Group Accounts - Basic Principles

• Subsidiary


  IFRS 10 states that an investor controls an investee if and only if it has all of the following:

  • Power over the investee
  • Ability to direct the relevant activities of the investee - either via majority voting rights (including potential voting rights) or rights to appoint or remove key management personnel or rights to appoint or remove another entity that directs the relevant activities or rights to direct the investee to enter into transactions that benefit of the investor
  • Exposure, or rights, to variable returns from its involvement with the investee
  • The ability to use its power to affect the amount of the investor's returns from its involvement with the investee
• Business Combinations


  1. Identifying an acquirer - based on control assessment as per IFRS 10

  2. Determining the acquisition date

  3. Measure the consideration transferred

  4. Recognising and measuring the fair value of identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquire

  5. Recognising and measuring goodwill / gain on bargain purchase
• Consideration Transferred


  Purchase consideration must be measured at fair value:

  • Cash
  • Deferred consideration - Measured at FV at the date of acquisition by taking into account time value of money (discounting factor)
  • Shares - Measured at market price on the date of acquisition
  • Contingent consideration - Measured at FV on the date of acquisition. Contingent consideration is included even if payment is not deemed probable
  • Acquisition related costs - expensed to profit and loss as incurred
• Fair Value of the Net Assets

  The identifiable assets acquired and the liabilities assumed at their fair values at the acquisition date.

  Adjustments will therefore be required in Group Consolidated FS where the subsidiary's financial statements do not reflect the fair value of assets and liabilities.

  Some assets or liability may not recognised by the acquiree in its individual company financial statements. However, this may be recognised by the acquirer in the consolidated financial statements.

  Identifiable intangible assets, such as brand names.

  Contingent liabilities.
• Goodwill


  Goodwill is carried in the statement of financial position at cost less accumulated impairment losses.

  Goodwill is tested for impairment at least annually. Impairment loss (if any) is recognised in Consolidated Statement of P/L.

  If the NCI has been measured at fair value then part of the impairment loss will be allocated to the NCI
• Gain on a bargain purchase

  (i.e. fair value of the net assets acquired exceeds the total of the consideration transferred and the value of any non-controlling interest) is recognised in profit and loss.

  It may be that in some cases only provisional values can be established at the acquisition date, i.e. for the value of subsidiary's assets fair value.

  Provisional values should initially be used in the calculation of goodwill.

  Adjustments can be made to the fair values of the assets acquired and liabilities assumed and/or the consideration transferred made within one year of the acquisition date (i.e. measurement period).

  Such adjustments should be backdated to the acquisition date and readjusted the goodwill value.
• Non-controlling interest


  IFRS 3 provides a choice in valuing the NCI:

  Method 1 - Partial Goodwill method. Goodwill is fully belonged to the Parent.

  Method 2 - Full goodwill method. Goodwill is shared between Parent and NCI.