Summary
Summary IAS 27 & IFRS 10
- Course
- Financial Accounting 379
- Institution
- Stellenbosch University (SUN)
Summary of IAS 27 & IFRS 10 for third year BAcc course
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IFRS 10: CONSOLIDATED FINANCIAL STATEMENTS:IAS 27: SEPARATE FINANCIAL STATEMENTS:
IFRS 12: DISCLOSURE OF INTERESTS IN OTHER ENTITIES:
Group Statements Vol 1: Chap 1, 3-6
OBJECTIVES (IFRS 10.01; IAS 27.01; IFRS 12.01)
SCOPE (IFRS 10.04; IAS 27.02; IFRS 12.05)
IFRS 3 (Business combination) on Acq. Date. (When holding company acquires the subsidiary)
IAS 27 (Separate financial statement): H and S (After the Acq): Holding company deals with investment in separate
books.
IFRS 10 (Consolidated financial statements): combination (After the Acq.)
IFRS 12 (Disclosure)
DEFINITIONS (IAS 27.04; IFRS 10.07 & Appendix A)
− Control: FA 379 presumes that control exists if own >50% of voting rights. Not necessary to prove control.
− Potential voting rights (IFRS 10 B47) → E.g. option of conversion of debt instruments (debentures) into
ordinary shares – possibility of control if the right is exercised
− Substantive rights (B22 & B24)
EXCEPTIONS regarding presentation of consolidated statements (IFRS 10.04(a))
CONSOLIDATION PROCEDURES: B86
− Combine fin statements line by line as if it’s a single economic entity
− Eliminate Investment in Parent company and Equity in Subsidiary
− Create Goodwill (IFRS 3) and NCI (Non-controlling interest) separate
− Intra-group transactions/balances eliminated in full [E.g. loans, inventory sales, etc.]
Consolidate from “acquisition date” (IFRS3) until date when control ceases (.20) [<= 50%]
SAME REPORTING DATE (B92-93)
UNIFORM ACCOUNTING POLICIES (.19 and B87)
NCI: (IFRS 10.22 - .24; B94 – B96)
CLASS EXAMPLE 1: IMPAIRMENT OF GOODWILL
ANALYSIS OF SHAREHOLDERS' INTEREST OF S LTD.
H LTD. (80%) 20%
TOTAL AT SINCE NCI
AT
Share capital 10 000 8 000 2 000
Retained earnings 35 000 28 000 7 000
45 000 36 000 9 000
Cost of acquisition 40 000 INVESTMENT
Goodwill 4 000
SINCE
To beginning of current year
Retained earnings 100 000 80 000 20 000
Current year
Profit for the year 7 500 6 000 1 500
152 500 86 000 30 500
IMPARIMENT of goodwill
To beginning of current year (1 600)
Recoverable amount in SFP 2 400
Current year (200)
Recoverable amount in SFP 2 200
Main elimination journal:
DR Share capital (SCE) 10 000
DR Retained earnings (SCE) 35 000
DR Goodwill (SFP) 4 000
CR Investment (SFP) 40 000
CR NCI (SFP) 9 000
DT R/E (SFP) 20 000
CR NCI (SFP) 20 000
1
, DT NCI (P/L) 1 500
CR NCI (P/L) 1 500
Regarding the "since" period:
DR Retained earnings (SCE) 1600
CR Goodwill (SFP) 1600
Regarding the current year:
DR Impairment loss (P/L) 200
CR Goodwill (SFP) 200
Not affect NCI; Not affect analysis
CLASS EXERCISE 1
PART A
Presume H purchases shares in S on 1/1/20x9 as follow: 70% of S's shares for R800 000 (exercises control)
Statement of Financial Position on acquisition date: H S
Share capital R 500 000 R 300 000
Reserves 1 000 000 700 000
Net assets R 1 500 000 R 1 000 000
Assume S's assets and liabilities were fairly valued.
REQUIRED: Show the analysis of equity and consolidation journals on the date of acquisition.
Consolidation journals on 1/1/20x9 DR (R) CR (R)
Dr Share capital (S) (SFP) 300 000
Dr Reserves (S) (SFP) 700 000
Dr Goodwill (SFP) 100 000
Cr Investment in S (H) (SFP) 800 000
Cr NCI (SFP) 300 000
PART B
Presume S's profit for the year ended 31/12/20x9 is R200 000 and there is no other changes in the equity of S and also no changes in
the equity of H for the year.
REQUIRED
i) Prepare the additional consolidation journals (to those in Part A) on 31/12/20x9 and add the additional information to the
analysis started in part A.
ii) Prepare the abridged consolidated statement of financial position of H and S on 31/12/20x9. Use a consolidation worksheet
as illustrated below.
i) Consolidation journals on 31/12/20x9 DR CR
Dr NCI (P/L) 60 000
Cr NCI (SFP) 60 000
2
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