Groups

Step 1

Unrealized pro t in inventory ( do separate table for each internal transaction)

Gross Tax Sub total NCI Net
Internal inventory at Inventory * Gross * Cost-tax Subtotal * Subtotal -NCI
beginning markup/ Corporate tax NCI %
markup+100 rate
Internal inventory at
the End

Step 2 Analysis of equity worksheet

Equity of subsidiary Total Analysis of equity

Date Details SC RE Plant Inven DefTax NCI Invest GW Since RE

t
Acquisition 1 2 3 (4) 5 6 7

BOY 8 (9) (10) 11 12 13

END Sub total

END Net pro t 14 (15) (16) 17 18 19

END Dividend (20) (21) 22

END Year end

NOTE : 4;9 10; 15;16; 20;21 are negative

1) Share capital of subsidiary at acquisition

2) Retained Earnings of subsidiary at acquisition
3) Fair value adjustment of subsidiary at acquisition
4) Tax on Fair value adjustment of subsidiary at acquisition
5) Total at acquisition* NCI Rate
6) Investment at cost
7) Balancing
8) Retained earning of subsidiary at beg of year – Retained earning of subsidiary at acquisition
9) (Fair Value Adjustments of Subsidiary at acquisition- residual value) / number of useful years at acquisition * number of years used at the the
beg of year
10) upstream gross internal inventory at beg
11) tax on 9 + 10
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12) Total at beginning * NCI Rate
13) balancing
14) Pro t before tax of subsidiary (given)- tax(given) of subsidiary
15) Cost of 1 useful year
16) upstream gross internal inventory at end
17) tax on 14+ 15 YOU WERE BORN TO WIN
18) NCI% on total of net pro t
19) balancing
BUT TO BE A WIINER YOU
20) Intercompany Dividend declared MUST
21) NCI% on Intercompany Dividend declared PLAN TO WIN
PREPARE TO WIN
Statement of profit and loss AND EXPEXT TO WIN
Step 1
Revenue (P+S – Internal)

Step 2 – At Acquisition difference

(Fair Value Adjustments of Subsidiary at acquisition- residual value) / number of useful years at acquisition * number of useful years
left at end of year

Step 3
Cost of Sales (P+S – Internal + upstream gross internal inventory at end – downstream gross internal inventory at end -at acquisition
difference

Step 4
Selling and distribution cost (P +S)
Administration Costs (P +S)

Step 5
Revenue
-Cost of sales
- Selling and distribution cost
- Administration Costs
= Pro t before taxation
-taxation
=Pro t after taxation

Step 6 -Taxation
Parent + Subsidiary – Tax on upstream Internal inventory at the End + Tax on downstream Internal inventory at the End – tax on at
acquisition difference

Step 7
Attributable to
Non Controlling interest (18)
Equity holders of parent (balancing)
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Statement of Changes in equity
Share capital Retained earnings Total – Parent NCI Total
Beginning Parent only Parent + 13 SC+RE Subtotal NCI from SC+RE+NCI
worksheet
Net Pro t for the From step 7 “” 18 Total net pro t
year
Dividend (20) “” (21)

Statement of financial position

ASSETS
Non- current assets
Goodwill 7 from w/s
PPE W1 (below)
Current Assets W2

Equity
Share Capital Parent only
Retained Earnings From SCIE
Parent shareholders equity Total
NCI PSE * NCIi%

Non current liabilities

Deferred taxation W3

Current liabilities W4

TOATAL EQUITY AND LIABILITIES

W1 Parent + subsidiary + (15)

W2 Parent + subsidiary – (upstream gross internal inventory at beg + upstream gross internal inventory at en )+ (downstream gross
internal inventory at beg + downstream gross internal inventory at en )

W3 Parent + subsidiary – tax on upstream transaction + tax on downstream transactions

W4 parent + subsidiary- controlling share of intercompany dividend

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Analysis of piecemeal
Share Retained Revaluations Other Deferred Total NCI Investment Goodwill Since Since
Capital Earnings Reserves Tax Retained E revaluations

