IAS-27

Consolidated Financial
Statements

Scope
This standard shall be applied In preparation of consolidated financial
statement for a group of a entities under the
control of a parent.
In accounting for investment in subsidiaries
jointly controlled entities and associates in
separate financial statements.

Separate Financial Statements

are those presented by parent, an investor in
an associate or a venturer in jointly
controlled entity.
the financial statements of an entity that
does not have a subsidiary, associates or
venturers interest in a jointly controlled
entity are not separate financial statements.

Presentation of Consolidated Financial

Statements (CFS)
a parent shall present CFS in which it
consolidates its investments in subsidiaries in
accordance with this Standard
Parent need not present CFS - the parent itself a wholly-owned subsidiary, or is
a partially-owned subsidiary of another entity and
its other owners do not object
- the parents debt or equity instruments are not
traded in a public

Presentation of Consolidated Financial

Statements (CFS)
Parent need not present CFS - the parent did not file, nor is it in the
process of filing with a securities
commission or other regulatory
organization.
- the ultimate or any intermediate parent of
the parent produces CFS available for public
use that comply with IFRS

Scope of CFS
CFS shall include all subsidiaries of the
parent.
a subsidiary is not excluded from
consolidation simply because the investor is
a venture capital organization, mutual fund,
unit trust or similar entity.
a subsidiary is not excluded from
consolidation because of dissimilar
activities

Control
parent owns, directly or indirectly through
subsidiaries, more than half of the voting
power of an entity.
when the parent owns half or less of the
voting power of an entity
- power over more than half of the voting
rights by virtue of agreement with other
investors.

Control
- power to govern the financial and operating
policies of the entity under a statute of an
agreement
- power to appoint or remote the majority of
the members of the board of directors
- power to cast the majority of votes at
meetings of the board of directors or
equivalent governing body.

Control
Potential Voting Rights
The existence and effect of potential voting
rights that are currently exercisable or
convertible, including potential voting rights
held by another entity.

Control
Temporary control IFRS 5
Severe long-term restriction to transfer
funds to the parent

Consolidation procedure
Combines the financial statements of the
parent and its subsidiaries line by line by
adding together like items of assets,
liabilities, equity, income ad expenses.

Consolidation procedure
The carrying amount of the parents
investment in each subsidiary and the
parents portion of equity of each
subsidiaries are eliminated.
Non-controlling interests in the profit or
loss of consolidated subsidiaries for the
reporting period are identified
Non-controlling interests in the net assets of
consolidated subsidiaries are identified

Consolidation procedure
Intra-group balances, transactions, income
and expenses shall be eliminated in full.
when potential voting rights exist, the
proportions of profit or loss and changes in
equity allocated to the parent and noncontrolling interests are determined on the
basis of present ownership interests.

Uniform reporting date

The financial statements of the parent and its
subsidiaries used I the preparation of the
consolidated financial statements shall be
prepared as of the same reporting date unless
it is impracticable to do so.

Uniform accounting policies

CFS shall be prepared using uniform
accounting policies for like transactions and
other events in similar circumstances.

Non-controlling interest
Non-controlling interest shall be presented in
the consolidated statements of financial
position within equity, separately from the
equity of the owners of the parent.

Changes in parents ownership

Changes in parents ownership interest in a
subsidiary that do not result in a loss of
control are accounted for as equity
transactions (i.e. transactions with owners in
their capacity as owners).

Loss of control
If a parent loses control of a subsidiaries, it
de-recognises the assets (including any
goodwill) and liabilities of the subsidiary at
their carrying amounts at the date when
control is lost.
de-recognises the carrying amount of any
non-controlling interests in the former
subsidiary at the date when control is lost

Loss of control

Recognises the fair value of the consideration

received, if any, from the transaction
Recognises any investment retained in the
former subsidiary as its fair value at the date
when control is lost.
reclassifies to profit or loss or transfers directly
to retained earnings if any required in
accordance with other IFRS
recognises any resulting difference as a gain or
loss in profit or loss attributable to the parent

Loss of control

On the loss of control of a subsidiary, any

investment retained in the former subsidiary
and any amounts owed by or to the former
subsidiary shall be accounted for an
accordance with other IFRS from the date
when control is loss.

ADJUSTMENT/ ISSUES
Goodwill
Non Controlling interest
Inter company balances
Unrealised profit
Dividends paid out of pre- acquisition profits
Mid-year acquisition
Revaluation of assets of Subsidiary

Separate Financial Statement

When separate financial statements of a

parent are prepared, the entity shall adopt a
policy of accounting for all of its investments
in subsidiaries, jointly controlled entities and
associates that are not classified as held for
sale either
at cost, or
in accordance with IAS-39

Separate Financial Statements

Investment in jointly controlled entities and

associates that are accounted for in
accordance with IAS 39 in the consolidated
financial statements shall be accounted for in
the same way in the investors separate
financial statements.

Disclosure

the nature of the relationship between the

parent and a subsidiary
The reasons why the ownership, directly or
indirectly through subsidiaries of more than
half of the voting or potential voting power
of an investee does not constitute control.
reasons for using a different date or period
for consolidated the FS of subsidiary.

