Important Examinable Narrative & Miscellaneous points

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Important Examinable Narrative & Miscellaneous points

These are:

  • Transactions related to acquiring a subsidiary are to be written off to the Income statement

  • Any future contingent consideration towards the cost of investment is included in cost of investment at its FAIR VALUE regardless of whether it is probable or not

  • If the FAIR VALUE of the above changes after acquisition goodwill is NOT adjusted unless it is simply providing more information about what the fair value would have been at acquisition date

  • A company is a sub when it is controlled only. This means more than 50% of the voting rights; or control of the financial and operating activities or power to appoint a majority of the board

  • It may be that H owns 40% + 20% potential shares (eg share options). To see whether this means H controls S all terms must be examined, disregarding management intentions

  • Subsidiaries held for sale must be consolidated (see above)

  • JV’s and A’s are not consolidated if they are held for sale

  • Subsidiaries with very different activities to H must also be consolidated as IFRS 8 segmental reporting will deal with these problems

  • Subs with severe long term restrictions must still be consolidated until actual control is lost

  • Associates with severe long term restrictions must still be equity accounted until actual significant influence is lost

  • A company is an associate when there is no control but there is significant influence. This means 20% or more of the voting rights (unless someone else holds more than 50% solely in which case they control it and we have no significant influence at all). Participation in policy making is deemed to be significant influence

  • H does NOT need to consolidate if it is itself a 100% sub or if the shares aren’t traded publicly and the ultimate parent prepares consolidated accounts

  • Subs may have a different reporting date to H but they must prepare further accounts to make consolidation possible. Unless the difference in date is 3 months or less in which case S’s accounts can be used and adjustments made for significant events

  • Consolidated accounts must be made with uniform accounting policies. So if S has different policies to H, group level adjustments need to be made

  • NCI can be negative - they are simply owners of the group like the parent and so losses are possible

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