ACCA SBR ^UK Syllabus D. Financial Statements of Groups entities - Step Acquisitions - Notes ^{19 / 34}

When Control is achieved is the key date..

Consolidation only occurs when control is eventually achieved.

When Control is achieved this occurs:

• Remeasure all previous holdings to FV

• Any gain or loss to income statement

Illustration

P acquired 10% of S in year 1 for 100.
P acquired a further 60% of S in year 2 for 800. At this date, the original 10% now has a FV of 140.

How would this be accounted for?

The key date of when controlled is achieved is year 2. At this date we must:

• Revalue the original 10% from 100 to 140

• The 40 gain goes to the income statement (and retained earnings)

  Also we would now start consolidating S (as we now control it). The Consideration figure in the goodwill working would now be 940 (140 + 800).

Further acquisition after control is achieved

If there are further acquisitions after control - this is deemed to be a purchase from the other owners (NCI) - so no profit is calculated. Simply.

Here you will need to do the following calculation:

Illustration

H acquired 60% S for 100 in year 4 when the FV of its NA was 90. Proportionate NCI method is used.

2 years later its NA are 150 and H acquires another 20% for 80.

Calculate decrease in NCI and movement in parents equity for the latest acquisition.

NCI

SO NCI was 60 (representing 40%). Now, by acquiring a further 20% from the NCI, this means NCI will go from 40% to 20%. It has halved.

So NCI has gone down by 30.