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SCOPE
An entity that is a parent shall present consolidated
financial statements. This IFRS applies to all entities,
except as follows:
(a) A parent need not present consolidated financial
CPA SESSION FOR MAY statements if it meets all the following conditions:
• it is a wholly-owned subsidiary or is a partially-owned
2021 EXAM. subsidiary of another entity and all its other owners,
including those not otherwise entitled to vote, have
Topic 9: GROUP ACCOUNTS. been informed about, and do not object to, the
parent not presenting consolidated financial
statements;
• its debt or equity instruments are not traded in a
public market (a domestic or foreign stock exchange
or an over-the-counter market, including local and
Compiled by Godson Leonard regional markets); Compiled by Godson Leonard

SCOPE
• It did not file, nor is it in the process of filing, its
financial statements with a securities commission
or other regulatory organisation for the purpose
of issuing any class of instruments in a public
market; and
• Its ultimate or any intermediate parent produces
financial statements that are available for public
use and comply with IFRSs, in which subsidiaries
are consolidated or are measured at fair value
through profit or loss in accordance with this
IFRS.
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Definitions
Consolidated financial statements:
• The financial statements of a group in which the assets, liabilities,
equity, income, expenses and cash flows of the parent and its
subsidiaries are presented as those of a single economic entity.
Control of an investee:
• An investor control an investee when the investor is exposed, or has
rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee.
Decision maker:
• An entity with decision making rights that is either a principal or an
agent for other perties.
Group:
• A parent and its subsidiries.
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Definitions Definitions
Investment entity:
An entity that: Subsidiary:
• Obtains funds from one or more investor(s) for the purpose of • An entity that is controlled by another entity.
providing those investors with investment management services; Power:
• Commits to its investor(s)that its business purpose is to invest • Existing rights that give the current ability to direct the relevant
funds solely for returns from capital appreciation, investment
activities.
income or both; and
• Measures and evaluates the performance of substantially all of its Protective rights:
investments on a fair value basis. • Rights designed to protect the interest of the party holding those
Non controlling interest: rights without giving that party power over the entity to which
• Equity in a subsidiry not attributable, directly or indirectly to a those rights relate.
parent. Relevant activities:
Parent: • For the purpose of this IFRS, refers to the activities of investee
• An entity that controls one or more entities. that significantly affect the investee’s returns.

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Assessment control
Assessment control
To determine whether it controls investee an investor shall assess
whether it has all the following:
A. Power over the investee; – rights to appoint or remove another entity that
• To have power over an investee, an investor must have existing
directs the relevant activities;
rights that give the investor the current ability to direct the – rights to direct the investee to enter into, or veto
relevant activities(Substantive right). any changes to, transactions for the benefit of the
• Examples of rights that, either individually or in combination, can investor; and
give an investor power include but are not limited to:
– ther rights (such as decision-making rights
– rights in the form of voting rights (or potential voting rights) of an investee
specified in a management contract) that give the
– rights to appoint, reassign or remove members of an investee’s
key management personnel who have the ability to direct the holder the ability to direct the relevant activities.
relevant activities;

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Assessment control
Example 1
The investee has annual shareholder meetings at which decisions to
direct the relevant activities are made. The next scheduled
shareholders’ meeting is in eight months.
However, shareholders that individually or collectively hold at least 5
per cent of the voting rights can call a special meeting to change the
existing policies over the relevant activities, but a requirement to give
notice to the other shareholders means that such a meeting cannot
be held for at least 30 days.
Policies over the relevant activities can be changed only at special or
scheduled shareholders’ meetings.
DITO (an investor) is party to a forward contract to acquire the
majority of shares in the investee. The forward contract’s settlement
date is in 25 days.
Required.
Does DITO have a substantive right?
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Assessment control
Answer.
The existing shareholders are unable to change the
existing policies over the relevant activities because
a special meeting cannot be held for at least 30
days, at which point the forward contract will have
been settled.
DITO’s forward contract is a substantive right that
gives it the current ability to direct the relevant
activities even before the forward contract is
settled.
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Assessment control Assessment control

Various Possibilities of Power.