At Of sub RE @ - Of sub only - given or @cost Balancing

only at BOY + at acquisition NCI on
acquisition
acquisition [(Profit total
before Tax-
Tax) *
number of
months not
acquired/
12]

Profit after - Profit - - - NCI on - - Balancing -

before Tax- total
tax
Tax) *
number of
months
acquired/
12

Revaluation - - Fv revaluation on - (Tax on NCI on - - - Balancing

land revaluation) total

Dividends - (Dividend - - - (NCI on - - (Balancing) -

paid of sub) total )

End

You are
capable of
more than
you know
 Analysis of associate
Share Capital Retained Fair value Revaluate Total Investment Goodwill Since RE Since FV res
Earnings Reserves

At Of ass only at Of ass only at - Revaluations @cost ((total*controlling - -

acquisition acquisition at acquisition share)-investment)
acquisition on land NB Dif in GW and gain

Since equity - RE @ acq- RE FVR @ (Revaluations at

acquisition-
(RE @ acq- RE BOY) (FVR @ acq- FVR
BOY acq- FVR residual value *
* controlling share BOY)* controlling share
to BOY BOY number of years (Revaluate * controlling
used at BOY) share)

Profit after - Profit before tax- - Cost of 1 - total* controlling share

tax useful year of
tax revaluations

Fair value - - FV gain Fv gain * controlling share

adjustment

Dividends - (Dividend paid) - (Dividend paid *

controlling share )

End
#blue -from analysis of equity worksheet for subsidiary
#green- from analysis of equity worksheet for associate
#red (bracket) - negative amount

Statement of profit and loss

Revenue parent + subsidiary * no. months acquired
(Cost of sales parent + subsidiary * no. months acquired )
Pro t before tax parent + subsidiary * no. months acquired - Since RE of dividend for subsidiary - Since RE of dividend for associate

Don’t wish
Share of pro t of associate Since RE of pro t after tax for associate
(Tax parent + subsidiary * no. months )
=Pro t for the period
OCI
For it
Not subsequently reclassi ed to P/L Work
Gain on revaluation Fv revaluation on land - tax on Fv revaluation on land
FV gain on Financial Asset after tax of parent for it
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Share of JV OCI Fv gain * controlling share of associate
=Total OCI

Pro t attributable to : pro t for the period

-Equity holders of parent balancing
-NCI NCI on pro t after tax of subsidiary
Total OCI attributable to: total OCI
-Equity holders of parent Balancing
-NCI NCI on pro t after tax of subsidiary +NCI of revaluation after tax of subsidiary

Statement in changes in equity

Parent
NCI TOTAL
Share capital Retained earnings FV Reserve Revaluation Total for P

BOY Parent only Parent + Since RE Parent + Since - -

of Equity to BOY FVR of Equity to
for associate BOY for
associate

Acquisition of sub - - - - NCI @ acq for sub

Total Comprehensive - OCI attributable to Fair value gain Since revaluation Total Comprehensive
Income for the year equity if parent on FA for paren for subsidiary Income attributable to
+ Since FVR for non- controlling interest
Fair value (from P\L)
agreement for
associate

Dividend - (Dividend paid for (NCI of dividend paid for

parent) subsidiary )

Year End

Statement of Financial Position

Assets
Non current assets
Investments ( investment in sub + since FV reserve for associate + since retained e for associates )
Goodwill (from subsidiary worksheet)
Other net assets(parent + sub)
Share capital and reserves
NCI (from subsidiary worksheet)
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Journal entries for associates
1) At acquisition : cost
Dr investment in
Cr Bank
2) Increase in equity items : amount at acquisition- amount for the year
Dr investment in
Cr Equity
3) Decrease in equity items: amount at acquisition- amount for the year
Dr Equity
Cr Investment in

4) Share in pro t: Since RE of pro t for associates

Dr investment in
Cr Share of pro t
5) Dividend: Since RE for dividend of associates
Dr dividend received
Dr share of pro t
6) Increase in fair value of investment
Dr investment in
Cr FV Gain

