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    9 views12 pages

    Week 3 Chapter 10

    Uploaded by

    CIA190116 STUDENT

    Copyright:

    © All Rights Reserved
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    C1A3001 Corporate Accounting - Semester 1, 2028/2022 13001 Corporate Accounting 41. Context for group accounts What isa subsidiary? 13001 Corporate Accounting 41. Context for group accounts ‘Why prepare group accounts — worked example C1A3001 Corporate Accounting 1. Context for group accounts What isa group? 4 ‘One company (P) buys shares in another company, the subsidia {S) such that the parent controls the subsidiary. CIA3001 Corporate Accounting 1 conten foray accu vey forma rou? J ied CIA3001 Corporate Accounting 1 context fap eeu vin eparerou scnts Were warp Niatouthereqioneno te pepete goup azure fe anid, he er woken eglybe SSintiorcone ( ‘the financial statements of the parent company as an ~ tv company 1A3001 Corporate Accounting C1A3001 Corporate Accounting 1. Context for group accounts 41. Context for group accounts Why prepare group accounts — worked example (continued... Why prepare group accounts - worked example (continued... + In this case, the owners could think that things were going wel J because -the dividend income for the period covers the / ‘expenses of P Lid and provides fora £6 milion dividend. + However, 1e £11 million dividend income all came from + on revenue af £100 millon (S Li ony), theresa oss forthe The €11 millon dividend income al came from profits. our oF 8 mon (6 Lie eto of 628 mon pas P's \. learned by $ Ltd in previous years. - ‘thor costs of £1 millon. The trading activity controlled by P Lta's management is currently loss-making + Thortar, the efecto! consoldation iso produce & fat pete cofP Lid aha S Ltd taken togoter, which fs that t 13001 Corporate Accounting C1A3001 Corporate Accounting 1. Context for group accounts 1. Context for group acounts Accounting priniles “°@° Composition of group accounts wasinate & 13001 Corporate Accounting C1A3001 Corporate Accounting 1. Context for gro accounts 2. The single en concept The efecto consolidation Summary of investments “Group accounts consolidate the results and net asets of group members as: vee nt ‘erst Single Econatie. «Tareas a arr ere a . entity eonomicusane x wey * Where each company person ‘Thisisincontrast to LEGAL FORM 13001 Corporate Accounting 2. The singe enty concept Buying an unincorporated business When a company invests in an unincorporated business, Itpays cash to the proprietor and in exchange acquires legal ttle to all the assets and all the liabilities (ie, the net assets) ofthe business. 13001 Corporate Accounting 2. The singe enty concept Buying an unincorporated business 13001 Corporate Accounting 2. The singe entty concept Buying a company C1A3001 Corporate Accounting 2. The singe entity concept ‘ying an unincorporated business C1A3001 Corporate Accounting 2. The singe entity concept fying a company + When a company (td invest in another company {Gt the legal positions very diferent. + Companies have ther own legal ident separate from that ofthe owes + The vesting company therfore pays cash to 8 Le's $Shoreholders to buy thi shares. + tt does nt acquire legal title to the net asets of 8 ted thisrematrs with Led C1A3001 Corporate Accounting 2. The singe entity concept Buying company 13001 Corporate Accounting 2. The single entty concept Buying a company 13001 Corporate Accounting 2. The single entity concept + Surmary Mechnc of eosciton + The investment in § shown in P's own statement of financial positions eanceled ‘The investment instead reflected by ‘consolidated statement of financial positon (CSOFFLIn addin sto show the groups resources. + Dividend income in P's own statement of profit of los in the conslaated statement of profit or lss (CSP) by the t Dine adgiion of S's revenue and cote to Ps to shaw the groups performance + The investment in $ in P's statement of fnancal postion = ‘canceled out against S's share capital and reserves at acquisition. 