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Combinations Explains How To Account For Any Related Goodwill)

Control exists when a parent has over 50% of voting rights, power over financial/operating policies through agreement, power to appoint board members, or power to cast majority votes on the board. Consolidated financial statement procedures include: combining like assets/liabilities/incomes of parent and subsidiaries; offsetting the parent's investment in subsidiaries against the subsidiaries' equity; and eliminating intragroup transactions and balances. Non-controlling interests (NCIs) represent the portion of a subsidiary's equity not attributable to the parent. NCIs are presented separately within equity in the consolidated statement of financial position.

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32 views2 pages

Combinations Explains How To Account For Any Related Goodwill)

Control exists when a parent has over 50% of voting rights, power over financial/operating policies through agreement, power to appoint board members, or power to cast majority votes on the board. Consolidated financial statement procedures include: combining like assets/liabilities/incomes of parent and subsidiaries; offsetting the parent's investment in subsidiaries against the subsidiaries' equity; and eliminating intragroup transactions and balances. Non-controlling interests (NCIs) represent the portion of a subsidiary's equity not attributable to the parent. NCIs are presented separately within equity in the consolidated statement of financial position.

Uploaded by

Samuel Ferolino
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© © All Rights Reserved
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1.

Under PAS 27, State core principle for consolidation of financial statements

PFRS 10, paragraph 4, provides that an entity that is a parent shall present
consolidated financial statements. This means that consolidated financial statements
shall include all subsidiaries of the parent. A subsidiary is included from the
consolidation because the investor is a venture capital organization, mutual fund, unit
trust or similar entity. A subsidiary is also included from consolidation even if its
business activities are dissimilar from those of the other entities within the group.

2. Explain "control" connection with preparation and presentation of consolidated


Financial Statements

Control is the power to govern the financial and operating policies of an entity so
as to obtain benefits from its activities.
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: 2
(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;
(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.

3. What are the consolidation procedures for preparing consolidated financial


statements?

Consolidated financial statements procedures:


• combine like items of assets, liabilities, equity, income, expenses and cash flows
of the parent with those of its subsidiaries
• offset (eliminate) the carrying amount of the parent's investment in each
subsidiary and the parent's portion of equity of each subsidiary (IFRS 3 Business
Combinations explains how to account for any related goodwill)
• eliminate in full intragroup assets and liabilities, equity, income, expenses and
cash flows relating to transactions between entities of the group (profits or losses
resulting from intragroup transactions that are recognized in assets, such as
inventory and fixed assets, are eliminated in full).

4. What are separate financial statements?

Separate financial statements are those presented by a parent, an investor in an


associate or a venturer in a jointly controlled entity, in which the investments are
accounted for on the basis of the direct equity interest rather than on the basis of the
reported results and net assets of the investees.

5. Differentiate parent and subsidiary entity.

A parent is an entity that has one or more subsidiaries. While a subsidiary is an


entity, including an unincorporated entity such as a partnership, that is controlled by
another entity (known as the parent). A parent or its subsidiary may be an investor in an
associate or a venturer in a jointly controlled entity.

6. What is a non - controlling interests? Explain its presentation in the


consolidated statement of financial position.

Non-controlling interest also known as NCI/NCIs constitutes existing interest in a


subsidiary not attributable, directly or indirectly, to a parent. For example, when a parent
has 80% of shareholding in a subsidiary, the remaining 20% is NCI. It used to be called
‘minority interest’ in the past and this term is sometimes used by accounting
practitioners. NCI should be presented within equity in the consolidated statement of
financial position, separately from equity attributable to owners of the parent.

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