Journal entries for piecemeal

1) At acquisition
Dr Share Capital
Dr Retained earnings
Dr Operating Pro t pro t before tax * no of months not acquired Just because
Cr Tax expense tax expense * no of months not acquired
Dr Goodwill/ Cr gain on bargain purchase the past
Cr NCI didn’t
Cr in sub
turn out the way
2) Nci on revaluation you wanted it to
Dr Revaluation Reserve : NCI on revaluation for subsidiary
Cr NCI doesn’t mean
3) Dividend your future
Dr dividend received : since RE of dividend for sub can’t be
Dr NCI : NCI of dividend paid for sub
Cr dividend paid : dividend paid of sub
better than you imagined
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 4) NCI share of pro t : NCI of pro t for sub
Dr NCI share of pro t
Cr NCI

5) Sale of shares
Dr Pro t on sale of shares
Dr Investment in
Cr Retained Earnings O/B

Joint Venture Vs Associates

Company purchased a (30%-49%) interest in another company. As this is greater than 20%, Company would need to consider whether it holds signi cant
in uence over its acquired in which case it would be classi ed as an associate.

However, if it has entered into an agreement to contractually share control over Dom Ltd, in terms of IFRS 11, this would be considered to be a joint arrangement. A
joint arrangement is an arrangement of 2 or more parties that have joint control. A joint arrangement has the following characteristics: Parties are bound by a
contractual arrangement, The contractual arrangement gives two or more of those parties. joint control of the arrangement. There are 2 types of joint arrangements:
a joint operation or a joint venture. A joint operation is a joint arrangement whereby the parties have joint control over the rights to the assets and obligations for the
liabilities. A joint venture is a joint arrangement whereby the parties have joint control over the net assets of the arrangement. In substance, the joint venturers have
an interest in a portion of a separate vehicle not in the individual assets/liabilities. Equity accounting applies to joint ventures only and not joint operations.

Control
In terms of IFRS 10 Consolidated Financial Statements, control exists if all of the following three elements of control, are present:
power over the investee; exposure or rights to variable returns from involvement with the investee;
and the ability to use its power to a ect the amount of the investor’s returns.
The three possible scenarios are:
1. Where the relevant activities of the business are controlled through voting rights and the parent holds signi cantly more voting rights than any other vote holder
in that the other shares are held by other parties, none of whom individually hold more than one percent of the voting rights (ie the other shareholdings are
widely dispersed). Of course, there must also be no organized group of vote holders in the business that work together to make decisions collectively.
2. Parent has substantive rights, ie it has the practical ability to exercise its right which may be conferred by having share options in the business. For instance the
parent may have currently exercisable options (which are in-the-money) to acquire a further 20% of the equity shares of the business.
3. A shareholder agreement exists which grants the parent the right to appoint, reassign or remove members of the bisiness’s key management personnel who
have the ability to direct the relevant activities of the business.

A common indicator of control is an investors shareholding being more than 50% of the issued shares. If the business does not hold 50% or more shareholdings
and thus does not have outright control, other indicators of control need to be considered.
Firstly, understand the purpose and design of the equity and all relevant activities (IFRS 10: B3(a) and (b))
Secondly explain how decisions over these activities are made (IFRS 10: B3(b))
Thirdly, explain who holds the power in the business (IFRS 10: B2(a))
Additionally, explain what returns the parent is entitled to
Lastly, explain the link between power and return
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 Statement of cash flows
Step 1: Cash Generated from operation

Direct Method
Step 1.1: Cash receipts from customers
=opening balance of account receivable + revenue- closing balancing of accounts receivable

Step 1.2: Cash paid to suppliers and employees

Change in Retained earnings Statement
Of
+Dividends declared for that year Cash
+Taxation current Flows
=Pro t before taxation

