GROUP FINANCIAL
STATEMENTS
[CONSOLIDATION]
Compiled by: Murtaza Quaid, ACA
CONSOLIDATED FINANCIAL STATEMENTS
Single Economic IFRS 10 Consolidated Financial Statements requires a parent to present
consolidated financial statements in which the accounts of the parent and
Entity
subsidiaries are combined and presented as a “Single Economic Entity”
Uniform Uniform accounting policies should be used. Adjustments must be made
Accounting where members of a group use different accounting policies, so that their
Policies financial statements are suitable for consolidation.
Under IAS 27 Separate Financial Statements, the investment in a
subsidiary, associate or joint venture can be carried in the investor’s
Accounting separate financial statements either:
Treatment in
Separate At cost;
Financial At fair value (IFRS 9 Financial Instruments); or
Statements of
the Using the equity method (IAS 28 Investments in Associates & Joint
Investor Ventures.
Company If the investment is carried at fair value under IFRS 9, both the investment
(at fair value) and the revaluation gains or losses on the investment must
be cancelled on consolidation.
Compiled by: Murtaza Quaid, ACA
CONSOLIDATED FINANCIAL STATEMENTS
Investor Company does
Investor Company prepares Consolidated
not prepare Consolidated
F/S as it has investments in subsidiary
F/S as it has no subsidiary
Type of Investment
Separate F/S of the Separate F/S of the
Consolidated F/S
Investor Company Investor Company
Simple Investment
Fair value (IFRS 9) Fair value (IFRS 9) Fair value (IFRS 9)
(Less than 20%)
Investment in Associate Cost or
Equity Accounting Equity Accounting
(20% to 50%) Fair value (IFRS 9)
Investment in Subsidiary Cost or
N/A Consolidation
(More than 50%) Fair value (IFRS 9)
Compiled by: Murtaza Quaid, ACA
CONSOLIDATED FINANCIAL STATEMENTS
(1) Simple Acquisition of Subsidiary
CHOICE
Measure NCI at acquisition date at
Measure NCI at acquisition date at fair value
proportionate share of the fair value of the
(i.e. No. of NCI’s shares × Share Price)
subsidiary's net assets
Calculate goodwill at the date of acquisition Calculate goodwill at the date of acquisition (
(i.e. the parent achieves control) as follow: i.e. the parent achieves control) as follow:
- Fair value of Consideration transferred XXXX - Fair value of Consideration transferred XXXX
- Non-Controlling Interest (At Fair Value) XXXX - Non-Controlling Interest (At proportionate
Less. FV of Identifiable Net Assets of subsidiary (XXX) share of FV of the subsidiary's net assets) XXXX
Goodwill / (Bargain Purchase Gain) XX / (XX) Less. FV of Identifiable Net Assets of subsidiary (XXX)
Goodwill / (Bargain Purchase Gain) XX / (XX)
Consolidate goodwill, assets, liabilities and NCI of the subsidiary at the year end.
Journal Entry at the date the parent achieves control is as follow:
Debit: Goodwill XXXX
Debit: Net Assets of Subsidiary XXXX
Credit: FV of Consideration transferred XXXX
Credit: Non-Controlling Interest XXXX
Compiled by: Murtaza Quaid, ACA
Cost of Investment Fair Value of Consideration Transferred
Parent Co. Ex-Owners
Consideration Transferred
Controlling Shares
Subsidiary Co.
