3 Group Accounts and Business Combinations Lecture Notes

CPA P1 Corporate Reporting
3. GROUP ACCOUNTS & BUSINESS COMBINATIONS LECTURE NOTES
Table of Contents
RECOMMENDED CONSOLIDATION TECHNIQUE FOR CSOFP ............................................................ 2
RECOMMENDED CONSOLIDATION TECHNIQUE FOR CSOPL ............................................................ 2
NOTES ON COMPLETING A CONSOLIDATED STATEMENT OF PROFIT OR LOSS ..................... 3
NOTES ON COMPLETING A CONSOLIDATED STATEMENT OF FINANCIAL POSITION ........... 8
DISPOSAL OF AN ASSOCIATE .............................................................................................................. 11
ADDITIONAL ISSUES RE CSOFP ............................................................................................................... 22
Consolidated Financial Statements v Parent Co Financial Statements ........................................................... 26
Exemption From Preparing Group Accounts .................................................................................................. 28
Exclusion of a Subsidary from Consolidation ................................................................................................. 29
Summary of Trade Investments, Associates and Subsidiaries ........................................................................ 30
Goodwill and NCI............................................................................................................................................ 34
FURTHER POINTS WITH ASSOCIATES ................................................................................................... 40
CHANGES IN THE COMPOSITION OF A GROUP.................................................................................... 41
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RECOMMENDED CONSOLIDATION TECHNIQUE FOR CSOFP

1. ASCERTAIN GROUP STRUCTURE
2. DRAW UP A PROFORMA LEAVING LINES FOR GOODWILL & NCI
3. COMBINE 100% OF THE ASSETS AND LIABILITIES OF PARENT AND SUB AND INCLUDE
SHARE CAPITAL OF PARENT ONLY
4. CANCEL ANY INTRA GROUP BALANCES AND PREPARE JOURNALS FOR OTHER
ADJUSTMENTS
5. CALCULATE GOODWILL ARISING ON ACQUISITION
6. CALCULATE ANY INVESTMENT IN ASSOCIATE AND SHOW AS A NON CURRENT
ASSET
7. CALCULATE NCI IN NET ASSETS OF SUBSIDARY
8. CALCULATE RETAINED EARNINGS AND OTHER RESERVES
RECOMMENDED CONSOLIDATION TECHNIQUE FOR CSOPL
1. ASCERTAIN GROUP STRUCTURE

2. DRAW UP A PROFORMA
3. COMBINE INCOME AND EXPENSES OF P & S REMEMBERING TO EXCLUDE DIVIDENDS
RECEIVED FROM SUB
4. CONSIDER ADJUSTMENTS AND CANCELLATIONS
5. CALCULATE SHARE OF PROFIT OF ASSOCIATE AND DISCLOSE BEFORE “GROUP
PROFIT BEFORE TAX”
6. CALCULATE NCI IN THE PROFIT FOR THE PERIOD OF THE SUBSIDARY (THIS APPEARS
UNDER THE “ATTRIBUTABLE TO” HEADING AT THE BOTTOM OF THE CSOPL )
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NOTES ON COMPLETING A CONSOLIDATED STATEMENT OF PROFIT OR LOSS
NOTE 1: (ASCERTAIN GROUP STRUCTURE/DATE OF ACQ/REPORTING DATE)
If a subsidiary has been acquired during the year under review, the results of the subsidiary will need to be
time apportioned (i.e. from date of acquisition to the reporting date)
Example: If Date of Acq is 1 July and Reporting Date is 31 Dec, then bring in 6/12 of the Subsidiary’s
Results
NOTE 2: WORKINGS
Inspect notes to Question to Ascertain how NCI are accounted for This will impact on Fair Value
adjustments to S at date of Acquisition and How an Impairment charge on Consol Goodwill is dealt with.
(See Topic 7 of these notes)
Common Workings Include
1. Extra Depreciation Arising from a Fair Value Exercise
DR Cost of Sales (SOPL) X

CR Non Current Assets (SOFP) X
* Will also impact on the calculation of non controlling interests
Be Careful – Question may ask you to reduce the depreciation arising from fair value exercise
CSOPL e (i.e where Fair Value is less than carrying amount
CR Cost of Sales (SOPL) X

DR Non Current Assets (SOFP) X
* Will also impact on the calculation of non controlling interests
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2. Intra Group Loan Note  i.e. where Parent Issues a Loan to the Subsidiary
DR Investment Income (P) X

CR Finance Costs (S) X
being cancellation of Intra Group Loan
Interest *Time Apportion Interest*
Intra Group Loan Note  i.e. Between Parent + Subsidiary
DR Investment Income (P) X

CR Finance Cost X
being cancellation of Intra Group Loan
Interest *Time Apportion where
necessary*
If loans are made between group companies then loan interest will be paid and received. The loan interest
must be excluded from the consolidated results.
 Note: If the exam question tells you that the companies in the Group have accounted for interest
received/paid then such interest must be eliminated from the Consolidated STATEMENT OF PROFIT OR
LOSS
However
If the question does not specifically state that the interest received/paid has been accounted for, then no
adjustment is required.
3. Intra Group Dividend
DR Investment Income X
CR Retained Earnings X
being cancellation of Group Share of
Intra Group Dividend
* The only Dividend Payment included in Consol SOPL are
- Dividend Payments by the Parent Company (outside the group)
* The only Dividend Payments included in the Consol SOCIE (Statement of Changes in Equity) are
Dividend Payments outside the Group as follows
- Dividend Payments by the Parent Company (outside the Group)

- Dividend Payments to NCI by Subsidiaries (payment to NCI is outside the Group and is
therefore not Intra Group)
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Refer also to Page of Manual – Dividends and Pre Acquisition Profits
4. Intra Group Trading/Unrealised Profit
DR Turnover X
CR Cost of Sales X
with Gross Amount of Post Acquisition
Sale (i.e. the Invoice Value)
NOW BE CAREFUL
If P sells to  S
SOFP
CR Inventory (S) X
DR Cost of Sales X
being cancellation of Unrealised Profit
If S sells to  P SOFP
CR Inventory (P) X
DR Cost of Sales X
being cancellation of Unrealised Profit
BUT there will also be an adjustment in the NCI calculation for the NCI share of the Unrealised Profit
* In order to determine the Amount of the URP follow the instructions in the question
“P sold to S for $15m on which P made a gross profit of 20%”

 Total Margin/Profit  $15m x 20% = $3m
“P sold to S for $56m. P added a markup of 40% on cost when selling to S

 Total Markup/Profit  $56m  140 x 40 = $16m
There is a difference between “Margin” (calculated on Final Selling Price) and “Mark Up” (applied to cost )
in terms of calculation
Margin % = Calculated on Selling Price