• Power without a majority of the voting rights: this could be due to:
• Power with a majority of the voting rights:
– a contractual arrangement between the investor and other vote
An investor that holds more than half of the voting rights of an investee has holders;
power in the following situations:
– rights arising from other contractual arrangements;
– the relevant activities are directed by a vote of the holder of the
majority of the voting rights, or – the investor’s voting rights, referred to as de facto control (for
example, when the investor holds significantly greater voting rights
– a majority of the members of the governing body that directs the
relevant activities are appointed by a vote of the holder of the
than any other vote holder or organised group of vote holders)
majority of the voting rights. – potential voting rights (considered only if they are substantive); or
• Majority of the voting rights but no power: – a combination of all above four
– in some cases, voting rights may be designed in a manner such that
they are not the dominant factor in deciding control over an investee.
This may happen if the investor cannot direct the relevant activities of
the investee or the rights may not be substantive. In such cases, the
investor does not control the investee.
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Assessment control
Example 1:
An investor acquires 48 per cent of the voting rights of an investee.
The remaining voting rights are held by thousands of shareholders,
none individually holding more than 1 per cent of the voting rights.
None of the shareholders has any arrangements to consult any of
the others or make collective decisions. When assessing the
proportion of voting rights to acquire, on the basis of the relative
size of the other shareholdings, the investor determined that a 48
per cent interest would be sufficient to give it control.
• In this case, on the basis of the absolute size of its holding and
the relative size of the other shareholdings, the investor
concludes that it has a sufficiently dominant voting interest to
meet the power criterion without the need to consider any
other evidence of power.
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Assessment control
B. Exposure, or rights, to variable returns from its involvement with
the investee
– To control an investee, an investor must be exposed, or
have rights to variable returns from its involvement
with the investee.
– This happens when the investor’s returns from its
involvement have the potential to vary as a result of
the investee’s performance.
– Although only one investor can control an investee,
more than one party can share the returns of an
investee. For example, holders of non-controlling
interests can share the profits or distributions of an
investee, but cannot control the investee.
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Assessment control
Example 2:
• Investor A holds 40 per cent of the voting rights of an investee and
twelve other investors each hold 5 per cent of the voting rights of
the investee. A shareholder agreement grants investor A the right
to appoint, remove and set the remuneration of management
responsible for directing the relevant activities. To change the
agreement, a two-thirds majority vote of the shareholders is
required.
• In this case, investor A concludes that the absolute size of the
investor’s holding and the relative size of the other shareholdings
alone are not conclusive in determining whether the investor has
rights sufficient to give it power. However, investor A determines
that its contractual right to appoint, remove and set the
remuneration of management is sufficient to conclude that it has
power over the investee. The fact that investor A might not have
exercised this right or the likelihood of investor A exercising its
right to select, appoint or remove management shall not be
considered when assessing whether investor A has power.
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Assessment control
C. Ability to use its power over the investee to affect the amount of
the investor’s returns.
The link between power over an investee and the returns is essential
to having control. The investor does not control the investee in the
following circumstances:
• an investor has power over an investee, but cannot benefit from
that power
• an investor receives a return from an investee, but cannot use its
power to direct the activities that significantly affect the returns of
that investee
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Assessment control Assessment control

Control over specified assets (SILO) – Specified assets of the investee (and related credit enhancements,
• An investor shall consider whether it treats a portion of an investee if any) are the only source of payment for specified liabilities of, or
as a deemed separate entity and, if so, whether it controls the specified other interests in, the investee.
deemed separate entity. – Parties other than those with the specified liability do not have
• This deemed separate entity or ‘silo’ is a new concept compared to rights or obligations related to the specified assets or to residual
IAS 27, which dealt with only the legal entities. This opens up a cash flows from those assets.
possibility that only a part of the entity represented by this ‘silo’ – In substance, none of the returns from the specified assets can be
may be consolidated. used by the remaining investee and none of the liabilities of the
• An investor shall treat a portion of an investee as a deemed deemed separate entity are payable from the assets of the
remaining investee.
separate entity if and only if the following conditions are satisfied:
• Thus, in substance, all the assets, liabilities and equity of that deemed
separate entity is ring-fenced from the overall investee. Such a
deemed separate entity is often called a ‘silo’.
