COMPLEX GROUP

1.0 Complex group structure

1.1 When an entity owns more than one subsidiary, it can be said that the complex group exists.
1.2 The followings are the common complex group structure, with relevant explanations :1.2.1 Multiple direct subsidiaries
Parent
60%

75%
55%
Subsidiary 2

Subsidiary 1

Subsidiary 3

This is a simple group where the consolidation technique is the same as the previous lesson, and each
results calculated will be combined to show a group result.

1.2.2 Vertical Group with indirect subsidiary

Parent
60%

40%
NCI

Subsidiary 1
30%
25%

NCI

Direct interest
Indirect interest

45%

75%
Indirect subsidiary 1

Effective ownership :Parent interest

- Direct
- Indirect
Non controlling interest
- Direct
- Indirect

Subsidiary 1 Indirect Sub 1

60%
-

45%

40%
100%

25%
30%
100%

The effective date of acquisition of indirect subsidiary by parent is the date of parent gains control over
the indirect subsidiary.
Note : effective interest is used to calculate the reserves allocation between parent and NCI, and not
used to determine control.

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1.2.3 Vertical Group with direct interests in the indirect subsidiary
Parent
75%

15%

Subsidiary

Indirect subsidiary
60%

Effective ownership :Parent interest

- Direct
- Indirect
Non controlling interest
- Direct
- Indirect

Subsidiary

Indirect Sub

75%
-

15%
45%

25%
100%

25%
15%
100%

The effective date of acquisition of indirect subsidiary by parent is the date of parent gains control over
the indirect subsidiary.
Note : effective interest is used to calculate the reserves allocation between parent and NCI, and not
used to determine control.

1.3 Examples 1 (based on examiner article "Business Combinations")

J purchased its shareholding in B on 31 December 2007, and B purchased its shareholding in D on 1
January 2007. Control was achieved on these acquisition dates. The following financial statements
relate to the J Group as at 31 December 2008:

Cost of investment in B (80% holding)

Cost of investment in D (60% holding)
Other net assets

Equity shares
Retained earnings

J plc
$m
32.0
0.0
26.0
58.0

B plc
$m

40.0
18.0
58.0

0.0
22.0
13.2
35.2

D plc
$m
0.0
0.0
30.0
30.0

24.0
11.2
35.2

20.0
10.0
30.0

The retained earnings were:

B
$m
1 January 2007
31 December 2007

D
$m
4.0
13.0

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1.0
3.2

COMPLEX GROUP

The fair value of the NCI, based on effective shareholdings, was:

B
$m
1 January 2007
8.0
31 December 2007
9.8

D
$m
18.9
20.0

Based on effective holding, the goodwill of B is impaired, as at 31 December 2008, by $4m following
poor trading results for the year. There was no impairment prior to this date.
Required
For full methods, show the statement of financial position at 31 December 2008.

Solution
J

Effective ownership :Parent interest - Direct

- Indirect

80

B
80%
-

D
48%

20%
100%

40%
12%
100%

B
Non controlling interest - Direct
- Indirect

60

J in B
J in D

Date of control
31 Dec 07
31 Dec 07

Pre acq RE ($m)

13.0
3.2

W1 Goodwill calculation
Full
$
J in B
Consideration transferred
NCI
Share of identified net assets
Share capital
Retained earnings
Less : impairment

B in D
Consideration transferred
Less : Direct NCI portion (20% x $22m)
NCI
Share of identified net assets
Share capital
Retained earnings

32.0
9.8
41.8
(24.0)
(13.0)
4.8
(4.0)
0.8

22.0
(4.4)
20.0
37.6
(20.0)
(3.2)
14.4
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FV of NCI ($m)
9.8
20.0

COMPLEX GROUP
W2 Group retained earning
J retained earnings
Share of post-acquisition B
80% x ($11.2m - $13m)
Share of post-acquisition D
48% x ($10m - $3.2m)
Less goodwill impaired

Full
$
18.0
(1.4)
3.3
(3.2)
16.7

W3 Non controlling interest

B
NCI at date of acq
Share of post acq profit
20% x ($11.2m - $13m)
Less : impairment of goodwill (20% x $4m)

D
NCI at date of acq
Less : Direct NCI portion (20% x $22m)
Share of post acq profit
52% x ($10m - $3.2m)

Full
$
9.8
(0.4)
(0.8)
8.6

20.0
(4.4)
3.5
19.1

J Group: statement of financial position as at 31 December 2008

Full
$
Net assets ($26m + $13.2m + $30m)
69.2
Goodwill (working (1))
15.2
Total net assets
84.4
Equity shares 40
Retained earnings (working (2))
NCI (working (3))

40.0
16.7
27.7
84.4

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Practice : ACCA P2 June 2010 Q1

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COMPLEX GROUP

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COMPLEX GROUP
Practice : ACCA P2 June 2013 Q1

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