13001 Corporate Accounting 3, Contraland ownership, Contro! C1A3001 Corporate Accounting 2. The single entity concept summary + Key points: + Group = parent (P+ subir) 8) + Subsidiary) = undertaking} under P's contral +The objective of group acount to prevent a re an fe ew athe woup Ps sharenaises| C1A3001 Corporate Accounting 3. Control and ownership Contro! Holding of over 50% ofthe ordinary voting sharesinS IFRS 10 states that an investor controls an investee if and oly ithas all ofthe following + Power over the investee; \ + Exposure, or rights to variable returns from its involvement with the investee; ane + The ability to use its power over the investe to affect the amount of the investor's returns. C1A3001 Corporate Accounting 3 Control and ownership ownership Equity ~ residual amount found by deducting all ofthe entity's liabilities from al ofthe entity's assets. tis also. described as the ownership interest. ( However, its possible forthe parent to have control of 3 subsidiary without owning 100% of it Part of 's net assets which is not owned by Ps owned by the ‘non-contrlling interests (NC). 1A3001 Corporate Accounting 3, Control and ownership Ownership 13001 Corporate Accounting 3, Control and ownership Refecting control and ownership ingroup accounts 13001 Corporate Accounting 3, Contraland ownership, Reserves C1A3001 Corporate Accounting 3. Control and ownership Reflecting control and ownership n group accounts Z SS e- Sateen te C1A3001 Corporate Accounting 3. Control and ownership Reserves “The CSOFP includes P's reserves plus P's share of S's + post acquisition reserves, as these reserves are / generated under Ps contol, + S's reserves at acquisition (pre-acquisition reserves), along with its share capital are cancelled against? cost of investment in, +The same basic calculation is used for each reserve ‘separately eg: revaluation surplus, retained earnings). C1A3001 Corporate Accounting 3. Control and ownership electing contol and ownership in group accounts 13001 Corporate Accounting 4. FRS3, Business Combinations Objective Objective of IFRS 3 ~ to set out the accounting and disclosure ‘equirements for a business combination Definitions Ausiness combination: A transaction acquirer ebtains control of one or mor Parent () and Subsidiary (8) Sear ebmaets vin ewe 1A3001 Corporate Accounting 5. Measuring the consideration transferred General rule: Cost ofthe business combination Is 2 ‘The total value ofthe fair values of the consideration transfered, Fair value of consideration py anvALSDw ie scuston sre 13001 Corporate Accounting 5, Measuring the consideration transferred Worked example: Deferred consideration C1A3001 Corporate Accounting 4 IFRS 3, Business Combinations Tesi onatins Acquisition [Accountin redesign C1A3001 Corporate Accounting 5. Messuring the consideration transferred + Deferred consideration + When pment of onertion ran ccaston ators sitet 2 Noaiaed arabe tie son ae y, + were the deere conieration sin the orm of equity shard: ER > fet ave oid be messed tte casi ate mare ri > Thedlened amour engand pa fly ner Sonhoodng ach rahe obese \ + where the ceferedconeratons payable in ash + gly nou be caged 2 epee he amount pte C1A3001 Corporate Accounting ‘5. Measuring the consideration transfered Contingent consideration Detain: An baton ote cae to vader sons xt or FEEyn ct he omneromar ol eseureeopecied nue —— Sn xr conin eee Va = contingent conseration apeevets resin he cae «testers oanget ern operecunte A soterer rain ome mere are ehguae ee state ste suit econ 13001 Corporate Accounting 5, Measuring the consideration transferred Worked example: Contingent consideration 13001 Corporate Accounting 5. Measuring the consideration transferred Acquisition related costs + Acquisition-related costs such as professional and other _—* fees relating specifialy tothe individual transaction eg, / ‘accountant’ fees and legal costs are required to be recognised as expenses inthe period in which they are Incurred. \ + Exception: The casts of arranging financial liabilities (eg, ~— loans) and isuing equity are deducted from the liabiltyequiy 13001 Corporate Accounting 6. Recognising and measuring the net assets acquired Recognition of abilities + Note: only items that meet the definition of lability, at the acquisition are recognized in 2 business Snnin

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