• If the investor controls the deemed separate entity, the investor shall
consolidate that portion of the investee
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Specific considerations during consolidation Specific considerations during consolidation

Invalid reasons to seek exclusion of a subsidiary from group accounts
Exclusion of subsidairy from consolidation
In addition to the valid reasons to exclude a subsidiary from consolidation
IFRS 10 and IAS 27 (revised) do not specify any other circumstances when
considered earlier, directors of the parent entity may seek to exclude a
subsidiaries must be excluded from consolidation. However, there may be
subsidiary from group accounts for several reasons as follows:
specific circumstances that merit particular consideration as follows:
• The subsidiary undertakes different activities and/or operates in different
– Severe long-term restrictions
locations, thus being distinctive from other members of the group.
– Previously, IAS 27 permitted exclusion from consolidation where the
• The subsidiary has made losses or has significant liabilities which the
subsidiary was subject to long-term restrictions on the ability to
directors would prefer to exclude from the group accounts to improve the
transfer funds to the parent; this exclusion is no longer permitted as it
overall reported financial performance and position of the group.
may still be possible to control a subsidiary in such circumstances.
• The directors may seek to disguise the true ownership of the subsidiary,
– Acquired for sale: a subsidiary acquired exclusively with a view to
perhaps to avoid disclosure of particular activities or events, or to avoid
disposal within 12 months will probably meet the conditions in IFRS5,
disclosure of ownership of assets.
for classification as held for sale. The effect is that all its assets are
presented as a single line item below current assets and all its • The directors may seek to exclude a subsidiary from consolidation in order
liabilities are presented as a single line below current liabilities. for the group to disguise its true size and extent.
– Materality: accounting standards do not normally apply to immaterial
items; therefore an immaterial subsidiary
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Acquisition method
Entities must account for each business combination by applying
the acquisition method. This requires:
• Identifying the acquirer. This is generally the party that obtains
control. An acquirer might obtain control of an acquiree in a
variety of ways, for example:
– by transferring cash, cash equivalents or other assets;
– by incurring liabilities;
– by issuing equity interests;
– by providing more than one type of consideration; or
– Without transferring consideration, including by contract
alone.
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Acquisition method
PURCHASE CONSIDERATION:
• This includes the fair value of all forms of consideration at the acquisition
date.
• It includes contingent consideration, even if it is not deemed to be
probable of payment at the date of acquisition.
• The consideration transferred may include cash, other assets, a business
or subsidiary of the acquirer, contingent consideration, ordinary or
preference equity instruments, options or warrants.
• Where the consideration includes a contingent consideration
arrangement, that contingent element shall be measured at acquisition
date fair value and included as part of the consideration transferred.
– If the value of the contingent consideration subsequently changes
within the measurement period (maximum one year from acquisition
date) as a result of additional information obtained about
circumstances at acquisition date, then such changes are
measurement period adjustments. Such changes will adjust the
goodwill initially recognised.
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Acquisition method
• Determining the acquisition date. This is generally the date
the consideration is legally transferred, but it may be
another date if control is obtained on that date.
• Recognising and measuring the identifiable assets acquired,
the liabilities assumed and any non-controlling interest in
the acquiree.
• Recognising and measuring goodwill or a gain from a
bargain purchase
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Acquisition method
• Deferred consideration:
– Any consideration which is not payable immediately but is payable
in the future and which is not contingent is called a deferred
consideration.
– Such consideration should be valued at present value of the
amount payable.
– For this, amount payable in future should be multiplied by the
present value factor (present value factor is calculated using the
cost of capital to the parent).
• It does not include costs of acquisition. Those costs include finder’s
fees; advisory, legal, accounting, valuation and other professional or
consulting fees; general administrative costs, including the costs of
maintaining an internal acquisitions department, which must be
expensed as incurred, or in the case of debt or equity issue costs, dealt
with according to IFRS 9 / IAS 32.
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Acquisition method
Fair Value of Net Asset of Acquired.
• In line with the original standard, IFRS 3 revised requires that the
identifiable net assets of the subsidiary should be measured at their fair
values at the date of acquisition.
• There are certain exceptions to this rule such as deferred tax and pension
obligations, which are valued according to the relevant standard.
• Contingent liabilities that are present obligations arising from past events
and can be measured reliably are recognised at fair value at the
acquisition date. This is true even where an economic outflow is not
probable.
