Overview IFRS 10 Consolidated Financial Statements

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Overview IFRS 10 Consolidated Financial StatementsShort – To establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities Overview IFRS 10 Consolidated Financial Statements

Longer – IFRS 10 replaces the part of IAS 27 Consolidated and Separate Financial Statements that addresses accounting for subsidiaries on consolidation. What remains in IAS 27 after the implementation of IFRS 10 is the accounting treatment for subsidiaries, jointly controlled entities and associates in their separate financial statements. Contingent consideration Contingent consideration Contingent consideration Contingent consideration Contingent consideration

The aim of IFRS 10 is to establish a single control model that is applied to all entities including special purpose entities. The changes require those dealing with the implementation of IFRS Read more

Consolidated financial statements

IFRS 10 Definition of consolidated financial statements

The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

ParentAn entity that controls one or more entities.

The other types of financial statements are unconsolidated financial statements (or company accounts) and combined financial statements.

Single economic entity concept

The concept of a single economic entity is illustrated in the example below:

Example – Single economic entity concept

A subsidiary buys an asset from a third party for CU 100. It subsequently sells the asset on to its parent for CU 130. The subsidiary records a profit

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IFRS vs US GAAP Business combinations

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IFRS vs US GAAP Business combinations – IFRS and US GAAP are largely converged in this area. The business combinations standards under US GAAP and IFRS are close in principles and language. However, some differences remain between US GAAP and IFRS pertaining to (1) the definition of control, (2) recognition of certain assets and liabilities based on the reliably measurable criterion, (3) accounting for contingencies, and (4) accounting for non-controlling interests. Significant differences also continue to exist in subsequent accounting. Different requirements for impairment testing and accounting for deferred taxes (e.g., the recognition of a valuation allowance) are among the most significant.

New definitions of a business were also issued under both US GAAP and IFRS. … Read more

IFRS 3 Recognising what you acquired in a business combination

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IFRS 3 Recognising what you acquired in a business combination or recognizing and measuring the identifiable assets acquired, liabilities assumed, and any non-controlling interest in the acquiree.

IFRS 3 provides the following recognition principle for assets acquired, liabilities assumed, and any non controlling interest in the acquiree:

Excerpt from IFRS 3 10

As of the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. Recognition of identifiable assets acquired and liabilities assumed is subject to the conditions specified in IFRS 3 11 and IFRS 3 12.

An acquirer should recognize the identifiable assets acquired and the liabilities assumed on the acquisition … Read more

What about impairment of goodwill

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What about impairment of goodwill – Goodwill must be tested annually for impairment in accordance with IAS 36 10(b). Goodwill must be allocated to one or more CGUs for the purpose of impairment testing because it does not generate independent cash inflows. Goodwill is commonly allocated to groups of CGUs for the purpose of impairment testing.

In accordance with IAS 36 80, goodwill is allocated to the CGUs that are expected to benefit from the synergies of the combination, both existing and acquired CGUs. The group of CGUs to which goodwill is allocated shall represent the lowest level at which the goodwill will be monitored and managed. The group of CGUs cannot be larger than an … Read more

Common control business combinations

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Common control business combinations – How should an entity account for a business combination involving entities under common control?

This is an important issue because common control combinations occur frequently but are excluded from the scope of IFRS 3 – the IASB’s standard on business combination accounting. The Board plans to publish a Discussion Paper in the first half of 2020.

Here is a common view on how to account for common control combinations. Common control business combinations

Most business combinations are governed by IFRS 3. However, those involving entities under common control are outside the scope of this Standard. There is no other specific guidance on this topic elsewhere in IFRS. Management therefore needs to use … Read more

Disclosures subsidiaries and NCI

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Disclosures subsidiaries and NCI – IFRS 12 requires disclosures for each of an entity’s subsidiaries that have material non-controlling interests. Such disclosures assist users when estimating future profit or loss and cash flows (for example, by identifying the assets and liabilities that are held by subsidiaries, risk exposures of particular group entities, and those subsidiaries that have significant cash flows). The disclosures are as follows (new disclosures compared to the previous standard are in bold):

  • The subsidiary’s nameDisclosures subsidiaries and NCI
  • Its principal place of business (and country of incorporation, if different)Disclosures subsidiaries and NCI
  • The proportion of ownership interests held by non-controlling interestsDisclosures subsidiaries and NCI
  • The proportion of voting rights held
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Accounting Policies to First IFRS Financial statements

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Accounting Policies to First IFRS Financial statements – An entity must use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements. Those accounting policies must comply with each IFRSs effective at the end of its first IFRS reporting period, unless there is a mandatory exception to retrospective application or an optional exemption from the requirements of IFRSs.

[IFRS 1, paras 7 – 9] Accounting Policies to First IFRS Financial statements

Note that:

  • An entity may apply a new IFRS that is not yet mandatory if that IFRSs permits early application.
  • The transitional provisions in IFRSs do not apply to a first-time adopter’s transition to IFRSs.

Mandatory Exceptions to Retrospective Application Read more

Allocation between Controlling and Non-controlling interest

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Allocation between Controlling and Non-controlling interest Allocation between Controlling and Non-controlling interest is about consolidation, obtain control over but not hold 100% in another entity/subsidiary.

When a parent entity first obtains control over another entity, it recognises any non-controlling interest in the new subsidiary’s net assets as illustrated in the example below. In subsequent periods the parent allocates to the non-controlling interest its proportion of:

  • profit or loss Allocation between Controlling and Non-controlling interest
  • each component of other comprehensive income [IFRS 10 B94].

i.e. the entity’s profit or loss in consolidated profit or loss of the parent and the entity’s other comprehensive income in consolidated other comprehensive income of the parent. Allocation between Controlling and Non-controlling interest

The proportion allocated to … Read more

Consolidation in summary

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Consolidation in summary Consolidation in summary – Consolidated financial statements present the financial position and results of a group (a parent and its subsidiaries) as those of a single economic entity. The key steps to achieve this are:

  • currency conversion: assets, liabilities, equity, income, expenses and cash flow need to be translated into the reporting currency. Positions at closing rates and streams at average rates or transaction date rates,
  • combine like items of assets, liabilities, equity, income, expenses and cash flows from the financial statements of each group entity,
  • eliminate intra-group transactions and balances,
  • eliminate the parent’s investment in each subsidiary and recognise goodwill and other business combination-related adjustments,
  • eliminate intra-group dividends,
  • consolidate allocation differences of goodwill/badwill,
  • allocate comprehensive
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