Strategic Business Reporting

Live Online Classes – Day 2

by: Sir Hamza Abdul Haq
IFRS 3 & IFRS 10 -
Consolidation
Prepared by: Sir Hamza Abdul Haq
Example 1
Entity A Parent Example 1 Parent Subsidiary Group
Non-current assets 100 30
Acquired 80% shares Investment in S 50 -
1 year ago when
B’s R.E were $20m Current assets 20 10
Entity B Subsidiary 170 40

Ordinary shares 90 10
Retained earnings 70 25

Liabilities 10 5
170 40
Answer to Example 1
[W1] Net Assets At At [W2] Goodwill
Acquisition Balance Sheet Cost
Ordinary share capital Less: FV of net assets
Retained Earnings

[W3] NCI
Post - Acq profits
NCI at Acquisition
Parent NCI
Share or profit

[W4] R.E
Parent’s
Share in S’s profit
Example 2
Entity A Parent Example 2 Parent Subsidiary Group
Non-current assets 400 130
Acquired 60% shares Investment in S 150 -
2 years ago when
B’s R.E were $40m and Current assets 200 60
fair value of NCI was $110 750 190

Entity B Subsidiary Ordinary shares 100 100

Retained earnings 510 50

Liabilities 140 40
750 190
Answer to Example 2
[W1] Net Assets At At [W2] Goodwill Full
Acquisition Balance Sheet Cost
Ordinary share capital Fair value of NCI
Retained Earnings

Less: FV of net assets

Post - Acq profits
Parent NCI

[W4] R.E [W3] NCI

Parent’s NCI at Acquisition
Share in S’s profit Share or profit
Basic workings
[W1] Net Assets At At
Acquisition Balance Sheet
Ordinary share capital xx xx
OCE xx xx
Retained Earnings xx xx
xx xx
Post - Acq profits xx
Parent NCI
xx xx

Taken to [W2] Goodwill Taken to [W3]

Taken to [W4] Retained NCI
earnings

7
Basic Workings
[W2] Goodwill Full Partial
Cost xx xx
Fair value of NCI xx -
xx xx
Less: FV of net assets (xx) (xx)
xx xx

[W3] NCI Full Partial [W4] R.E

Fair value of NCI xx xx Parent’s R.E xx
Share or profit xx xx Share in S’s profit xx
xx xx xx

8
Fair Value Adjustments
By: Hamza Abdul Haq
Upwards
Downwards
Intra Group Trading
By: Hamza Abdul Haq
Example 1 – P to S (Inventory)
During the year P sold goods costing $10m to S for $15m. S had the entire stock in hand
at the year end.
Example 2 – P to S (Inventory)
During the year P sold goods costing $10m to S for $15m. By the year end S had sold
40% of the goods out of the group.
Example 3 – P to S (Inventory)
During the year P sold goods to S for $12m. P had marked up these goods by 20%. By
the year end S had sold 40% of the goods out of the group.
Example 4 – P to S (Inventory)
At the year end S’s inventory includes goods costing $10m supplied by P. P had marked
up these goods by 25%.
Example 5 – P to S (Non-current asset)
1 year ago P sold a plant with a carrying amount of $100m to S for $150m. The plant had
a useful life of 10 years at the date of transaction.
Example 6 – P to S (Non-current asset)
2 year ago P sold a plant with a carrying amount of $100m to S for $80m. The plant had
a useful life of 10 years at the date of transaction.
Transactions S to P
How would the answer to your examples 1 to 6 change if the transaction would have been
from S to P?
Current Account Balance
By: Hamza Abdul Haq
Example 1
At the year end S’s payable include a payable to P of $100m which is included in P’s
receivable by the same amount.
Example 2
At the year end S’s payable include a payable to P of $100m which did not match with P’s
receivable of $80m. The difference of $20m is due to cash in transit paid by S but not yet
received by P at the year end.
Example 3
At the year end S’s payable include a payable to P of $100m which did not match with P’s
receivable of $80m. The difference of $20m is due to goods in transit dispatched by P but not
yet received by S at the year end. The goods were marked up by 25%.
Purchase Consideration
By: Hamza Abdul Haq
Cash Consideration
During the year P acquired 80% of S’s 100m shares. In exchange P paid $2 per share in
cash. The transaction is not yet recorded by P in its financial statements.
Share Exchange
During the year P acquired 80% of S’s 100m shares. In exchange P issued its 1 new ordinary
share for every 2 shares acquired in S. The market value of each P’s share at the date of
acquisition was $5. The transaction is not yet recorded by P in its financial statements.
Loan notes
During the year P acquired 80% of S’s 100m shares. In exchange P issued its $100 loan
note for every 200 shares acquired in S. The transaction is not yet recorded by P in its
financial statements.
Deferred consideration
During the year P acquired 80% of S’s 100m shares. In exchange P will pay cash of $2.42
per share after 2 years from the date of acquisition. The cost of capital of P was 10%. The
transaction is not yet recorded by P in its financial statements.
Contingent consideration in Cash
During the year P acquired 80% of S’s 100m shares. In exchange P will pay cash of $2.42
per share after 2 years from the date of acquisition if S reporting profit in both the years
which was considered to be possible only. The cost of capital of P was 10%. The transaction
is not yet recorded by P in its financial statements.
Contingent consideration in Shares
During the year P acquired 80% of S’s 100m shares. In exchange P will issue its 2 shares for
every 5 shares after 2 years from the date of acquisition if S reporting profit in both the years
which was considered to be possible only. MV of each share at the date of acquisition was
$4 and there is a 20% chance that the target will be achieved by S. The transaction is not yet
recorded by P in its financial statements.
Transaction cost
During the year P acquired 80% of S’s 100m shares. P had to pay some legal costs of $2m
to acquire the S. The cost has been recorded as part of Investment in S by P.
Questions or comments?
Thank You 