objectives include:
• The basic terminology common to all relevant standards,
• Investments threshold and relevant accounting
treatments,
• Relevant standards on group financial statements,
IFRS 10 – Consolidated Financial Statements,
IFRS 3 – Business Combinations,
IAS 28- Investments In Associates
IAS 27 ( revised) – Separate Financial Statements,
IFRS 11 – Joint Arrangements, and
IFRS 12 – Disclosure of Interests in other entities.
Terminology
Control. An investor
controls an investee Significant
when the investor is Associate. An entity influence. The
exposed, or has Power. Existing over which an power to participate
rights, to variable rights that give the Subsidiary. An investor has in the financial and
Parent. An entity
returns from its current ability to entity that is Group. A parent and significant influence operating policy
that controls one or
involvement with direct the relevant controlled by all its subsidiaries. and which is neither decisions of an
more subsidiaries.
the investee and has activities of the another entity. a subsidiary nor an investee but is not
the ability to affect investee interest in a joint control or joint
those returns venture. control over those
through power over policies.
the investee.
Categories of Investment and Accounting Treatment
Associate Significant influence Equity accounting (IAS 28/IFRS 11) 21% to 50%
Concept of Control
•An investor controls an investee when
the investor is exposed, or has rights, to
variable returns from its involvement
with the investee and has the ability to
affect those returns through power over
the investee.
Power of the
investee
Exposure or
rights to
variable
returns
Link between
power and
returns
Power over an Investee
Purchase and
sale of goods
and services,
Determinatio
Managing
n of capital
financial
structure and
assets
funding,
Selection
Research
and
and
acquisition
developme
of fixed
nt policies
assets,
Other Rights
Rights to appoint,
Rights to appoint
reassign or remove
or remove another
key management
entity that directs
personnel, who can
the relevant
direct the relevant
activities,
activities,
Where the parent and subsidiary has different reporting dates, the
accounts can only be consolidated if gap in their dates are not more
than three months,
Consolidation begins on date control is obtained and stops on the
date control is lost,
Where the
Subtract the FV
result is
of net assets If the result is
negative
Determine the Determine the acquired from positive
Determine the goodwill or
purchase fair value of net the sum of goodwill, it
NCI, bargain
consideration, asset acquired, purchase should be
purchase, credit
consideration capitalized,
to profit or loss
and NCI,
in full.
Purchase consideration
Cash payment
Share exchange & contingent shares
Deferred consideration
Contingent consideration
Loan note issue
Purchase consideration
Non-Controlling Interests on Acquisition Date
Proportionate
Fair value
share of net
method
assets method
Fair Value Adjustments
$000
Retained earnings in the SOFP of parent xxx
Share of net assets of subsidiary xx/(xx)
Unrealized profits (x)
Unwinding of discounts on deferred consideration (x)
Acquisition costs (x)
Share of profit of associates x/(x)
Share of impairment loss on goodwill** (x)
xx/(xx)
NCI at Reporting Date
$000
NCI at acquisition date** xxx
Share of increase or decrease of net assets
Of subsidiary xxx
Share of impairment of goodwill** (x)
NCI at reporting date xx/(xx
Acquisition costs
Ventures
Meaning
$'000
Initial cost of investment xxx
Share of profit/(loss) x/(x)
Dividend received (xx)
Unrealised (profit)/loss on intercoy trade* (x)/x
Impairment of investment (x)
xxx
Exemption from Equity Accounting
Scope of IAS 27
• When an investor elects to present separate
financial statements, IAS 27 applies in
accounting for investments in subsidiaries,
associates and joint ventures.
• The standard does not mandate which
entities to produce separate financial
statements.
Preparation of Separate Financial Statements
Investments in subsidiaries, JVs or associates
are accounted for at either:
• Cost, or
• Fair Value (IFRS 9)
The entity is required to apply the same
accounting policy for each category of
investments. Any change is a change in
accounting policy.
Disclosures requirements
Each party to a joint operation (joint operator) recognizes its share of the assets,
liabilities, revenues and expenses of the joint arrangement.
The share is determined based on the rights and obligations of each party as set
out in the contractual terms.
The joint operator is required to apply the corresponding IFRS to each financial
statement element recognized
Joint venture
Consider
Legal form
Contractual terms