Mark Up% = Calculated on Cost
Both result in Profit (Sales less Cost) 5
Only account for Post Acquisition Intra Group Trading. Trading between Group companies before the
group was formed is not relevant for the preparation of the Consolidated Accounts –
5. How to Deal with an Associate in the Consol SOPL (IAS 28)
20%-50% Holding  Accounted for under the Equity Method of Accounting
“Significant Influence/Participating Interest in the Operational + Financial Policy decisions”
 Separate Line in the STATEMENT OF PROFIT OR LOSS before “Profit Before Tax”
called “Share of Profits of Associate”
% Share in Associate x Profit After Tax of the

Associate (*Time
Apportion if
acquired during year)
Also for the Associate, after the “Share of Profits of Associate”, if applicable, there will be a line called
“Impairment of Investment In Associate”
See also Disposal of an Associate
6. Non Controlling Interests
Profit After Tax of the Subsidiary X

(Time Apportion this figure if Sub is acquired during year
under review)
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Less: Additional Depreciation from Fair Value Exercise (X)
Less: Unrealised Profit on Intra Group Trading (S selling (X)

toP only)
(Time Apportion this figure if Sub is acquired during
year under review)
Y
NCI Share of the Subsidiary (e.g. 20%) 20%
Non Controlling Interest X
(Adjusted PAT of Sub (“Y) x NCI Share of Sub)
NOTE 3: PREPARE CONSOL STATEMENT OF PROFIT OR LOSS
* Time Apportion Results of Sub if acquired during the year  i.e. post acquisition period only
* Bring in Journal Workings
NB* Do not multiply Subsidiary Results by Group Share
This is not allowed and it is the reason why we have NCI (i.e. we bring 100% of the Sub’s figures
irrespective of how much we actually own of the sub)
* Do a separate working for Cost of Sales
* All Line Items are P+S
* Bring In Share of Associate Profits (Profit After Tax) less any impairment of investment in
Associate
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NOTES ON COMPLETING A CONSOLIDATED STATEMENT OF FINANCIAL

POSITION
NOTE 1: ASCERTAIN GROUP STRUCTURE (BASED ON OWNERSHIP OF ORDINARY

SHARES)
>50%  Likely Control  Dominant Influence  Subsidiary
 100% Consolidation
 Allow for NCI
20% - 50%  Significant Influence  Participating Interest

 Associate (Equity Method of Accounting IAS 28)
Also note the following
Date of Acquisition (Goodwill Calculation)

Date of Disposal
Reporting Date
Determine How NCI are valued
1. As a % of net assets at Reporting Rate (Traditional Method) (Goodwill Attributable to Group Only)
OR
2. Fair Value Method (Goodwill Attributable to Group + NCI)
NOTE 2: DRAW UP A PROFORMA LEAVING LINES FOR GOODWILL & NCI
NOTE 3: COMBINE 100% OF THE ASSETS AND LIABILITIES OF PARENT AND SUB AND
INCLUDE SHARE CAPITAL OF PARENT ONLY
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NOTE 4: ACCOUNT FOR WORKINGS/ADDITIONAL NOTES
Inspect notes to Question to Ascertain how NCI are accounted for This will impact on Fair Value
adjustments to S at date of Acquisition and How an Impairment charge on Consol Goodwill is dealt with.
(See Topic 7 of these notes)
1. Investment in Subsidiary by Share Exchange
DR Inv in Sub X
CR Ordinary Share Capital (Nominal Value) X
CR Share Premium X
2. Investment in S by deferred Consideration
 Payable within 1 year (No Discounting)
DR Inv in Sub X
CR Current Liabilities X
 Payable after 1 year (Discounting will apply)
Deferred Cons valued at Present Value at Acquisition Date
The Present Value of Deferred Consideration is the Amount Payable in the future, discounted by the
Company’s Cost of Capital
DR Inv in Sub X
CR Current Liabilities with PV of Deferred X
Consideration at Date of Acquisition
In each subsequent year, there is a finance charge for the deferred acquisition, which is included in finance
costs in the Consolidated STATEMENT OF PROFIT OR LOSS (“unwinding the provision”)
DR Finance Costs (SOPL) X

CR Current Liabilities (SOFP) X
The Finance Charge is added to the deferred consideration which is a liability in the CSOFP
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3. Associate Company
20% - 50%
Cost of Investment in Associate X

Add/Less: Share of Post Acquisition Profits/(Loss) X
Less: Accumulated Impairment (X)

Carrying Amount of Investment in Associate X
DR Inv in Associate X
CR OSC/Share Premium/Bank X
being Cost of Investment in Associate
DR Inv in Associate X
being Investor share of post acquisition
profits of Associate
CR Inv in Associate X
DR Retained Earnings X
being share of post acquisition losses
CR Inv in Associate X
being impairment of Investment in
Associate
An investment in an associate is accounted for using the equity method from the date on which it becomes
an associate. On acquisition of the investment any difference between the cost of the investment and the
investor’s share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as
follows:
(a) goodwill relating to an associate is included in the carrying amount of the investment. Amortisation of
that goodwill is not permitted.
(b) any excess of the investor’s share of the net fair value of the associate’s identifiable assets and liabilities
over the cost of the investment is included as income in the determination of the investor’s share of the
associate’s profit or loss in the period in which the investment is acquired.
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Appropriate adjustments to the investor’s share of the associate’s profits or losses after acquisition are also
made to account, for example, for depreciation of the depreciable assets based on their fair values at the
acquisition date. Similarly, appropriate adjustments to the investor’s share of the associate’s profits or losses
after acquisition are made for impairment losses recognised by the associate, such as for goodwill or
property, plant and equipment.
DISPOSAL OF AN ASSOCIATE
Calculate Gain/loss on Disposal of Associate
Sale Proceeds x
Less: Carrying
Amount of
Investment in
Associate in Group
FS at Date of
Disposal
Cost of Investment in Associate x
Add/(Less): Investor Share of Post x
Acquisition Profits/(Losses) of
Associate
Less: Accumulated Impairement of x (x)
Investment in Associate
Gain/(Loss) on x
Disposal of
Associate
The Gain/(Loss) on Disposal of Associate will be reflected in the STATEMENT OF PROFIT OR LOSS and
Retained
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4. Intra Group Loan Note Issued (which is unrelated to Cost of Acquisition of Subsidiary)
Cancel on Consolidation (i.e. Cancel Liability + Asset)
If Sub has paid Intra Group interest and Parent has not recorded the Intra Group Interest, then account for the
Intra Group Interest in P’s Accounts as follows
Cr Retained Earnings (P)