• A provision for future operating losses cannot be created as this is a post-
acquisition item. Similarly, restructuring costs are only recognised to the
extent that a liability actually exists at the date of acquisition.
• The fair value exercise affects both the values given to the assets and
liabilities acquired in the group statement of financial position and the
value of goodwill.
• All acquired intangible assets must be measured and recognised.
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Acquisition method
Full goodwill
• If the non-controlling interest is valued at fair value, the resultant
goodwill is full goodwill.
• It is called the full goodwill method because the goodwill pertaining
to the parent as well as the non-controlling interest is recognised in
the financial statements.
• The upside of recognising full goodwill (method 2) is that assets on
the statement of financial position will be increased. Also using this
method will be consistent with the definition of control which
requires the entity having control over another entity to
consolidate 100% of net asset.
• The potential downside is that any future impairment of goodwill
will be greater. However, goodwill impairment testing may be easier
in that there is no need to gross up goodwill for partially owned
subsidiaries. Compiled by Godson Leonard
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Acquisition method
Goodwill computation
Partial goodwill
• If the non-controlling interest is valued at the non-controlling interest’s
proportionate share of the acquiree’s identifiable net assets measured
at fair value (as stated above) then the resultant goodwill is partial
goodwill.
• This approach is similar to the method under the old IFRS 3 - goodwill
is the difference between the consideration paid to the acquirer and its
share of identifiable net assets acquired.
• This is referred to as a ‘partial goodwill’ method because goodwill
related only to the parent is brought into the books of accounts.
• The method used for valuation of non-controlling interest indirectly
ensures that there is no goodwill recognised for the non-controlling
interest’s share.
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Acquisition method
Bargain Purchases.
If the share of net assets acquired exceeds the
consideration given, then ‘negative goodwill’ arises
on acquisition.
• IFRS 3 revised requires that the fair values of the
consideration and the net assets acquired are
checked carefully to ensure that no errors have
been made.
• After the checking exercise is complete, if there is
still negative goodwill it should credited to profits
for the year immediately
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Examples
Example 4.
Rosa acquires 80% of the Parks’s equity capital in a share-for-share
exchange. Parks has issued equity capital comprising 100 shares, each
of $1 nominal value.
The consideration that Rosa gives to acquire Parks is by making a two
for one share issue when the share price of each Rosa share is $5.
At the date of acquisition the fair value of the net assets of Parks is
$600 and the market value of a Parks share is $8.
Required:
I. Calculate the goodwill arising valuing the NCI using the proportion
of the net assets method.
II. Calculate the goodwill arising valuing the NCI using the full
goodwill method
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Examples
Example 6
Brussels acquired 82% of Madrid. At acquisition, the statement of
financial position of Madrid showed issued equity capital of
$3,000,000 and retained earnings of $3,255,000. Included in this total
is freehold land with a book value of $400,000 (market value
$958,000), a brand with a nil book value (market value $500,000),
plant and machinery with a book value of $1,120,000 and a market
value of $890,000. The fair value of all other assets and liabilities is
approximately equal to book value.
• The directors of Brussels intend to close down one of the divisions
of Madrid and wish to provide for operating losses up to the date of
closure, which are forecast as $729,000.
• An investment in plant and machinery will be required to bring the
remaining production line of Madrid up to date. This will amount to
$405,000 in the next 12 months.
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Examples
Example 5.
Malawi has made an acquisition of 100% of the equity shares in
Blantyre when the net assets of Blantyre were $80,000. The
consideration that Malawi gave for the investment in the
subsidiary Blantyre comprised:
– Cash paid $25,454
– Shares – Malawi issued 10,000 shares to the shareholders of Blantyre,
each with a nominal value of $1 and a market value of $4.
– Deferred consideration – $20,000 is to be paid one year after the date
of acquisition. The relevant discount rate is 10%.
– Contingent consideration – $100,000 may be paid one year after the
date of acquisition. It is judged that there is only a 40% chance that
this will occur. The fair value of this consideration can be measured as
the present value of the expected value.
– Legal fees associated with the acquisition amounted to $15,000.
Required:
Calculate the goodwill arising on the acquisition of Blantyre.
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Examples
The consideration comprised $4,000,000 cash, 1,500,000 shares with
a nominal value of $1.00 and fair value of $1.50 each as well as
further cash consideration of $400,000 to be paid one year after
acquisition.