Disclosure

The nature and extent of any significant

restrictions on the ability of subsidiaries to
transfer funds to the parent in the form of
cash dividends or to repay loans or
advances.
Any changes in a parents ownership,
interest in a subsidiary that do not result in a
loss of control

Disclosure

If control of a subsidiary is lost, the parent

shall disclose the gain or loss.
Explanation for exemption from
consolidation has been used.
A list of significant investments in
subsidiaries, jointly controlled entities and
associates, including the name, county of
incorporation or residence.

IAS-28
Investments in Associates

Associate
An associates is an entity, including an
unincorporated entity such as a partnership
over which the investor has significant
influence and that is neither a subsidiary nor
an interest in a joint venture.

Significant influence
Significant influence is the power to
participate in the financial and operating
policy decisions of the associate but is not
control or joint control over those policies : if an investor hold, directly or indirectly
(e.g. through subsidiaries), 20% or more of
the voting power of the investee, it is
presumed that the investor has significant
influence, unless it can be clearly
demonstrated that this is not the case.

Significant influence
Conversely, if the investor holds, directly or
indirectly (e.g. through subsidiaries), less
than 20% of the voting power of the
investee, it is presumed that the investor
does have significant influence, unless such
influence can be clearly demonstrated.

Measurement after initial recognition

An investment in an associate shall be
accounted for using the equity method
except where
- the investment is classified as held for sale
in accordance with IFRS 5
- allowing a parent that also has been an
investment in an associate not to present
CFS applies.

Measurement after initial recognition

the parent itself a wholly-owned subsidiary,
or is a partially-owned subsidiary of another
entity and its other owners do not object
the parents debt or equity instruments are
not traded in a public

Equity method
The equity method is a method of accounting
whereby the investment is initially recognised
at cost and adjusted thereafter for the postacquisition change in the investors share of
net assets of the investee. The profit or loss of
the investor includes the investors share of
the profit or loss of the investee.

Equity method
An investment in an associate is accounted
for using the equity method from the date on
which it becomes an associate. On acquisition
of the investment any difference between the
cost of investment and the investor share of
the net fair value of the associates
identifiable assets and liabilities is accounted
for as -

Equity method
Goodwill relating to a associate is included in
the carrying amount of the investment.
Amortization of that goodwill is not permitted.
any excess of the investors share of net fair
value of the associates identifiable assets and
liabilities over the cost of the investment is
included as income in the determination of the
investors share of the associates profit or loss
in the period in which the investment is
acquired

Equity method
If an investors share of losses of an
associate equals or exceeds its interest in the
associates, the investor discontinues
recognising its share of further losses.

Impairment losses
After application of the equity method,
including recognising the associates losses,
the investor applies the requirements of IAS39 to determine whether it is necessary to
recognise any additional impairment loss
with respect to the investors net investment
in the associate.

Separate financial statements

An investment in an associates shall be
accounted for in the investors separate
financial statements in accordance of IAS-27

Disclosure
The fair value of investments in associates
Summarized financial information of
associates
The reasons why the presumption that an
investors does not have significant
influence
the reasons why the presumption that an
investor has significant influence is
overcome

Disclosure
The end of reporting period of the financial
statements of an associate.
The nature and extent of any significant
restrictions
The un-recognised hare of losses of an
associates, both for the period and
cumulatively
The fact that an associate is not accounted
for using the equity method

Disclosure
Investment in associates accounted for
using the equity method shall be classified
as non-current assets
Its share of the contingent liabilities of an
associates incurred jointly with other
investors

IAS-31
Interests in Joint Venture

Joint Venture
Joint venture is a contractual arrangement
whereby two or more parties undertake an
economic activity that is subject to joint
control.

Joint control
Joint control is the contractually agreed
sharing of control over an economic activity
and exists only when the strategic financial
and operating decisions relating to the
activity require the unanimous consent of the
parties sharing control (the ventureres).

Forms of Joint Venture

Jointly controlled operations
Jointly controlled assets
Jointly controlled entities

Jointly controlled operations

A venturer shall recognise the assets that it controls and the liabilities
that it incurs; and
The expenses that it incurs and its share of
the income that it earns from the sale of
goods or services by the joint venture

Jointly controlled assets

A venturer shall recognise Its share of the jointly controlled assets,
classified according to the nature of the
assets
Any liabilities that it has incurred
Its share of any liabilities incurred jointly
with the other venturers in relation to the
joint venture

Jointly controlled assets

A venturer shall recognise Any income from the sale or use of its share
of the output of the joint venture, together
with its share of any expenses incurred by
the joint venture.
Any expenses that it has incurred in respect
of its interest in the joint venture.

Jointly controlled entities

Proportionate consolidation
alternative method
Equity method

Exceptions to proportionate
consolidation and equity method
Interests in jointly controlled entities that are
classified as held for sale in accordance with
IFRS 5 shall be accounted for an accordance
with that IFRS.