Revenue
-Pro t before taxation (above)
=Total expenses
Adjusted for: Non- cash ow items
+Pro t on sale of property, plant and equipment
-Depreciation
Change in accounts payable
Change in inventory net of depreciation Investing Financing
= Cash paid to suppliers and employees
Operating
• Cash generated • Acquisition/ • Proceeds from
Step 1.3 Cash generated from operations from operations replacement of issue of shares
= Cash receipts from customers asset
• Less dividend paid • Redemption of
less Cash paid to suppliers and employees • Less Taxation paid • Proceeds from debentures
Or • Repayment of loan
Pro t before taxation Adjustments for: • Increase in loan
+Depreciation
- Pro t on sale of property, plant and equipment
= Operating pro t before working capital change
Working capital changes :
1. Change in accounts payable
2. Change in inventory
3. Change in accounts receivable

Increase in cash and

=Cash generated from operations

Indirect method cash equivalents

Step 1.1 Profit before taxation
Change in Retained earnings
+Dividends declared for that year
+Taxation current
=Pro t before taxation

Step 1.2 Depreciation

Opening balance of accumulated depreciation for all PPE
- Accumulated depreciation on PEE sold Cash and cash Less Cash and cash
equivalents at end equivalents at
- Closing balance of accumulated depreciation for all PPE begin
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Step 1.3 : loss on trade in of PPE and all other non cash items

Step 1.4: Working capital changes :

1. Change in accounts payable
2. Change in inventory
3. Change in accounts receivable

Step 1.5: Cash Generated from operations

Net pro t before taxation
Adjustment for :
-Depreciation
-Loss on trade in of asset
-All non cash items
Working capital changes
Change in Inventory
Change in accounts receivable Step 3: Taxation paid
Change in accounts payable Taxation paid
= cash generated from operations Current tax
+Opening balance if negative
Step 2 Dividend paid +closing balance if positive
Opening balance for shareholders for dividend if negative =taxation paid
Add dividend declared
Closing balance if negative

Step 4: Step 5
Net cash ow from operating activities Net cash ow from investing activities
Cash receipts from customers Replacement of property, plant and equipment
(Cash paid to suppliers and employees) Proceeds on disposal of property, plan and equipment
*Vat (see below)
=Cash generated from operations Step 6
(Dividends paid) Net cash ow from nancing activities
Dividend received Proceeds from the issue of shares
(Taxation paid) Redemption of debentures
(Interest paid) Increase in loan
Repayment in loan

Step 7
Net increase/decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

VAT Control
Purchases Opening balance

Bad Debts written o Sale of goods

Closing balance Sale of asset

* paid (Balancing) * received (Balancing)

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 IAS 37
Provision
Paragraph 10
A liability of uncertain timing or amount that is recognised separately in the financial statements.

Only recognise when all 3 conditions are met

➡ Present obligation that is either a legal or constructive obligation as a result of a past event (Paragraph 14- 22)
➡ probable that there will be an outflow of economic benefits (Paragraph 23-24)
➡ a reliable estimate can be made of the amount (Paragraph 25-26)

Provisions are measured best estimate taking into account risk and uncertaintie, present value and future events
(paragraph 36-50)

Restructuring (Paragraph 72-83)

Contingent assets and liabilities

Contingent liabilities are either possible obligations arising from past events whose existence will be confirmed by the
occurrence or non- occurrence of one or uncertain future events not within the control of the company or a present
obligations that do not meet the recognition criteria (Paragraph 10)

Contingent liability is not recognised (Paragraph 27) only exception is in a business combination – IFRS 3 A
contingent liability is disclosed unless outflow of benefits are remote unless outflow of economic benefits becomes
probable ( Paragraph 28)

A contingent asset is a possible asset (Paragraph 10)

A contingent asset is not recognised (Paragraph 31)

Business combinations IFRS 3
(1) Parent acquires control of S at acquisition date.

(2) Therefore S become subsidiary and will be consolidated in the financial statements of the group as of that date.

(3)That is, 100% of the assets and liabilities of the subsidiary will be included in the group statement of financial
position for the year.