Dr Current Assets (P) )(Cash/Bank/Receivables)
Note: A loan note issued by the parent as part of the cost of acquisition of the Sub, is a “promise/IOU”made
by the parent to pay an amount of money to the shareholders of the Sub in the future – hence it is a liability
of the parent (Dr Inv in Sub, Cr Liabilities )
5. Fair Value Exercise/Extra Depreciation
DR Non Current Assets X

CR Cost of Control X
CR NCI X
Being Increase in Asset Value to Fair
Value
Extra Depreciation
CR Non Current Assets X

DR Retained Earnings (Group Share) X
DR NCI X
being extra depreciation arising from
fair value adjustment
Where Fair Value is less than carrying Amount at Acquisition Date
CR Non Current Assets X

DR Cost of Control X
DR NCI X
being decrease in Asset Value to Fair
Value at Date of Acquisition
 No Depreciation on Land – Indefinite Useful Life
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 BE CAREFUL! – NCI accounted for using Traditional Method , then the Fair Value adjustments are
split between NCI and Group as above
BUT – IF NCI are valued using the fair value approach (Where the Fair Value of the NCI is provided in the
question), then for fair value adjustments required at the acquisition date, do not apportion between Group
and NCI – Why? – Because Consol Goodwill (Where NCI are valued at Fair Value) reflects both Group
Share and NCI Share
HOWEVER – where NCI are valued at Fair Value and the method used is to provide the Fair Value of the
Goodwill attributable to NCI at the Acquisition date, then for fair value adjustments required at the date of
acquisition, in the Cost of Control account, account for P share of the adjustments only - Why? – Because
the Cost of Control account will already contain the NCI share of Goodwill
6. To Introduce Deferred Tax Assets/Liabilities at Acquisition Date
 Deferred Tax Assets/Liabilities
Always classified as Non Current
Do Not Offset
DR Deferred Tax Asset (Non Current X

Assets) X
CR Cost of Control (Group Share) X
CR NCI
CR Deferred Tax Liability (Non Current X

Liabilities)
DR Cost of Control (Group Share) X
DR NCI X
7. Impairment of Consolidated Goodwill
 Remember, Under IAS, Goodwill is not amortised
 But, it can be impaired
CR Cost of Control/Intangible Asset X

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 BE CAREFUL! – When NCI is valued at fair value the journal to record the impairment of
consol goodwill will change to
CR Cost of Control/Intangible Asset

DR Retained Earnings
DR NCI
8. Fair Value Method of Valuing NCI
CR NCI X
With fair value of NCI as given in
Question
Then you add on NCI share of Post Acquisition Profit of Sub as follows
CR NCI X
 Also, in Cost of Control, bring in 100% of Net Assets of Sub at Acquisition Date
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9. Investments – Increase to Fair Value
Available for Sale Investment at Profit or Loss
DR Equity Investments X
Being increase on fair value
 If Investments belong to Subsidiary
DR Equity Investments X
CR Retained Earnings (Group Share) X
CR NCI X
10. Intra Group Trading/Unrealised Profits
 In order to make a profit for the group, group companies must trade outside the group, not with each other
If P sells to S
CR Inventory (S) X
With unrealised Profit
If S sells to P
CR Inventory (P) X
DR Retained Earnings (Group Share) X
DR NCI X
With unrealised Profit
11. Intra Group Trading/Asset Transfers
Some Core Principles to be followed

- Asset to be stated at its Cost to the Group
- Depreciation to be Based on Cost to the Group
- Unrealised Profit to be Eliminated
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 Where Group Companies sell assets (i.e. Plant + Equipment) to each other
The easiest way to calculate the adjustment required is to compare the carrying value (CV) of the asset now
with the CV that it would have been held at had the transfer never occurred
CV at reporting date with transfer X

CV at reporting date without transfer (X)
Adjustment Required X
The double entry is as follows
- Sale By Parent
Dr Group Retained Earnings
Cr Non Current Assets
With the profit on disposal less the additional depreciation (i.e. the Net URP)
- Sale by Subsidary
Cr Non Current Asset
Dr Group Retained Earnings (Group %)
Dr NCI (NCI %)
Example – P sells non Current Asset to S

P owns 75% of S
P sells equipment to S at a profit of €500 on 1.1.x1
S will depreciate the equipment over a 5 year life. The Reporting Date is 31.12.x1
Original Unrealised Profit = 500

Less: URP effectively realised/written off via Depreciation Charge 100 (500/ 5 years)
Net URP 400
Journal to Correct:
Dr Retained Earnings (P) 400

Cr Equipment (S) 400
(i.e. being removal of Net URP from P Retained Earnings & Restatement of Asset at its cost to the Group)
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IF S sells non current assets to P
P owns 80% of S
S sells plant to P on 1.1.x1for $100,000. The original cost of the plant to S was $80,000
The group depreciates plant over 5 years using the straight line method (assume $0 residual value)
Show journals required to prepare the Consol FS at 31.12.x1
Solution
The cost of the asset to the group is $80,000 – and the depreciation charge in the Consol Accounts should be
$16,000. In addition the URP of $20,000 must be eliminated from the Consol Accounts
Original Unrealised Profit = 20,000

Less: URP effectively realised/written off via Depreciation Charge 4,000 (20,000/ 5 years)
Net Unrealised Profit 16,000
Journals to Correct:
Cr Plant (P) 16,000 (Plant stated at cost to Group)

Dr Retained Earnings (Group Share) 12,800 (Removal of Net URP)
Dr NCI 3,200 (Removal of Net URP)
Example
P co owns 60% of S Co and on 1 January 20x1 S Co sells plant costing $10,000 to P Co for $12,500. The
companies make up accounts to 31 December 20X1, and the balances on their retained earnings at that date
are :
P Co after charging depreciation of 10% on plant $ 27, 000

S Co including profit on sale of plant $ 18,000
Required : Show the working for consolidated retained earnings
S P
Original Unrealised Profit = 2,500

Less: URP effectively realised/written off via Depreciation Charge 250 (2,500 * 10%)
Net Unrealised Profit 2,250
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Journals to Correct:
Sale by Subsidary
Cr Non Current Asset
Dr Group Retained Earnings (Group %)
Dr NCI (NCI %)
Cr Plant (P) 2,250 (Plant stated at cost to Group)

