Scribd
Upload
206 views25 pages

Consolidated Financial Statements

The document discusses standards for preparing consolidated financial statements (PFRS 10 and PAS 27) when a parent entity controls one or more subsidiaries. It defines key terms like parent, subsidiary, and group. It also outlines the accounting requirements and process for preparing consolidated financial statements, which involves eliminating intragroup balances and combining similar line items. The preparation involves multiple steps like analyzing intercompany transactions, computing consolidated net assets, goodwill, retained earnings, and allocating profit/loss between the parent and non-controlling interests.

Uploaded by

Joanne Roma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
206 views25 pages

Consolidated Financial Statements

The document discusses standards for preparing consolidated financial statements (PFRS 10 and PAS 27) when a parent entity controls one or more subsidiaries. It defines key terms like parent, subsidiary, and group. It also outlines the accounting requirements and process for preparing consolidated financial statements, which involves eliminating intragroup balances and combining similar line items. The preparation involves multiple steps like analyzing intercompany transactions, computing consolidated net assets, goodwill, retained earnings, and allocating profit/loss between the parent and non-controlling interests.

Uploaded by

Joanne Roma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 25

CONSOLIDATED FINANCIAL

STATEMENTS

RELATED STANDARDS:
PAS 27 & PFRS 10
Objectives:
 PAS 27 : setting standards to be applied in accounting for investments in
subsidiaries, jointly ventures and associates when an entity elects, or is
required by local regulations, to present separate (non-consolidated) FS.

 PFRS 10: to establish principles for the presentation and preparation of


consolidated financial statements when n entity controls one or more
other entities.
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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


Elements of Control

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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’.
ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)
Step 3: Goodwill computation
Formula #1: NCI is measured at NCI’s proportionate share

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


Step 5: Consolidated retained earnings

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


Step 6: Consolidated profit or loss

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


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

*FVA is fair value adjustments.

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


Consolidated Statement of Financial Position

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


Consolidated total assets

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


Consolidated total liabilities

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)


Consolidated total equity

ACCOUNTING FOR BUSINESS COMBINATIONS (Advanced Accounting 2) - (by: MILLAN)

You might also like