Loss of joint control

When investment ceases to be jointly
controlled entity is accounted for in
accordance with IAS-39.

Separate financial statement of a

venturer
An interest in jointly controlled entity shall be
accounted for in a venturers separate
financial statements in accordance with
IAS-27.

Transactions between a venturer and a

joint venture
When venturer sells assets to joint venture
it shall recognise only that portion of the
gain or loss that is attributable to the
interests of the other ventureres. The
venturer shall recognise the full amount of
any loss when the contribution or sale
provides evidence of an impairment loss.

Transactions between a venturer and a

joint venture
When a venturer purchases assets from a joint
venture, the venturer shall not recognise its
share of the profit of the joint venture from the
transaction until it resells the assets to an
independent party. A venturer shall recognise
its share of the losses resulting from these
transactions in the same way as profits except
that losses shall be recognised immediately
when they represent a reduction in the net
realizable value of current assets or an
impairment loss.

Disclosure
An investee in JV shall disclose the
aggregate amount of the following
contingent liabilities
has incurred in relationship to its interests
in joint ventures and its share in each of the
contingent liabilities
for which it is contingently liable

Disclosure
contingently liable for the liabilities of the
other venturers of a joint venture.
the aggregate amount of its commitments
relating to joint ventures.
a listing and description of interests in
significant joint ventures.
the method it uses to recognise its interests
in jointly controlled entities.

CASE 1
Parent acquired 60% of subsidiary on 1 January 2008
for $100,000 cash payable immediately and $121,000
after 2 years. The fair value of subsidiary s net assets
at acquisition amounted to $ 300,000. Parents cost of
capital is 10%. The deferred consideration was
completely ignored when preparing group accounts
as at 31 December 2008.

Required:
Calculate the goodwill arising on acquisition and

SOLUTION
Cost of investment in subsidiary at acquisition: $ 100,000+$ 121,000/1.21= $ 200,000

Goodwill

$ 000
200
(180)
----------20
-----------

Cost
Share of net assets acquired(60%x 300,000)

Deferred consideration
Double entry at 1 January:
Dr Cost of investment in subsidiary
Cr Deferred consideration

$ 100,000
$ 100,000

On 31 December, due to unwinding of discount, the deferred consideration will equal $ 121,000/1.1=
110,000
Dr Group retained earning
Cr Deferred consideration

$ 10,000
$ 10,000

In the consolidated statement of financial position, the cost of investment in Subsidiary will be
replaced by goodwill of $20,000; the deferred consideration will equal $ 110,000.

CASE 2
As at 31 December 2008
Parent
Subsidiary
$
$
Non-current assets:
Tangibles
Cost of investment
In Subsidiary
Current assets

Issued Capital
Retained earnings
Current liabilities

1,800
1,000
400
----------3,200
----------100
2,900
200
----------3,200
----------

1,000

300
----------1,300
----------100
1,000
200
--------1,300
--------

Further information:
Parent bought 80% of Subsidiary on the 31 December 2006.
At the date of acquisition Subsidiarys retained earnings stood at $600 and the fair value of its net assets were $ 1,000. The
revaluation was due to an asset that had a remaining useful economic life of 10 years as at the date of acquisition.
Goodwill has been impaired by $40 since acquisition. Non- controlling interest is to be valued at its proportionate share of
the identifiable net assets.
Required:
Prepare the consolidated statement of financial position of Parent as at 31 December 2008.

SOLUTION
As at 31 December 2008
Non-current assets:
Goodwill
Tangibles
(1,800+(1,000+300-[/10X 300]))
Current assets(400+300)

Issued capital
Retained earnings
Non- controlling interests
Current liabilities(200+200)

$
160

3,040
700
---------3,900
---------100
3,132
268
400
--------3,900
--------

CASE 3
Parent acquired, during the current year, a 40% holding in
Associate for $ 18,600. Goodwill on acquisition was
calculated as $ 1,000 and there has been no impairment
of goodwill during the year. The fair value of Associates
net assets of the year end is $ 48,000.

Required:
Calculate the investment in Associate to be included in the
consolidate statement of financial position and state the
amount of Associates profits to be included in the
consolidate statement of comprehensive income for the
current year.

SOLUTION
Net assets on acquisition
Cost of investment
Less: Goodwill

40% of Associates net assets on acquisition

Gross up to 100%

$
18,600
(1,000)
-----------17,600
x100/40
----------44,000
-----------

Investment in Associate
Cost of investment
18,600
Plus:40% of post acquisition profits(48,000-44,000) 1,600
Less: Goodwill impaired
()
----------20,200
----------OR
40% of Associates net assets at year
end(48,000x 40%)
19,200
Plus: Goodwill not yet impaired
1,000
-----------20,2 00
-----------Income from associate included in consolidated statement of comprehensive income.
40% of post acquisition profits(48,000- 44,000)

CASE- 4

Prepare the consolidated statement of financial position at 31December 2008

incorporating the interest in jade using proportionate consolidation.

THANK
YOU
CA, D.S.RAWAT
Partner, BANSAL & Co.