Dr Retained Earnings (Group Share) 1,350 (Removal of Net URP)
Dr NCI 900 (Removal of Net URP)
 Same logic as in Point ‘10’ above – eliminate unrealised profit
12. Intra Group Balances: Items In Transit
At the year end, there might be a difference in the Intra Group Balances due to
- Cash in Transit
- Goods in Transit
The adjustment should be made in the accounts of the recipient – i.e. push the transaction through
If Cash in Transit from Parent to Subsidary
Dr Cash (S)
CR Amounts Receivable from Parent (S)
Being recording of payment by P in S’s Accounts
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If Cash in Transit from Subsidary to Parent
Dr Cash (P)
Cr Amounts Receivable from the Subsidary (P)
Being receipt of Cash from S in P’s accounts even though the cash has not yet been
physically received
If Goods in Transit from Parent to Subsidary
DR Inventory (S) (With Cost to S)

CR Trade Payables (S)
Being recording of Intra Group Sale by P to S in S’s accounts as a consol adjustment
DR Retained Earnings (P) (Eliminate URP in P’s Accounts)

Cr Inventory (S) (With URP – so inventory ends up being stated at its cost to the group)
Being Elimination of URP in P’s accounts
If Goods in Transit from Subsidary to Parent

CR Trade Payable (in P’s Accounts) (Set up a Trade Payable)
Dr Inventory (in P’s Accounts) (Recognised Inventory Cost)
Being Recognition of Sale Made by S to P in P’s Accounts
13. Look out for contingent liabilities of the Sub at Acquisition Date – recognise at fair value in Cost of
Control account if fair value can be ascertained. This is an unusual situation/treatment but is
specifically mentioned in revised IFRS 3 so is likely to come up in exams.
N.B. THE ABOVE 13 POINTS ARE NOT EXHAUSTIVE

*ADD MORE WORKINGS AS YOU PRACTICE QUESTIONS*
NOTE 5: CALCULATE GOODWILL ARISING ON ACQUISITION
CLOSE INV IN S TO COST OF CONTROL
CR Inv in S X
With Investment in Subsidiary
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INSERT RETAINED EARNINGS OF S AT Acquisition Date
Cr Cost Of Control
Dr Retained Earnings
NOTE 6 :CALCULATE ANY INVESTMENT IN ASSOCIATE AND SHOW AS A NON CURRENT

ASSET
NOTE 7: CALCULATE NCI IN NET ASSETS OF SUBSIDARY
Traditional Method  NCI Share of Net Assets of Sub at the Reporting Date
OR
Fair Value Method 
 Again, every entry for NCI Share of O.S.C., Share Premium, Retained Earnings and Any Other Reserves
in NCI, must have an opposite + Equal Correspondence Entry
If Fair Value of NCI at date of Acquisiton has been provided, then the NCI Share of Post Acq Profits
will have to be Accounted for as Follows
Cr NCI
Dr Retained Earnings
NOTE 8: CALCULATE RETAINED EARNINGS AND OTHER RESERVES
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Negative Goodwill
Where the price paid to acquire the shares in a subsidiary is less than the fair value of the net assets required.
 IFRS 3 uses the term “bargain purchases” instead of negative goodwill
 NOTEs prior to Accounting for Negative Goodwill
the acquirer should reassess the measurement of the Sub’s assets, liabilities and contingent liabilities and
possibly also the cost of the acquisition
After carrying out the re-assessment in (a), if negative goodwill persists, it should be accounted for as
follows
DR Intangible Assets X
With the full amount of the negative
goodwill
 Remember every entry for O.S.C., Share Premium and Retained Earnings in Cost of Control must have
an opposite and equal corresponding entry
Also, IFRS 3 Business Combinations says that negative goodwill should be credited to the acquirer, thus
none of it relates to non controlling interests.
PAST EXAM QUESTIONS
 Q1 Apr 15 (CSOPLOCI)
 Q1 Apr 14 (CSOFP)
 Q3 (8) Apr 14 (IFRS 10)
 Q1 Aug 13 (CSOCI)
 Q1 Apr 13(CSOFP)
 Q1 Apr 13 (IFRS 10)
 Q1 Aug 12 (CSOFP)
 Q3 (8) Apr 12 (IFRS 3)
 Q1 Apr 12 (CSOCI)
 Q1 Apr 11 (CSOFP)
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ADDITIONAL ISSUES RE CSOFP

Acquisition Cost and Directly Related Acquisition Costs
In an acquisition of a Subsidiary, there will be some costs directly related to the acquisition such as the fees
of accountants and solicitors
Due to the revision of IFRS 3 in 2008, such costs are
treated as an expense
and
written off against retained profits in full in the year of acquisition
DO NOT INCLUDE in the calculation of goodwill
Contingent Consideration
Where the buyer agrees with the selling shareholder that a part of the purchase consideration should be
dependent on a future outcome or particular event – e.g. post acquisition earnings target
Per IFRS 3, the parent company should recognise all contingent consideration as part of the acquisition price
paid for the subsidiary
A the acquisition date, the fair value of contingent consideration will be recognised as part of the Investment
in the Subsidary by the parent
It is possible that the fair value of the contingent consideration may change after the acquisition date. If this
is due to additional information obtained that effects the position at the acquisition date, then goodwill
should be remeasured
If the change is due to events after the acquisition date (such as a higher earnings target has been met so
more is payable) it should be accounted for under IAS 37 as an increase in a provision if it is cash (or under
IFRS 9 if the consideration is in the form of a financial instrument)
Remember also that we have deferred consideration
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If the contingent consideration is not paid in the future, or the full amount is not payable, perhaps because
the conditions for its payment are not met, then the movement in the contingent consideration (i.e. between
the acquisition date and the reporting date) is recognised in profit or loss
Non Current Asset/Compensation
Example: Intellectual Property which has a value at acquisition date  Legislation passed after
acquisition date which means that at reporting date IP 15 worthless  Compensation to be received from
Government
* The IP is treated as a normal at acquisition date
* The IP is written off at reporting date
CR Non Current Assets

DR NCI (if applicable)
* Provide for Compensation to be Received
DR Current Assets
CR Retained Earnings
CR NCI (if applicable)
Dividends
- Paid By Parent Outside the Group – No Adjustment required

