Accounting For Business Combination L3 Lesson 3: IFRS 10 Consolidated Financial Statement

Accounting for Business Combination L3
Lesson 3: IFRS 10 Consolidated Financial Statement
The objective of the standard is to establish principles for the presentation and
preparation of consolidated financial statements when an entity controls one or more
other entities.
Scope of IFRS 10:
An entity that is a parent shall present consolidated financial statements. This IFRS applies
to all entities, except as follows:
A. a parent need not present consolidated financial statements if it meets all the
following conditions:
1. it is a wholly-owned subsidiary or is a partially-owned subsidiary of
another entity and all its other owners, including those not otherwise
entitled to vote, have been informed about, and do not object to,
the parent not presenting consolidated financial statements;
2. its debt or equity instruments are not traded in a public market (a
domestic or foreign stock exchange or an over-the-counter market,
including local and regional markets);
3. it did not file, nor is it in the process of filing, its financial statements
with a securities commission or other regulatory organization for the
purpose of issuing any class of instruments in a public market; and
4. its ultimate or any intermediate parent produces consolidated
financial statements that are available for public use and comply
with IFRSs.
B. post-employment benefit plans or other long-term employee benefit plans to
which IAS 19 Employee Benefits applies.
C. An investment entity need not present consolidated financial statements if it is
required, in accordance with paragraph 31 of this IFRS, to measure all of its
subsidiaries at fair value through profit or loss.
Consolidation is the process of combining the assets, liabilities, earnings and cashflows
of a parent and its subsidiary as if they were one economic entity.
Accounting Requirements:
A parent shall prepare consolidated financial statements using uniform accounting

policies for the like transactions and other events in the similar circumstances.
Consolidation of an investee shall begin from the date the investor obtains control of
the investee and cease when the investor loses control over the investee.
Prepared by: Dyan Nicole M. Francisco, CPA 1

Consolidation Procedures:
1. Combine like items of assets, liabilities, equity, income, expenses and cash
flows of the parent with those of its subsidiary.
2. Offset (eliminate) the carrying amount of the parent’s investment in each
subsidiary and the parent’s portion of equity of each subsidiary.
3. Eliminate in full intragroup assets and liabilities, equity, income, expense and
cash flows relating to transactions between entities of the group.
**profits and losses resulting from intragroup transactions that are
recognized in assets such as inventory and fixed assets, are eliminated in
full.
Consolidation @ Date of Acquisition Consolidation Subsequent to Date of

Acquisition
1. Add similar items of assets, 1. Add similar items of assets,
liabilities, equity, expenses and liabilities, equity, expenses and
revenues of parent and subsidiary. revenues of parent and subsidiary.
2. Eliminate the investment in 2. Eliminate the investment in
subsidiary account and subsidiary account and
recognition of NCINAS recognition of NCINAS
3. Eliminate equity of subsidiary 3. Eliminate equity of subsidiary
4. Recognize excess of fair value and 4. Recognize excess of fair value and
book value of net assets of book value of net assets of
subsidiary on the date of subsidiary on the date of
acquisition acquisition
5. Recognition of goodwill or gain 5. Recognition of goodwill or gain
from bargain purchase on the from bargain purchase on the
date of acquisition. date of acquisition.
6. Dividend declared or paid by the
subsidiary to the parent
7. Amortization of the FV differentials
of net assets and its corresponding
effect on the net income reported
by the subsidiary for consolidation
purposes.
8. Impairment of goodwill from
acquisition, if any.
Accounting for Dividend

Dividends paid or payable by the subsidiary to a parent is recognized as “Revenue” by
the parent. When financial statements of the parent and subsidiary are consolidated,
dividend revenue recognized by the parent from its subsidiary must be eliminated.

Accounting for the “Fair Value” Adjustment on the Net Assets of Subsidiary
The fair value adjustment (or the excess) refers to the difference on the book value and
fair value of the net assets of the subsidiary on the date of acquisition. Remember, that
the books of the subsidiary is completely unaffected by the combination when the
parent acquired all of the majority of its voting shares.
Therefore, the valuation of the subsidiary’s net asset on the separate financial
statement of the subsidiary is at book value.
Items normally revalued during the acquisition proper:

1. Over or undervalued inventory
2. Over or undervalued tangible assets subject to depreciation
3. Over or undervalued tangible assets not subject to depreciation
4. Over or undervalued intangible assets subject to depletion.
Accounting for Goodwill Impairment
Goodwill should be tested for impairment at least annually. Goodwill arising from
business combination with a continuing non-controlling interest shall be tested for
impairment using an approach consistent with the approach used to measure the non-
controlling interest at the acquisition date.
Therefore, if NCI is measured at fair value (full goodwill method), impairment shall be
allocated to both the NCI and the parent. On the other hand, if the NCI is measured at
the proportionate share of the identifiable net assets (partial goodwill method) the
impairment loss shall not be allocated.

Accounting For Business Combination L3 Lesson 3: IFRS 10 Consolidated Financial Statement

Uploaded by

Copyright:

Available Formats

Accounting For Business Combination L3 Lesson 3: IFRS 10 Consolidated Financial Statement

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accounting For Business Combination L3 Lesson 3: IFRS 10 Consolidated Financial Statement

Uploaded by

Copyright:

Available Formats

Accounting for Business Combination L3

Lesson 3: IFRS 10 Consolidated Financial Statement

Scope of IFRS 10:

A parent shall prepare consolidated financial statements using uniform accounting

Prepared by: Dyan Nicole M. Francisco, CPA 1

Consolidation @ Date of Acquisition Consolidation Subsequent to Date of

Accounting for Dividend

Prepared by: Dyan Nicole M. Francisco, CPA 2

Items normally revalued during the acquisition proper:

Accounting for Goodwill Impairment

Prepared by: Dyan Nicole M. Francisco, CPA 3

You might also like