Consolidation and related issues (IFRS 10, IFRS 11 and IAS 28, IFRS 9)

1st – Identify the acquirer and the acquisition date and determine the existence of CONTROL between the
acquirer (PARENT) and acquiree.

- > 50% = CONTROL, acquiree, is referred to as a SUBSIDIARY

Accounting- CONSOLIDATION (IFRS 10)
- Exactly 50%= JOINT CONTROL, no acquirer or acquire.
Accounting = EQUITY ACCOUNTING (IFRS 11)
- < 50% but > 20%= SIGNIFICANT INFLUENCE, acquiree is known as an ASSOCIATE
Accounting = EQUITY ACCOUNTING (IAS 28)
- < 20% = NO CONTROL or NO SIGNIFICANT INFLUENCE, acquiree is a SIMPLE INVESTMENT
Accounting= FAIR VALUE ACCOUNTING (IFRS 9)

2nd – If existence of control is proved, following the following consolidation procedures

- For Consolidated Statement of Financial Position
o Combine (add) all of the Asset of the Parent with all of the assets of the Sub
 Fixed Asset of the Sub might be adjusted for fair value adjustment (Working #2)
 Intangible assets of the Sub might be adjusted for fair value adjustment (Working #2)
 Inventory will be adjusted for any Provision for Unrealized Profit (PUP) (Working #2 or 5)

Prepared by iPass Training and Consultancy, Addis Ababa, Ethiopia, 2016 Page 1
  Intercompany Receivables will be Eliminated (on the consolidated SOFP)
 Recognize and record any goodwill arising on acquisition (Working #3)
o Combine (add) all of the Liabilities of the Parent with all of the Liabilities of the Sub
 Deferred tax liability might be recognized (Working #2)
 Intercompany Payables will be Eliminated ( On the Consolidated SOFP)
o Take 100% of the equity of the parent only
 Post-acquisition profit/loss of the Sub that belongs to the parent will be recognized in group Retained earning
(Working #5)
 Post-acquisition OCI of the sub that belongs to the parent will be recognized in the group OCI (Working #6)
o Eliminate the Investment account in the parent’s record along with the equity of the sub
- For Consolidated Statement of Comprehensive Income
o Combine (add) all of the revenues of the parent with all of the revenues of the Sub
 Deduct (eliminate) intercompany sales made between the parent and the sub
 Deduct (eliminate) intercompany income
 N.B- Time apportion the revenue of the sub, if the sub acquisition is made mid-year
o Combine (add) all of the expenses of the parent with all of the expenses of the Sub
 Add Provision for Unrealized Profit (PUP) on Cost of Sales
 Adjust for additional expenses resulting from fair value exercise made up on acquisition
 Deduct (eliminate) intercompany expense

Prepared by iPass Training and Consultancy, Addis Ababa, Ethiopia, 2016 Page 2
  Determine and record any impairment on goodwill
 N.B- Time Apportion the costs and expenses of the sub, if the sub acquisition occurred mid-year
 N.B- Transaction cost of acquiring a subsidiary should be excluded for cost of investment and treated as follows
 Cost of issuing shares in a share for share exchange for acquisition of a sub
Dr. Share Premium
Cr. Cash (Payable)
 Other costs of acquisition such as legal, due diligence and professional fees
Dr. Expense
Cr. Cash (Payable)
o Apportion the profit and total comprehensive income as attributable to:
 Non-Controlling Interest
 Controlling Interest

3rd- If control doesn’t exist but either joint control or significant influence is proved, use Equity
accounting (IAS 28 and IFRS 11).
o Record the investment made
Dr. Investment in Associate
Cr. Cash (payable)

Prepared by iPass Training and Consultancy, Addis Ababa, Ethiopia, 2016 Page 3
 o Record the parent’s portion of associate’s profit/loss after acquisition
Dr. Investment in Associate
Cr. Investment Income
o Deduct dividend paid by the associate to the parent from investment income
Dr. Cash
Cr. Investment in Associate
o Recognize any impairment of the associate
Dr. Investment Income
Cr. Investment in Associate

4th- If there is no control, no joint control or no significant influence, then apply IFRS 9 as follows;

o Record the investment made (same journal entry for FVTPL and FVTOCI)
Dr. Financial Asset
Cr. Cash (Payable)
o Record Transaction cost incurred to acquire the financial instrument
 If the instrument is designated as FVTPL- Transaction cost is expensed
Dr. Expense
Cr. Cash (payable)

Prepared by iPass Training and Consultancy, Addis Ababa, Ethiopia, 2016 Page 4
  If the instrument is designated as FVTOCI- Transaction cost is capitalized
Dr. Financial Asset
Cr. Cash (payable)
o Record dividend received as an investment income ( Same journal entry for FVTPL and FVTOCI)
Dr. Cash
Cr. Investment Income
o Measure the fair value at the end of every year and record the fair value movement
 If the instrument is designated as FVTPL
Dr. Financial Asset
Gain on Financial Asset (to be reported in PL)
 If the instrument is designated as FVTOCI
Dr. Financial Asset
Gain on Financial Asset (to be reported in OCI)

Prepared by iPass Training and Consultancy, Addis Ababa, Ethiopia, 2016 Page 5