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 venturer’s 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 parent’s 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 parent’s investment in each subsidiary and the parent’s 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 non-controlling 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 parent’s ownership Changes in parent’s 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 investor’s 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 parent’s 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.
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 parent’s 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 post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s 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 associate’s 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 investor’s share of net fair value of the associate’s identifiable assets and liabilities over the cost of the investment is included as income in the determination of the investor’s share of the associate’s profit or loss in the period in which the investment isacquired
Equity method If an investor’s 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 associate’s losses, the investor applies the requirements of IAS-39 to determine whether it is necessary to recognise any additional impairment loss with respect to the investor’s net investment in the associate.
Separate financial statements An investment in an associates shall be accounted for in the investor’s 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
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.