- Paid By Subsidary
Cancel Parent Share as this is Intra Group
No Adjustment Required for NCI Share (as this is outside the Group)
- Paid By Associate
Account for Investor share of Dividend receivable from Associate
(Dr Current Assets; Cr Retained Earnings)
Example – Accounting For Investor Share of Dividend From Associate
Texet Ltd holds a 25% share of Wire Ltd
The Reporting date for the Group FS is 31/10/08
Wire Ltd has approved a final dividend for the year end 31/10/08 of €10m
Texet has not accounted for the dividend receivable in its financial statements
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Journal
€10m * 25% = €2.5m
Dr Receivables(Texet) €2.5m
Cr Retained Earnings (Texet) €2.5m
However, in the CSOCI, Parent share of Dividend from Associate is not shown separately as the Parent will
include its share of the Associate’s Profit after Tax and therefore the dividend from the Associate is
“included” in this figure.
Contingent Liabilities & Group Accounts
Per IAS 37, in an individual set of FS, a contingent liability is disclosed.
However, in a business combination, a contingent liability of a subsidary is recognised if it meets the

definition of a liability and if it can be measured. The first type of contingent liability (a possible obligation
whose existence will be confirmed only on the occurrence or non occurrence of uncertain future events
outside the entitys control) is not recognised in a business combination because the obligation is only
possible. However, the second type of contingency ( present obligations that are not recognised because (a),
it is not probable that an outflow of economic benefits will be required to settle the obligation; or (b) the
amount cannot be measured reliably), is recognised whether or not the it is probable that an outflow of
economic benefits takes place but only if it can be measured reliably.
The reason seems to be that the present obligation from a past event creates a risk, that the subsidary would
pay to remove...hence the risk can be reliably measured and so, this is the one example where a contingent
liability (with a present obligation from a past event and a reliable estimate can be made of the outflow (even
though, the probability of the outflow is not known)) is accounted for , (as opposed to simply being
disclosed)
Intangible Assets (other than Goodwill) Acquired as Part of Business Combination
IFRS 3 Business Combinations and IAS 38 Intangible Assets addresses the recognition of separable
intangible assets. Once an intangible asset of a Subsidiary is “identifiable” and has a reliable “fair value”,
then it can be recognised as an Intangible Asset on the acquisition of a Subsidiary.
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So for example, €1m spent on a research project , and for which a reliable fair value of €1.2m has been
estimated by the purchasing company directors, can be recognised as an intangible asset in the context of a
business combination.
Likewise, if a subsidiary has a “customer list” which could be sold to other companies and the fair value of
this “customer list” can be reliably measured at €3m, then this too can be recognised as an intangible asset ,
but again, only in the context of a business combination
So, in summary, items can be recognised as intangible assets in a business combination scenario, once they
are “identifiable” and have a “fair value which can be reliably measured”
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Consolidated Financial Statements v Parent Co Financial Statements
When a large part of the assets of the parent consists of investments in subsidiaries, it is difficult for the
users of the financial statements of the parent, to understand anything about the investment in subsidiaries
Why?
Because, in the parent company’s accounts, the investment in a subsidiary would be contained in one line
called
“Investments in Subsidiaries at Cost”
Consolidated Financial Statements overcome the above weakness by showing the financial performance and
position of the group as if it was a single economic entity.
Consolidated financial statements shall include all subsidiaries of the parent (See Ifrs 5 exception – Sub’s
held for resale)
Control is the key factor in a parent subsidiary relationship. IFRS 10 defines control as when the investor is
exposed to variable returns from its involvement with the investee and the investor has the ability to affect
those returns through power over the investee
Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than
half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that
such ownership does not constitute control. Control also exists when the parent owns half or less
of the voting power of an entity when there is
(a) power over more than half of the voting rights by virtue of an agreement with other investors;
(b) power to govern the financial and operating policies of the entity under a statute or an agreement;
26
(c) power to appoint or remove the majority of the members of the board of directors or equivalent
governing body and control of the entity is by that board or body; or
(d) power to cast the majority of votes at meetings of the board of directors or equivalent governing body
and control of the entity is by that board or body.
Power is defined as the ability to direct the relevant activities.
The important point is that control is not determined by a percentage holding, but by the ability to affect
returns through the exercise of power
The following are benefits of consolidated financial statements
1. They identify the nature and classification of the subsidiary assets i.e. intangible, land and buildings,
cash etc.
2. They identify the subsidiary’s debt (in the parent company financial statements, this would not be
possible because the investment in the subsidiary would be a net figure). This allows group liquidity
and gearing to be assessed.
3. They indicate the NCI share of the subsidiary.
4. The cost of the investment may be a fair representation of its value at the date of purchase, but with
the passage of time, its value might increase.
This increase would not be reflected in its original cost (in the parents financial statements)
BUT
Would be reflected in the Consolidated Financial Statements via an increase in the net assets of the
subsidiary (i.e. an increase in reserves).
5. The cost of investment in subsidiary does not reflect the size of the subsidiary.
ASSETS $100m $20m

LIABILITIES $ 80m -
$ 20m $20m
27
Further Discussion on the Reasons for Preparing Consolidated Financial Statements
Exemption From Preparing Group Accounts
A parent need not present consolidated financial statements if and only if all of the following hold:
(a) The parent is itself a wholly owned (i.e. 100%) or it is a partially (<100%) owned subsidiary of
another entity and its other owners do not object to the parent not presenting consolidated financial
statements.
(b) Its securities are not publicly traded
(c) It is not in the process of issuing securities in public securities markets and
(d) The ultimate or intermediate parent publishes consolidated financial statements that comply with
IFRS
28
Exclusion of a Subsidary from Consolidation
 Temporary Control: IAS 27 did originally allow a subsidiary to be excluded from consolidation
where control is intended to be temporary. This exclusion was removed by IFRS 5, whereby
subsidiaries held for sale are accounted for as Non Current Assets Held for Sale
 Dissimilar Activities: It has been argued in the past that subsidiaries should be excluded from
consolidation on the grounds of dissimilar activities i.e. activities of the subsidiary are so different to
the activities of the other companies within the group that to include its results in the consolidation
would be misleading. IAS 27 rejects this argument: exclusion on these grounds is not justified
because better (relevant) information can be provided about such subsidiaries by consolidating their
results and then giving additional information about the different business activities of the subsidiary
 Severe Long Term Restrictions: The previous version of IAS 27 permitted exclusion where the
subsidiary operates under severe long term restrictions and these significantly impair its ability to
transfer funds to the parent. This exclusion has now been removed. Control must actually be lost for
exclusion to occur.
29
Summary of Trade Investments, Associates and Subsidiaries
Trade Investment (< 20%)
 < 20% of ordinary shares
 OR where despite owning 20% - 50% of the share, a significant influence is not actually exercised
 Account for a Trade Investment under IAS 39 Financial Instruments: Recognition and Measurement
 Initially record at carrying amount and then carry at fair value thereafter
Associate (20% - 50%)
 20% - 50% of ordinary shares
 Significant influence over financial and operating policies
 Participating Interest
 IAS28: Investments in Associates
 Use the “Equity Method of Accounting”
STATEMENT OF PROFIT OR LOSS SOFP  Cost
+ Share of Post Acq Profits

