CONSOLIDATION – DATE OF ACQUISITION • Example of decisions about relevant activities:

NET ASSET VS STOCK ACQUISITION • establishing operating and capital decisions of the
• Net Asset Acquisition - a business combination whereby investee; and
the ACQUIRER purchased the net assets (not equity) of the • appointing and renumerating an investee’s key
ACQUIREE. management personnel or service providers.
• Stock Acquisition - a business combination whereby the
ACQUIRER (parent) purchased a controlling interest in the ACCOUNTING FOR INVESTMENT IN SUBSIDIARIES
equity (not net assets) of the ACQUIREE (subsidiary). This Cost Method:
resulted to a parent-subsidiary relationship (A + B = AB). • It is a method in accounting whereby the investment is
recorded at cost.
IFRS 10 – CONSOLIDATED FINANCIAL STATEMENTS • The investor recognizes income only to the extent that it
• It outlines the requirements for the preparation and receives distribution from the accumulated net profits of the
presentation of consolidated financial statements (Parent investee arising subsequent to the date of acquisition.
and Subsidiary). • Distributions received in excess of such profits are
• It should be applied for annual periods beginning on or after considered a recovery of investment and are recorded as a
January 1, 2013. reduction of the cost of the investment. (liquidating
dividends).
OBJECTIVE OF IFRS 10 Proforma Entries:
Transaction Parent Subsidiary
To establish principles for the presentation and preparation of Investment in Subsidiary xxx
Cost of Investment No Entry
consolidated financial statements when an entity controls one or more Cash/Share Capital xxx
other entities. Share in the Subsidiary's Net Income No Entry No Entry
It addresses the following:
Share in the Subsidiary's Net Loss No Entry No Entry
• requires a parent entity (an entity that controls one or more
Cash/Non-Cash Asset xxx Retained Earnings xxx
other entities) to present consolidated financial statements; Share in the Subsidiary's Dividends
Dividend Revenue xxx Cash/Non-Cash Assets xxx
• defines the principle of control, and establishes control as
the basis for consolidation; Equity Method:
• sets out how to apply the principle of control to identify • It is a method in accounting whereby the investment is
whether an investor controls an investee and therefore must recorded at cost.
consolidate the investee; • Subsequently, it is adjusted for the changes in the equity of
• sets out the accounting requirements for the preparation of the investment:
consolidated financial statements; and • share in the net income reported by the investee;
• defines an investment entity and sets out an exception to • share in the net loss reported by the investee;
consolidating particular subsidiaries of an investment entity. • depreciation or amortization of any undervaluation
or overvaluation in the identifiable net assets; and
SCOPE OF IFRS 10 • dividends received from the investee (subsidiary).
An entity that is a parent shall present consolidated financial Proforma Entries:
statements. Transaction Parent Subsidiary
Investment in Subsidiary xxx
It should not be applied to: Cost of Investment
Cash/Share Capital xxx
No Entry

• a parent need not to present consolidated financial Share in the Subsidiary's Net Income
Investment in Subsidiary xxx
No Entry
Share in the Net Income xxx
statements if it meets ALL the following conditions:
Share in the Net Loss xxx
• it is a wholly-owned subsidiary or is a partially- Share in the Subsidiary's Net Loss
Investment in Subsidiary xxx
No Entry

owned subsidiary of another entity; Share in the Subsidiary's Dividends

Cash/Non-Cash Asset xxx Retained Earnings xxx
Investment in Subsidiary xxx Cash/Non-Cash Assets xxx
• its debt or equity instruments are not traded in a
public market;
CONSOLIDATION PROCEDURES
• it did not file nor is it in the process of filing its
A parent prepares consolidated financial statements using the following
financial statements for the purpose of issuing any
considerations:
class of instruments in a public market; and
• Uniform Accounting Policies – the parent and the
• its ultimate or any intermediate parent produces
subsidiary should have the same accounting policies.
consolidated financial statements that are
• Measurement – the parent should only include the revenues
available for public use and comply with IFRSs.
and expenses in the consolidated financial statements from
• post-employment benefit plans or other long-term employee
the date it gains control of the subsidiary.
benefit plans (IAS 19 – employee benefits)
• Reporting Date – the parent and the subsidiary should have
• an investment entity which is required to measure all its
the same reporting period (calendar or fiscal period).
subsidiaries at fair value through profit or loss (paragraph 31)
A parent prepares consolidated financial statements using uniform
THE CONCEPT OF CONTROL
accounting policies for like transactions and other events in similar
An investor controls an investee when it is exposed, or has rights, to
circumstances:
variable returns from its involvement with the investee and has the
• combine like items of assets, liabilities, equity, income,
ability to affect those returns through its power over the investee.
expenses and cash flows of the parent with those of its
An investor controls an investee if and only if the investor has all of the
subsidiaries.
following elements:
• offset (eliminate) the carrying amount of the parent's
• power over the investee
investment in each subsidiary and the parent's portion of
• exposure or rights to variable returns from its involvement
equity of each subsidiary.
with the investee
• eliminate in full intragroup assets and liabilities, equity,
• ability to use its power over the investee to affect the amount
income, expenses and cash flows relating to transactions
of the investor's returns
between entities of the group.
• An investor has power over an investee when the investor
has existing rights that give it the current ability to direct the
relevant activities.
• Relevant Activities are operating and financial activities that
significantly affect the investors’ returns.
PROFORMA ELIMINATION ENTRIES
Share Capital (100%) xxx
Share Premium (100%) xxx
Retained Earnings (100%) xxx
Goodwill (if CT>FVNA) xxx
Assets (if FV>BV) xxx
Liabilities (if FV<BV) xxx
Investment in Subsidiary (@cost) xxx
Gain on Bargain Purchase (if CT<FVNA) xxx
Assets (if FV<BV) xxx
Liabilities (if FV>BV) xxx
Non-Controlling Interest (if <100%) xxx
To eliminate the equity of the subsidiary, record the changes in FV,
record the result of business combination, and record the non-
controlling interest.

NON-CONTROLLING INTEREST
• A parent presents non-controlling interests in its consolidated
statement of financial position within equity, separately from
the equity of the owners of the parent.
• A reporting entity attributes the profit or loss and each
component of other comprehensive income to the owners of
the parent and to the non-controlling interests.
• The proportion allocated to the parent and non-controlling
interests are determined on the basis of present ownership
interests.

CHANGES IN OWNERSHIP INTERESTS

• Changes in a parent's ownership interest in a subsidiary that
do not result in the parent losing control of the subsidiary are
equity transactions.
• When the proportion of the equity held by non-controlling
interest changes, the carrying amounts of the controlling and
non-controlling interests are adjusted to reflect the changes
in their relative interests in the subsidiary.
• If a parent loses control of a subsidiary, the parent:
• derecognizes the assets and liabilities of the
former subsidiary from the consolidated statement
of financial position;
• recognizes any investment retained in the former
subsidiary in accordance with relevant IFRSs; and
• recognizes the gain or loss associated with the
loss of control attributable to the former controlling
interest.