Chapter 2- Consolidation on Date of Acquisition.pdf

Consolidation on Date of Acquisition

1. Chapter 2: Consolidation on Date of Acquisition
By: Mulualem G. AcFn, BDU, 2023

2. Definition of key terms (IFRS 10)
•Definitionofcontrol:aninvestorcontrolsaninvesteewhentheinvestoris
exposed,orhasrights,tovariablereturnsfromitsinvolvementwiththe
investeeandhastheabilitytoaffectthosereturnsthroughitspoweroverthe
investee.
•Subsidiary:anentitythatiscontrolledbyanotherentity.
•Parent:anentitythatcontrolsoneormoreentities.
•Power:existingrightsthatgivethecurrentabilitytodirecttherelevantactivities.
•Non-controllinginterest:equityinasubsidiarynotattributable,directlyor
indirectly,toaparent.
•Group:aparentanditssubsidiaries.
•Consolidatedfinancialstatements:thefinancialstatementsofagroupinwhich
theassets,liabilities,equity,income,expensesandcashflowsoftheparentandits
subsidiariesarepresentedasthoseofasingleeconomicentity.
By: Mulualem G. AcFn, BDU, 2023

3. Assessing control
Whenassessingcontrolofaninvestee,aninvestorshallconsider
Thepurposeanddesignoftheinvesteeinordertoidentifytherelevant
activities,
Howdecisionsabouttherelevantactivitiesaremade,
Whohasthecurrentabilitytodirectthoseactivitiesandwhoreceives
returnsfromthoseactivities.
Todeterminewhetheritcontrolsaninvesteeaninvestorshallassess
whetherithasallthefollowing:
a)Powerovertheinvestee;
b)Exposure,orrights,tovariablereturnsfromitsinvolvementwiththe
investee;and
c)Theabilitytouseitspowerovertheinvesteetoaffecttheamountofthe
investor’sreturns.
By: Mulualem G. AcFn, BDU, 2023

4. Interaction between IFRS 10,11,12, and IAS 28
By: Mulualem G. AcFn, BDU, 2023

5. Aparentshallprepareconsolidatedfinancialstatementsusing
uniformaccountingpoliciesforliketransactionsandotherevents
insimilarcircumstances.
Consolidationofaninvesteeshallbeginfromthedatetheinvestor
obtainscontroloftheinvesteeandceasewhentheinvestorloses
controloftheinvestee.
Aparentshallpresentnon-controllinginterestsintheconsolidated
statementoffinancialpositionwithinequity,separatelyfromthe
equityoftheownersoftheparent.
Accounting requirements
By: Mulualem G. AcFn, BDU, 2023

6. Ifaparentlosescontrolofasubsidiary,theparent:
a)Derecognizestheassetsandliabilitiesoftheformersubsidiary
fromtheconsolidatedstatementoffinancialposition.
b)Recognisesanyinvestmentretainedintheformersubsidiaryand
subsequentlyaccountsforitandforanyamountsowedbyorto
theformersubsidiaryinaccordancewithrelevantIFRSs.
c)Recognisesthegainorlossassociatedwiththelossofcontrol
attributabletotheformercontrollinginterest
Accounting requirements
By: Mulualem G. AcFn, BDU, 2023

7. Accounting requirements
What is to be consolidated?
•If dissolution takes place,
appropriate account balances are
physically consolidated in the
surviving company’s financial
records.
•If separate incorporation is
maintained, only the financial
statement information (not the
actual records) is consolidated.
When does the consolidation take
place?
•If dissolution takes place, a
permanent consolidation occurs at
the date of the combination.
•If separate incorporation is
maintained, the consolidation
process is carried out at regular
intervals whenever financial
statements are to be prepared.
By: Mulualem G. AcFn, BDU, 2023

8. Accounting requirements
Howaretheaccountingrecordsaffected?
Ifdissolutiontakesplace,thesurvivingcompany’saccountsare
adjustedtoincludeappropriatebalancesofthedissolvedcompany.
Thedissolvedcompany’srecordsareclosedout.
Ifseparateincorporationismaintained,eachcompanycontinuesto
retainitsownrecords.Usingworksheetsfacilitatestheperiodic
consolidationprocesswithoutdisturbingtheindividualaccounting
systems.
Ifamemberofthegroupusesaccountingpoliciesotherthanthose
adoptedintheconsolidatedfinancialstatementsforliketransactionsand
eventsinsimilarcircumstances,appropriateadjustmentsaremadein
preparingtheconsolidatedfinancialstatements.
By: Mulualem G. AcFn, BDU, 2023

9. Consolidation procedures
Consolidatedfinancialstatements:
a)combinelikeitemsofassets,liabilities,equity,income,expensesand
cashflowsoftheparentwiththoseofitssubsidiaries.
b)offset(eliminate)thecarryingamountoftheparent’sinvestmentin
eachsubsidiaryandtheparent’sportionofequityofeachsubsidiary
c)eliminateinfullintragroupassetsandliabilities,equity,income,
expensesandcashflowsrelatingtotransactionsbetweenentitiesofthe
group(profitsorlossesresultingfromintragrouptransactionsthatare
recognisedinassets,suchasinventoryandfixedassets,areeliminated
infull).Intragrouplossesmayindicateanimpairmentthatrequires
recognitionintheconsolidatedfinancialstatements.IAS12Income
Taxesappliestotemporarydifferencesthatarisefromtheelimination
ofprofitsandlossesresultingfromintragrouptransactions
By: Mulualem G. AcFn, BDU, 2023

10. Chapter requirements
Readingmaterialsandcomprehensiveillustrations
IFRS10Guideline
JoeBenHoyle,ThomasF.Schaefer,TimothyS.Doupnik-Advanced
Accounting14thEdition-McGraw-Hill(2021),frompage65to68,
PearlTan,ChuYeongLim,EeWenKuah-AdvancedFinancialAccounting-
McGrawHillEducation(2019),frompage148to153
By: Mulualem G. AcFn, BDU, 2023
End of chapter two