“Share of Profits of Associate” - Accumulated Impairment
Participating Interest:
30
- Indicators of Significant Influence
* Representation on the Board of Directors

* Participation in policy making processes (i.e. participative interest)
* Material transactions between investor and investee
* Provision of essential technical information
Note: Under IAS 28, significant influence is assumed to exist when a holding reaches 20%.
However, this can be rebutted in the light of further evidence.
Example
Answer:
Equity Method of Accounting
Is a method of accounting that brings an associate investment into the parent company financial statements
initially at cost. The carrying amount of the investment is then adjusted in each period for the group share of
profit of the associate.
The investment is calculated at
31
 Cost of Investment
 Add: Group share of post acquisition retained profit
 Less: Accumulated Impairment Losses
IAS 28 does not allow the use of proportionate consolidation of associates
Note:
The Investor Share of an Associates “Other Comprehensive Income” should be consolidated if applicable
Example: Minton Plc is an Associate of Rednut Plc (30% holding). Post Acquisition Period is 6 months.
Minton has Other Comprehensive Income for the Year of 18.
2.7 (18*30% *6/12) will be disclosed in the CSOCI under Other Comprehensive Income (Share of Other
Comprehensive Income of Associate)
32
Subsidiary
 Control  Dominant Influence
 Usually > 50% of ordinary shares but not always
Ask the question does the Parent have control/(power to govern) over the Subsidiary
 Subsidiary gets 100% Consolidation
 Must allow for Non Controlling Interests as required
 IAS27: Consolidated and separate Financial Statements
 IFRS 10 : Consolidated Financial Statements
 IFRS 12: Disclosure of Interests in Other Entities
 IFRS 3: Business Combinations Revised
Trade Investment Associate Subsidiary

(< 20%) (20% - 50%) (> 50%)
33
Goodwill and NCI
The option to value NCI at fair value is introduced by the revised IFRS 3, but it is just an option. Companies
can choose to adopt it or to continue to value NCI at share of net assets.
“the Pyrax group values its non controlling interests for all acquisitions at its proportionate share of fair
value of the relevant company’s identifiable net assets” – this is the traditional method ( Consol G/w is
group share only)
“the Pyrax group values non controlling interest at full (fair) value” – this is the fair value method (consol
G/w is both Group & NCI share)
1. The Traditional Method
Goodwill in the CSOFP relates to the Parent share of the Sub only
In the Cost of Control account we compare the Inv in S made by P to P share of the net assets of S at
acquisition date.
NCI are valued as a share of the fair value of net assets of S as at the reporting date.
N.B.: Fair value adjustments required to S as at the date of acquisition are split between Group and NCI
N.B. Impairment of Consolidated Goodwill is accounted for by P only (since Consol Goodwill is Group
Share only)
CR Cost of Control/Intangible Assets

34
Note: Traditional Method Variation: There may be a variation on the traditional method, whereby the
question will say “ It is group policy to measure NCI at acquisition at their proportionate share of the fair
value of the identifiable net assets of the subsidiary”
In this variation, NCI share of Net Assets at Acquisition Date will be Debited to Cost of Control but equally
will be credited (i.e. contained within 100% of Net Assets of S at acquisition Date) so the net effect is that
G/w calculated at acquisition date will be the Group share only
Finally in this variation , NCI at reporting date will be
NCI Share of Net Assets at Acquisition Date + NCI Share of Post Acquisition Retained Earnings
Treatment of Impairment and Fair Value Adjustments at Acquisition Date same as with Traditional Method
Above
2. Where Fair Value of Goodwill Attributable to NCI is Given
Goodwill in the CSOFP relates to the Parent share of S and the NCI share of S at acquisition date.
NCI is increased by the amount of this goodwill
CR NCI X
with fair value of G/W attributable to
NCI at the acquisition date
To calculate the value of NCI at the reporting date
CR NCI X
DR Equity/Retained Earnings X
with NCI share of Net Assets of S as at
reporting date
 So the value for NCI at reporting date is
NCI% of Net Assets of S at Reporting Date X
Plus: Goodwill Attributable to NCI Y

(NCI G/W at Acq Date less any
subsequent impairment)
* NB  By adopting the above formula, NCI are valued at “fair value” at the reporting date
i.e. Book value plus Attributable Goodwill, and by including the Goodwill Attributable to NCI, it means that
the figure for Goodwill in the CSOFP is made up of the Group Share and NCI Share.
35
N.B. :Fair Value adjustments required to S as at the Date of Acquisition will relate to the Group share of S
only (because the NCI goodwill has already been provided)
N.B. : Also, if Consolidated Goodwill is subsequently impaired, the journal entry to record the impairment is

DR Retained Earnings/Cost of Sales
DR NCI
Because consol Goodwill is made up of Group share and NCI share
3. Fair Value of the NCI at Acquisition Date is Given
DR Cost of Control
CR NCI
with fair value of NCI at Acquisition
Date
To determine the value of NCI at the Reporting Date, calculate the NCI share of the post acquisition results
of S and account for as follows:
CR NCI
The Goodwill figure in the CSOFP is goodwill attributable to
 Group and
 NCI
N.B.: Any fair value adjustments required as at the date of acquisition (i.e. fair value adjustments relating to
S) are not split between Group and NCI.
36
i.e. Dr Non Current Assets

Cr Cost of Control
Being Fair Value adjustment to S at date of Acquisition (where NCI is valued at Fair Value at
Date of Acquisition)
N.B. :Also, if Consolidated Goodwill is subsequently impaired, the journal entry to record the impairment is

DR Retained Earnings/Cost of Sales
DR NCI
Because consol Goodwill is made up of Group share and NCI share
Fair value is generally similar to carrying amount plus attributable goodwill  The value that a potential
investor would have to pay if he wanted to purchase the NCI share of the entity  i.e. Market value.
Then given that NCI is valued at its fair value as at the date of acquisition, then to value NCI at its fair value
as at the reporting date, we simply add on to the NCI, the NCI share of the Post Acquisition results of S as
follows
CR NCI
Also, when we bring in NCI at its fair value at acquisition date, then be careful to ensure that any
adjustments required for S as at the date of acquisition are not split between the Group and NCI
Fair Value of Attributable Fair Value

+ =
Carrying Amount of Goodwill
Net Assets
37
NCI/GOODWILL – DIFFERNET APPROACHES (IFRS 3 – Business Combinations)
1. Consol. Goodwill – Group Share Only

i.e. Partial Goodwill
1 (a) Traditional Method/ 2. Fair Value Adjustments

Partial Goodwill Split Group/NCI
“It is group policy to value 3. Impairment of Consol G/W