Acquisition-related (Transaction) costs are costs the acquirer Must not be included in the
incurs to effect a business combination. For example: cost of the acquisition
- Finder’s fees Must be treated as expense
Acquisition - Cost of advisory as incurred and written off
to profit and loss (also
Related Cost - Professional fees (legal, accounting, valuation,
disclosed in a note to the
consultancy)
F/S)
- General administrative costs
- Cost for issuing/registering debt or equity instruments
Cost of Investment Fair Value of Consideration Transferred
The amount transferred by the
Consideration Transferred acquirer in return for the interest
in acquiree
Transferred at Acquisition Date Deferred Consideration Contingent Consideration
Measured at acquisition date Fair Consideration that is to be Payment dependent on whether
Values: paid in future specified future event occur or
Assets transferred by acquiree, for It should be discounted to conditions are met, e.g profit
example: present value to target
- Cash; determine its fair value It is measured at fair value at
- Property, Plant & Equipment Subsequently unwinding acquisition date
(Gain\loss on disposal in P/L) of liability (Interest) would
Remeasure the contingent
be recognised in profit /
consideration at the end of
loss.
Liabilities incurred by the acquirer reporting period
to the former owners of the - If contingent consideration is
acquiree in the form of cash / debt,
remeasurement should be
taken to profit / loss
Equity interests issued by the
acquirer in exchange for control - If contingent consideration is
of acquiree in the form of equity, it will
(Valued at their market price at not be remeasured. Eventual
acquisition date) settlement will be accounted
for as an equity transaction.
Fair Value of Identifiable Assets Acquired & Liabilities Assumed of Subsidiary Company
Consolidated Parent Company
Financial Recognized by
Statements Subsidiary
Must recognize identifiable assets acquired & For Example,
liabilities assumed of the Subsidiary Company Property, plant &
(except in limited stated cases) Equipment
Inventory
Investments
At their FAIR VALUE on the Receivables
Restructuring Costs &
Future Operating Losses
Acquisition Date Financial Liabilities
Investment Property
Plan to restructure a
subsidiary or exit an
Measurement period OR
activity of subsidiary after
acquisition is not present Initial accounting for goodwill may be determined on a provisional
obligation of the subsidiary basis and must be finalized by the end of a Measurement Period. Not Recognized by
at the acquisition date. Measurement period ends as soon as the acquirer receives the Subsidiary
Therefore, Parent information it was seeking about facts and circumstances that
existed at the acquisition date. For Example,
Company would not be Internally generated
recognized as liability at However, measurement period shall not exceed one year from
the acquisition date. intangible assets
the date of acquisition (Brand, licenses,
During the measurement period new information obtained about
Parent Company would facts & circumstances that existed at the acquisition date might trademarks, domain
also not recognize lead to the adjustment of provisional amounts or recognition of names, customer lists
liabilities for future losses additional assets or liabilities with a corresponding change to etc.)
or other costs to be goodwill. Contingent Liabilities
incurred as a result of the Any adjustment restates the figures as if the accounting for the
Business Combination business combination had been completed at the acquisition date.
Fair Value of Identifiable Assets Acquired & Liabilities Assumed of Subsidiary Company
The table below shows how different types of asset and liability should be valued:
Item Measurement at Acquisition Date Measurement at Reporting Date
Lower of:
Inventory Fair Value Costs (i.e. Fair Value at Acquisition Date)
Net Realizable Value
As per the Group Policy, (i.e.
Property, Plant
Fair Value Cost Model
and Equipment
Revaluation Model
Fair Value
If intangible assets (such as brand, licenses, trademarks,
domain names, customer lists etc.) are separately As per the Group Policy, i.e.
Intangible assets identifiable & can be measured reliably, they should be Cost Model
included in the consolidated statement of financial Revaluation Model
position as intangible assets, even if these were not
recognized by Subsidiary.
As per the Group Policy, i.e.
Investment
Fair Value Cost Model
Property
Fair Value Model
Financial Asset Fair Value As per IFRS 9
Financial Liability Fair Value As per IFRS 9
Fair Value of Identifiable Assets Acquired & Liabilities Assumed of Subsidiary Company
Exceptions to the recognition and/or measurement principles in IFRS 3 are as follows.