(4)IIFRS 3 needs to be applied on the date of the business combination (at day of acquisition). IFRS 3 par. 23
states: ‘The requirements in IAS 37 do not apply in determining which contingent liabilities to recognise as of the
acquisition date. Instead, the acquirer shall recognise as of the acquisition date a contingent liability assumed in a
business combination if it is a present obligation that arises from past events and its fair value can be measured
reliably. Therefore, contrary to IAS 37, the acquirer recognises a contingent liability assumed in a business
combination at the acquisition date even if it is not probable that an outflow of resources embodying economic
benefits will be required to settle the obligation.’

(5)The contingent liability of North Star is thus an exception to the recognition principles in IFRS 3 and is
recognised as a provision/liability at the acquisition
date.

(6)The fair value of the liability can be determined at the acquisition date based on 1 the estimated costs provided by
the lawyers and the likelihood of settlement.

(7) Therefore a provision should be recognised on the date of the business combination, in the accounting records of
the group

IAS 10
Events After reporting period
Those events (favourable and unfavourable) that occur between the end of the
reporting period and the date when the financial statements are authorised for issue.

Adjusting events after the reporting period: those events that provide evidence
of conditions that existed at reporting period,

Non-adjusting events after the reporting period: those that are indicative of
conditions that arose after the reporting period
(Paragraph 3)
 Employee benefits
IAS 19

Definitions
Employee benefits are all forms of consideration given in exchange for services rendered by employees
( Paragraph 8) and includes:
➡ Short term employee benefits expected to be steeled before 12 months after the end of the reporting
period (Paragraph 5)(a)
➡ Post employment benefits payable after completion of employment (Paragraph 5)(b)
➡ Other long term benefits (Paragraph 5)(c)
➡ Termination benefits (Paragraph 8)

IAS 19 requires recognition of:

➡ A liability when an employee renders service for employee benefits to be paid in the future; eg
Employees Payable.
➡ An expense when economic benefits from employee service are consumed in exchange for employee
benefits.

Short term benefits (Paragraph 9 - 25)

➡ recognise undiscounted amount using the accruals principle (Paragraph 11)
➡ Accumulated compensated absence, recognise when employee renders the service, measure at
additional amount the entity expects to pay for the unused entitlement (Paragraph 15 -17)
✴ As is the case where the accumulating v leave is vesting (ie. where it is paid out on the employee
leaving), an obligation arises as employees render service that increases their entitlement to future
compensated absences, even if the vacation leave is non-vesting.
✴ However, the possibility that employees may leave before utilizing the accumulated non-vesting
entitlement affects the measurement of the obligation.
✴ In terms of IAS 19, the obligation is measured as the additional amount that the company expects to
pay as a result of the unused entitlement that has accumulated at the reporting date.
✴ Using the provision (of x), and assuming that there is an y% probability that employees will utilize
their entitlements before leaving, the provision will be: y% x

‣ it is estimated that only x employees will utilise an average of y days each from the previous year
Dr employee benefit expense -leave
Cr Provision for leave
X * y - credit beginning balance
➡ Non accumulated compensated absence, recognise when employee takes the leave (Paragraph 18)
profit-sharing and bonus plans, recognise the expected cost, when there is a present legal or constructive
obligation to make such payments as a result of past events and a reliable estimate can be made
( Paragraph 19)

Post employment benefits (Paragraph 26 - 152)

➡ Defined contribution plan ( Paragraph 28), Obligation limited to employers agrees to contribute and not
the cost of the benefit if it is higher.
➡ Defined benefit plan (Paragraph 30), obligation to provide the agreed benefits, actual risk involved
(benefit will cost more than expected)
Note that if contribution does not fall within 12 months, it needs to be discounted

Termination benefits (Paragraph 159)

➡ Here the obligation arises from termination rather than employee service
➡ Recognise termination benefits as liability and expense when entity is committed to terminate
employment before normal retirement date or provide termination benefits to encourage voluntary
redundancy
Note that if termination benefit does not fall within 12 months, it needs to be discounted

Its okay
✓To make mistakes
✓To have bad days
✓To be less than perfect

As long as you
✓Study hard
✓Work for your dream
✓Never give up