(Advanced Financial

Accounting and Reporting

Part 2)
LECTURE AID

2017

ZEUS VERNON B. MILLAN

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 CONSOLIDATED FINANCIAL
STATMENTS
Overview on the topic:
Chapter Title Sub-topics___
17 Consol. FS (Part 1) Basic consolidation procedures

18 Consol. FS (Part 2) Intercompany transactions

19 Consol. FS (Part 3) Miscellaneous topics
20 Consol. FS (Part 4) Complex group structure

Related standard:
• PFRS 10 Consolidated Financial Statements
• PFRS 12 Disclosure of Interests in Other Entities
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Chapter 17 CONSOLIDATED FS (Part 1)

 
Learning Objectives

• State the elements of control.

• Prepare consolidated financial statements
at the acquisition date.
• Prepare consolidated financial statements
at a subsequent date

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Definition of terms (PFRS 10)

• Parent – an entity that controls one or more entities.

• Subsidiary – an entity that is controlled by another
entity.
• Group – a parent and its subsidiaries.
• 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.
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Preparation of Consolidated FS

• A parent entity is required to present consolidated

financial statements, except when all of the following
conditions are met:
a. The parent is a subsidiary of another entity and all its
other owners do not object to the parent not presenting
consolidated financial statements;
b. The parent’s debt or equity instruments are not traded in
a public market (or being processed for such purpose);
and
c. The parent’s ultimate or any intermediate parent
produces consolidated financial statements that are
available for public use and comply with PFRSs.

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Elements of Control

• Control exists if the investor has all of the following:

1. Power over the investee;
2. Exposure, or rights, to variable returns from its
involvement with the investee; and
3. The ability to use its power over the investee to affect
the amount of the investor’s returns.

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Elements of Control

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Accounting requirements

• Consolidated financial statements shall be prepared using uniform

accounting policies.
• The financial statements of the parent and its subsidiaries used in
preparing consolidated financial statements shall have the same
reporting dates. (The maximum difference in reporting dates is 3
months.)
• Consolidation begins from the date the investor obtains control of
the investee and ceases when the investor loses control of the
investee.

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Measurement

• Income and expenses of the subsidiary are based on the

amounts of the assets and liabilities recognized in the
consolidated financial statements at the acquisition date.

• Investments in subsidiaries are accounted for in the parent’s

separate financial statements either:
a. at cost;
b. in accordance with PFRS 9 Financial Instruments; or
c. using the equity method.

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NCI in net assets of the subsidiary

• Non-controlling interests shall be presented in the consolidated

statement of financial position within equity, separately from
the equity of the owners of the parent.

• Non-controlling interest in the net assets consists of:

1. The amount determined at the acquisition date using PFRS 3; and
2. The NCI’s share of changes in equity since the acquisition date.

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NCI in profit or loss and comprehensive income

• The profit or loss and each component of other

comprehensive income in the consolidated statement of
profit or loss and other comprehensive income shall be
attributed to the following:
1. Owners of the parent
2. Non-controlling interests

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Preparing the Consolidated financial statements

• Consolidated financial statements are prepared by

combining the financial statements of the parent and its
subsidiaries line by line by adding together
similar items of assets, liabilities, equity, income and
expenses.

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Consolidation at date of acquisition
1. Eliminate the “Investment in subsidiary” account. This
requires:
a. Measuring the identifiable assets acquired and liabilities
assumed in the business combination at their acquisition-
date fair values.
b. Recognizing the goodwill from the business combination.
c. Eliminating the subsidiary’s pre-combination equity accounts
and replacing them with the non-controlling interest.
2. Add, line by line, similar items of assets and liabilities of the
combining constituents.

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Consolidation subsequent to date of acquisition

Step 1: Analysis of effects of intercompany transaction

Step 2: Analysis of net assets
Step 3: Goodwill computation
Step 4: NCI in net assets computation
Step 5: Consolidated retained earnings computation
Step 6: Consolidated profit or loss computation
Step 7: Computation for profit or loss attributable to the
owners of the parent and to NCI

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Step 1: Analysis of effects of intercompany transaction

• This is relevant when the parent and subsidiary had

intercompany transactions during the period or in the
previous periods. This is discussed in the next chapter.

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Step 2: Analysis of net assets

(a)
This amount is used for computing goodwill in ‘Step 3’.
(b)
This amount is used for computing NCI in net assets in ‘Step 4’.
(c)
This is used for computing consolidated retained earnings in ‘Step 5’.
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Step 3: Goodwill computation

Formula #1: NCI is measured at NCI’s proportionate share

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Step 3: Goodwill computation (continuation)
Formula #2: NCI is measured at fair value

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Step 4: Non-controlling interest in net assets

*This amount is zero if NCI is measured at proportionate share. Goodwill is

attributed to NCI only if NCI is measured at fair value.

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Step 5: Consolidated retained earnings

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Step 6: Consolidated profit or loss

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Step 7: Profit or loss attributable to owners of parent and NCI

*FVA is fair value adjustments.

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Consolidated Statement of Financial Position

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Consolidated total assets

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Consolidated total liabilities

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Consolidated total equity

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• (APPLICATIONS: PROBLEM 16-2: #’s 1 & 2)

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 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

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IFA PART 1A: Zeus Vernon B. Millan
 END

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