Item Measurement at Acquisition Date Measurement at Reporting Date
Fair Value
Many acquired businesses will contain contingent
liabilities such as contingent liabilities for the
settlement of legal disputes. Higher of:
Contingent liabilities Contrary to IAS 37, the Parent shall recognise the Fair Value at Acquisition Date
contingent liability assumed in a business Amount to be recognized under IAS 37
combination even if it is not probable that an
outflow of resources embodying economic
benefits will be required to settle the obligation.
Consolidated Statement of Financial Position
Change in Net Assets of Subsidiary
At Acquisition At Reporting
Share Capital XXXX XXXX
Share Premium XXXX XXXX Same as acquisition date (unless Land is
not revalued at reporting date by
Retained Earnings XXXX XXXX subsidiary)
FV Adjustment (Land) XXXX XXXX
Depreciated amount (unless building is
FV Adjustment (Building) XXXX XXXX not revalued at reporting date by
FV Adjustment (Inventory) XXXX XXXX subsidiary)
FV Adjustment (Others) XXXX XXXX Same as acquisition date (Only if
Inventory is not sold till reporting date)
Intangible (Not recognized) XXXX XXXX
Contingent Liability (Not Recognized) (XXX) (XXX)
Amortized Amount
Unrealized profit on unsold stock (Sub Parent) -- (XXX)
Undepreciated Gain on PPE (Sub Parent) -- (XXX) Higher of:
XXXX XXXX - FV at acquisition date
- FV at reporting date (As per IAS 37)
Parent’s expected The costs the acquirer
Net Increase / (Decrease) XXX / (XXX) expects but is not obliged to incur in the
future to effect its plan to exit an
activity of an acquiree or to terminate
Parent % NCI % the employment of or relocate an
acquiree’s employees are not liabilities
CONSOLIDATION XXXX XXXX
Consolidated Statement of Financial Position
Acquisition related cost (i.e. transaction cost) would
not be capitalized and would be expensed out in
Goodwill
Group Reserve or Consolidated Profit and Loss
Full Goodwill Partial Goodwill
(NCI at Fair Value) (NCI at Proportionate Share)
Fair value of Consideration Transferred
• Cash XXXX XXXX Subsequent unwinding of
liability (Interest Expense)
• Deferred Payment [Present Value of Future payment] XXXX XXXX is recognized in Group
• Contingent Consideration [Fair Value at Acq. Date] XXXX XXXX Reserve / Profit and Loss
• Shares [Shares Issued x Market Price at Acq. Date] XXXX XXXX
• Non-monetary Assets (Land, building etc.) XXXX XXXX Subsequent remeasurement
[Fair Value at Acq. Date] of contingent liability is
XXXX XXXX recognized in Group
Reserve / Profit and Loss
Add. Fair Value of NCI XXXX ---
[NCI Shares x Market Price of Sub’s share on Acq. date]
XXXX XXXX
Less. Fair Value of Net Assets of Subsidiary at Acq. Date (XXX) Total (XXX) Parent’s Share
Goodwill / (Bargain Purchase Gain) – At Acq. Date XX/(XX)* XX/(XX)*
Group Reserve
Less. Impairment of Goodwill (If any) (XXX) (XXX) Group Reserve
NCI
Goodwill – At Reporting Date XX/(XX) XX/(XX)
* Bargain Purchase Gain To be fully recorded in
Group Reserve or Consolidated Profit and Loss
CONSOLIDATION
Consolidated Statement of Financial Position
Non-Controlling Interest
At Fair Value At Proportionate Share
[Full Goodwill] [Partial Goodwill]
NCI - At Acquisition Date XXXX NCI - At Acquisition Date XXXX
[NCI Shares x Market Price of Subsidiary’s share] [Net Assets of Subsidiary at acquisition x NCI%]
Post Acquisition Share of NCI XX/(XX) Post Acquisition Share of NCI XX/(XX)
Less. Impairment of Goodwill (NCI Share) (XXX) Less. Impairment of Goodwill ----
NCI – At Reporting Date XXXX NCI – At Reporting Date XXXX
CONSOLIDATION
