Exam (elaborations)
FAC3704 EXAM PREP FOR 2022.
- Institution
- University Of South Africa
FAC3704 EXAM PREP FOR 2022. FAC3704 - Group Financial Reporting FAC3704 - Group Financial Reporting
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FAC3704 EXAMPREP FOR 2022.
GROUP FINANCIAL REPORTING
, LEARNING UNIT 1
CONSOLIDATING A SUBSIDIARY
This topic addresses the following Syllabus areas;
- IFRS 3 — Business Combinations
- IFRS 10 — Consolidated Financial Statements
Exam focus
1. Identifying a Subsidiary- When an entity holds directly or indirectly 51% or more of the voting power of
the investee and has control over the investee.
2. Calculating Goodwill and Non Controlling Interest (on both Full Goodwill method amd Partial Goodwill
method)
3. Processing transaction of the following periods;
- At Acquisition Goodwill or Bargain Purchase
- Since Acquisition to beginning of Current Year - Unrealised Gains and Losses
- Current Year - Inter-company transactions
What is Control?
Parent(A)
An investor controls an investee when it is
exposed, or has rights, to variable returns from
its involvement with the investee and has the
ability to affect those returns through its power
B can only be a subsidiary of A, if and
only if A has controll over B.
Subsidiary(B)
General Consolidation Procedures for a Subsidiary
1. For a subsidiary, you consolidate 100% of Assets, Liabilities, Expenses and Income, see below;
Say Company A acquired 65% interest in Company B,
Company A Company B Consolidated
Land 20 10 30
Trade Receivables 15 10 25
Trade Payables 10 8 18
Revenue 100 80 180
Cost of Sales 60 45 105
BARBICAN ACCOUNTING SCHOOL
E: enqui ri es@barbi canac.co.za
,2. Eliminate intercompany transactions like Dividends, Intercompany sales, etc
3. Eliminate the Share Capital of the subsidiary against the Investment in Subsidiary. It implies that on the
consolidated balance sheet we don’t want to see the Investment in Subsidiary and the Share Capital
of the Subsidiary.
4. Adjust for any unrealised gains or losses.
Keep the following on your figure tips;
1. Goodwill -Is an Non-Cureent Asset in the consolidated Statement of Financial Position.
a. It can be impaired, impairment of Goodwill is accounted for in other expenses (P/L).
2. Bargain Purchase- this arise if purchase consideration is less than the net assets acquired. It’s a
discount on acquisition.
a. Please note that Bargain Purchase is not an asset like Goodwill. This will be recognised in the
P/L on acquisition date(IFRS 3.34). It’s income in your P/L.
3. When NCI is measured at Fair-Value (Full Goodwill Method); NCI will get a share of Goodwill and when
that Goodwill is impaired, NCI will also get a share of that impairement loss.
4.
Carefully go through the following learning questions to fully understand how to deal with a subsidiary in a
consolidations question
BARBICAN ACCOUNTING SCHOOL
E: enqui ri es@barbi canac.co.za
, Learning Qn 1.
BARBICAN ACCOUNTING SCHOOL
E: enqui ri es@barbi canac.co.za
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