These summaries cover all the work covered in Financial Accounting term test 3- namely Introduction to Group Statements (basic consolidations) as well as Companies. The companies section includes all the theory, and disclosure requirements, as well as examples on difficult sections (dividends, shar...
7. Introduction to Group Statements
What are group statements?
When one company gains control over one or more other businesses= business
combination. The accounting aspects of this are regulated by IFRS 3 Business
Combinations.
This company which acquires control over another company is called the holding
company (or parent company). The other company is called the subsidiary.
A group of companies is comprised of the holding company and all its subsidiaries.
Each company in this group prepares its own separate financial statements.
o Then all these separate financial statements are used to compile one set of
financial statements for the group (as if the holding company and the
subsidiaries are a single entity). The holding company and all its subsidiaries’
separate financial statements are therefore combined to prepare the group’s
financial statements (group statements).
o These financial statements are known as the CONSOLIDATED FINANCIAL
STATEMENTS.
Accounting standards applicable:
IFRS 3 Business combinations deals with the transaction or event when the holding
company acquire control over one or more other companies. The group only come into
existence thereafter and then the consolidation process starts.
IAS 27 Consolidated and Separate Financial Statements deals with the accounting
treatment and disclosure of investments in subsidiaries, joint ventures and associates where
each entity first prepares its own separate financial statements. (FA178- show investment at
cost price for investment in subsidiary)
IFRS 10 Consolidated Financial Statements deals with the presentation and
preparation of the consolidated financial statements and defines control.
IFRS 12 Disclosure of Interests in Other Entities gives the requirements for the
disclosure of information to assist users in evaluating the following:
nature of, and risks associated with, an interest in another entity
effect of that interest on SFP, SoCI and cash flow
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