NCI at its proportionate Account for Group Share only because
share of the fair value of the Consol G/w is Group Share Only
sub’s identifiable net
assets” 4. NCI - share of fair value of
identifiable Net Assets of S at
reporting date (i.e. Just share of Net
Assets - Share of Goodwill not
included)
1 (b)Traditional Method
1. Consol. Goodwill – Group Share Only
(Variant)
“It is group policy to measure NCI
at acquisition at their proportionate 2. Fair Value Adjustments
share of the fair value of the Split Group/NCI
identifiable net assets of the
subsidiary” 3. Impairment of Consol G/W
Account for Group Share only because
Consol G/w is Group Share Only
4. NCI - share of fair value of identifiable Net Assets

of S at acquisition date + share of Post Acq
Retained Earnings
2 .Fair Value of G/W

1. Consol Goodwill – Group share & NCI
attributable to NCI is
share i.e. Full Goodwill
given (Acq Date)
2. Fair Value Adjustments
Group Share Only
“Tobias Plc Policy is to
Value NCI at fair Value at
3. Impairment of Consol G/W
the Date of Acquisition.
Account for Group Share and NCI share
At date of acquisition, g/w
because Consol G/w is made up of
attributable to nci was €xx Group Share and NCI Share
4. NCI = G/w attributable to NCI +

NCI Share of Net Assets of S at
Reporting date - (i.e. Fair value/Market
Value of NCI i.e. Share of Net Assets &
Share of Goodwill))
38
1. Consol Goodwill – Group share & NCI share i.e.

Full Goodwill
2. Fair Value Adjustments

Group Share & NCI Share (i.e. 100% Goes to
Cost Of Control)
3. Fair Value of NCI
at Acquisition Date is
3. Impairment of Consol G/W
given
Account for Group Share and NCI share
because Consol G/w is made up of Group
Share and NCI Share
“Muscle Plc policy is
to value NCI using
4. NCI = FV of NCI at Acq Date+
fair value at date of
NCI Share of Post Acq Results of S (i.e. Fair
acquisition. The Fair
value/Market Value of NCI i.e. Share of Net
value of NCI at
Assets & Share of Goodwill)
acquisition date is..”
39
FURTHER POINTS WITH ASSOCIATES
 UNREALISED PROFIT IN CLOSING INVENTORY
When the investor entity (or a subsidiary) trades with an associate
 the investor entity might owe money to the associate or vice versa
 Closing Inventory might contain unrealised profit due to trading between the investor entity and the
associate
 Accounting Treatment
Inter Entity Balances: Any amount owed by the investor entity to the associate or vice versa, should be
included in the CSOFP
Unrealised Inter Group Profit
 If the unrealised profit is held in inventory of the investor, the inventory should be reduced in value
by the amount of the investor share of the unrealised profit (CR Inventory (SOFP), DR Retained
Earnings (i.e. Closing Inventory in Cost of Sales))
The Non Investor Share is a trade outside the Group and so does not require elimination. But the Investor
Share of the URP is Intra Group and so is eliminated
 If the unrealised profit is held in inventory of the associate, the investment in the associate should be
reduced by the investor share of the unrealised profit (DR Retained Earnings (i.e. Share of Profit of
Associate in CSOPL ), CR Investment In Associate)
The Investor Share of Profit Earned by Trading with the Associate, is profit earned with a related party and
so is eliminated as a Consolidation Adjustment.
Note: Because the associate is NOT a group company, there is no concept of cancellation of revenue nor cost
of sales.
The only affect is the elimination of the group’s share of any URP arising on a transaction with the associate
40
CHANGES IN THE COMPOSITION OF A GROUP
DISPOSAL OF INVESTMENT
Lets consider the situation where the parent disposes of all of its investment in a subsidary
The effective date of disposal is when control passes – The consolidated STATEMENT OF PROFIT OR
LOSS (statement of comprehensive income) should include the results of a subsidary up to the date of its
disposal (opposite to acquisition of a Sub during the year under review)
Example – where an investment of 80% is disposed of completely – control is lost
Where a parent sells its entire holding in a subsidiary, we require 2 workings to calculate the gain (or loss)
on disposal in both the parent’s own financial statements and the Group financial statements
Gain In Parent
Fair Value of Proceeds of Disposal X

Less: Carrying Value Sold (x)
Gain In Parent X
This gain in an exam, may be taxable – the examiner will tell you
Gain in Parent from above X

Tax at Say 25% (x)
Net Gain In Parent X
Gain in Group Accounts

FV of Proceeds of Disposal X
Less: Net Assets @ Date of

Disposal * Group Share
Shares X
Retained Earnings X
X
% Sold Say 80% (X)
X
Less: Goodwill less any NCI in (X)
G/w at Date Control Lost
Gain in the Group X
Tax (X)
Net Gain in the Group X
41
Why do we deduct Group Share of Consol Goodwill?? – Because remember Goodwill is the difference
between the Purchase Consideration and the Net Assets acquired - so the Goodwill is not reflected in the
Net Assets of the Sub in the Sub ‘s own accounts (Internally Generated G/W cannot be capitalised – IAS 38)
and needs to be separately deducted
The Net Assets of the Sub are reflected in the Consol A/c’s as follows
NCI get their share of Sub Reserves
Consol Retained Earnings includes Group Share of Sub’s Post Acq
Group Share of Pre Acq Reserves and Group Share of all other Reserves are included as part of the Goodwill
figure
Therefore in essence, 100% of the Equity of the Sub is included in the Consol A/c’s but not all of it is
Disclosed (i.e. partially hidden in Goodwill)
Remember Net Assets = Total of Equity/Shareholders Funds
Of course, the easier way to think of the Sub’s net assets at Date of Disposal is Total Assets Less Non
Current & Current Liabilites
Accounting Treatment for a Disposal
For a full disposal, apply the following treatment:

(a) Statement of Comprehensive Income (STATEMENT OF PROFIT OR LOSS)
-Consolidate Results and NCI up to the date of disposal
- Show the Group Profit or Loss on Disposal
(b) Statement of Financial Position
There will be no NCI and no consolidation as there is no subsidiary at the date the statement of
Financial Position is being prepared
Tax on Disposal is disclosed in Income Tax Charge and not as part of Gain or Loss on Disposal of Sub
The Disposal of a Sub during the reporting period, may constitute a Discontinued Operation as Per IFRS 5 –
Impact on Disclosure in the STATEMENT OF PROFIT OR LOSS
Example: Disposal of a Subsidary

Longford Co bought 80% of the share capital of Westmeath Co for €324,000 on 1 October 20X5. At that
date Westmeath Co retained earnings were €180,000. The SOFP at 30 September 20x8 and the summarised
statements of comprehensive income to that date are given below
Longford Co Westmeath Co
€’000 €’000
Non Current Assets 360 270
Investment in Westmeath 324
Co
Current Assets 370 370
Total Assets 1054 640
Equity & Liabilities
Equity
€1 Ordinary Shares 540 180
Retained Earnings 414 360
Current Liabilties 100 100
42
Total Equity & Liabilties 1054 640
Profit Before Tax 153 126

Tax (45) (36)
Profit After Tax 108 90
Longford Co sold its entire holding in Westmeath Co for €650,000 on 30 September 20X8
Assume that profits accrue evenly throughout the year
It is group policy to value NCI at its proportionate share of the fair value of the sub’s identifiable net assets.
Ignore taxation payable on disposal. Prepare the Consolidated Statement of Financial Position and
STATEMENT OF PROFIT OR LOSS at 30 September 20X8
Solution
Consolidated Statement of Financial Position as at 30.9.08
€’000
Non Current Assets 360

Current Assets (370 + 650) 1020
Total Assets 1,380
Equity & Liabilities

€1 Ordinary Shares (P Only) 540
Retained Earnings (W1) 740
Current Liabilities 100
Total Equity & Liabilites 1380
Consolidated STATEMENT OF
PROFIT OR LOSS for Year End
30.9.08
Profit Before Tax (153 + 126) 279
Profit on Disposal (W2) 182
Tax (45+36) (81)
Profit After Tax 380
Profit Attributable To:

Equity Holders of the Parent 362
NCI (W4) 18
380
43
Working 1 – Retained Earnings

Longford Co 414
Add: Gain on Disposal of Westmeath Co (W2) 182

Add: Share of Westmeath Post Acq (360-180) * 80% 144
740
Working 2 – Gain on Disposal of Westmeath Co

Fair Value of Sales Proceeds 650
Less: Group Share of Net Assets at Date of Disposal
Ordinary Shares 180
Retained Earnings (360) 360
540 * 80% 432
Less: Group Share of Goodwill (W3) 36

Profit on Disposal 182
Working 3 – Group Share of Goodwill

Investment in Westmeath Co 324
Less: Share of Net Assets Acquired
Ordinary Share Capital 180
Retained Earnings 180
360 * 80% 288
36
Working 4 – NCI (CSOPL )

Profit After Tax of Westmeath Co 90
NCI Share 20%
18
44
Disposal of Associate
Same principle as for the disposal of a subsidiary
Fair Value of Consideration X

Received
Less: Carrying Amount of (x)
Investment in Associate at Date
Influence is Lost
Group Profit/Loss X
In SOCI, the associate is accounted for up to the date of disposal

The Group Share of the Associate post tax profits up to the date of disposal is shown as a separate line item
The Group profit or loss on disposal is also shown as a separate line item
In SOFP, there is no investment in associate at the date the statement of financial position is being prepared
45
Solution
46
PAST EXAM QUESTIONS – DISPOSAL OF A SUBSIDARY

 Q1 April 15
 Q1 April 12
47

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CPA P1 Corporate Reporting

3. GROUP ACCOUNTS & BUSINESS COMBINATIONS LECTURE NOTES

RECOMMENDED CONSOLIDATION TECHNIQUE FOR CSOFP

RECOMMENDED CONSOLIDATION TECHNIQUE FOR CSOPL

1. ASCERTAIN GROUP STRUCTURE

NOTES ON COMPLETING A CONSOLIDATED STATEMENT OF PROFIT OR LOSS

NOTE 1: (ASCERTAIN GROUP STRUCTURE/DATE OF ACQ/REPORTING DATE)

Common Workings Include

1. Extra Depreciation Arising from a Fair Value Exercise

DR Cost of Sales (SOPL) X

* Will also impact on the calculation of non controlling interests

CR Cost of Sales (SOPL) X

* Will also impact on the calculation of non controlling interests

DR Investment Income (P) X

Intra Group Loan Note  i.e. Between Parent + Subsidiary

DR Investment Income (P) X

3. Intra Group Dividend

* The only Dividend Payment included in Consol SOPL are

- Dividend Payments by the Parent Company (outside the group)

- Dividend Payments by the Parent Company (outside the Group)

Refer also to Page of Manual – Dividends and Pre Acquisition Profits

4. Intra Group Trading/Unrealised Profit

“P sold to S for $15m on which P made a gross profit of 20%”

“P sold to S for $56m. P added a markup of 40% on cost when selling to S

Margin % = Calculated on Selling Price

5. How to Deal with an Associate in the Consol SOPL (IAS 28)

20%-50% Holding  Accounted for under the Equity Method of Accounting

“Significant Influence/Participating Interest in the Operational + Financial Policy decisions”

called “Share of Profits of Associate”

% Share in Associate x Profit After Tax of the

“Impairment of Investment In Associate”

See also Disposal of an Associate

6. Non Controlling Interests

Profit After Tax of the Subsidiary X

Less: Additional Depreciation from Fair Value Exercise (X)

Less: Unrealised Profit on Intra Group Trading (S selling (X)

NCI Share of the Subsidiary (e.g. 20%) 20%

Non Controlling Interest X

(Adjusted PAT of Sub (“Y) x NCI Share of Sub)

NOTE 3: PREPARE CONSOL STATEMENT OF PROFIT OR LOSS

* Bring in Journal Workings

NB* Do not multiply Subsidiary Results by Group Share

* Do a separate working for Cost of Sales

* All Line Items are P+S

NOTES ON COMPLETING A CONSOLIDATED STATEMENT OF FINANCIAL

NOTE 1: ASCERTAIN GROUP STRUCTURE (BASED ON OWNERSHIP OF ORDINARY

>50%  Likely Control  Dominant Influence  Subsidiary

20% - 50%  Significant Influence  Participating Interest

Also note the following

Date of Acquisition (Goodwill Calculation)

Determine How NCI are valued

2. Fair Value Method (Goodwill Attributable to Group + NCI)

NOTE 2: DRAW UP A PROFORMA LEAVING LINES FOR GOODWILL & NCI

NOTE 4: ACCOUNT FOR WORKINGS/ADDITIONAL NOTES

1. Investment in Subsidiary by Share Exchange

2. Investment in S by deferred Consideration

 Payable within 1 year (No Discounting)

 Payable after 1 year (Discounting will apply)

Deferred Cons valued at Present Value at Acquisition Date

DR Finance Costs (SOPL) X

Cost of Investment in Associate X

Less: Accumulated Impairment (X)

Calculate Gain/loss on Disposal of Associate

Cancel on Consolidation (i.e. Cancel Liability + Asset)