The discount rate is 10%.
Required:
Calculate the goodwill arising on consolidation using the
proportionate share of the fair value of net assets method to value
the NCI
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Consolidation techniques
Consolidated statement of Financial Position
• Determination of Group Structure
• Determination of net assets of subsidiary and, or associate
• Calculation of goodwill
• Calculation of non-controlling interest, if partially acquired
subsidiary
• Calculation of group reserves/retained earnings
• Calculation of investment in associate.
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IAS 28 & IFRS 11 on Associate and joint arrangement
The existence of significant influence by an entity is
usually evidenced in one or more of the following
ways:
• representation on the board of directors or
equivalent governing body of the investee;
• participation in policy-making processes,
including participation in decisions about
dividends or other distributions;
• material transactions between the entity and its
investee;
• interchange of managerial personnel; or
• provision of essential technical information.
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IAS 28 & IFRS 11 on Associate and joint arrangement
• An associate is an entity over which the investor has
significant influence.
• Significant influence is the power to participate in the
financial and operating policy decisions of the investee
but is not control or joint control of those policies.
• A joint arrangement is an arrangement of which two
or more parties have joint control. Joint control is the
contractually agreed sharing of control of an
arrangement, which exists only when decisions about
the relevant activities require the unanimous consent
of the parties sharing control.
• A joint venture is a joint arrangement whereby the
parties that have joint control of the arrangement
have rights to the net assets of the arrangement.
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IAS 28 & IFRS 11 on Associate and joint arrangement
The characteristics of a joint arrangement are
1. The existence of a contract between two or more parties
This is the main feature which distinguishes a joint arrangement from an
investment in an associate. There is no contractual agreement when there is
an investment in an associate while a contract always exists when there is a
joint arrangement.
• A contract is usually in writing and contains:
– the activity, duration and reporting obligations of the joint venture
– the appointment of the board of directors or equivalent governing body of the
joint venture
– the voting rights of the venturers (the parties to the contract)
– the capital contributions by the venturers; and
– the sharing by the venturers of the output, income, expenses or results of the
joint venture.
2. As a result of this contract the parties exercise joint control over the
resulting arrangement.
• The main characteristic of joint control is the requirement of unanimous
consent of the parties sharing control before any financial or operating
decision can be taken. This means that all the parties to the contract are
on the same footing and no Compiled
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superior
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IAS 28 & IFRS 11 on Associate and joint arrangement
Types of joint arrangement:
Joint operation
• is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the assets, and
obligations for the liabilities, relating to the arrangement
Accounting treatment
• While accounting for its share in the joint operation, a joint
operator recognises in its books:
• its assets, including its share of any assets held jointly;
• its liabilities, including its share of any liabilities incurred jointly;
• its revenue from the sale of its share of the output of the joint
operation;
• its share of the revenue from the sale of the output by the joint
operation; and
• its expenses, including its share of any expenses incurred jointly.
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IAS 28 & IFRS 11 on Associate and joint arrangement
Joint venture
• is a joint arrangement whereby the parties
that have joint control of the arrangement
have rights to the net assets of the
arrangement.
• In this type of joint arrangements, the
venturers establish a corporation, partnership
or other separate entity in order to undertake
an economic activity.
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IAS 28 & IFRS 11 on Associate and joint arrangement IAS 28 & IFRS 11 on Associate and joint arrangement
Accounting of Associate and Joint venture by using equity method:
Under the equity method, on initial recognition the investment in an
associate or a joint venture is recognised at cost, and the carrying amount is
• increased or decreased to recognise the investor’s share of the profit or
loss of the investee after the date of acquisition. The investor’s share of
the investee’s profit or loss is recognised in the investor’s profit or loss.
• Impairment of the investment is also redduced from the carrying amount
• Distributions received from an investee reduce the carrying amount of
the investment.
• Adjustments to the carrying amount may also be necessary for changes
in the investor’s proportionate interest in the investee arising from
changes in the investee’s other comprehensive income. Such changes
include those arising from the revaluation of property, plant and
equipment and from foreign exchange translation differences. The
investor’s share of those changes is recognised in the investor’s other
comprehensive income
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IAS 27 Separate financial statements

Accounting in the separate financial statements. GROUP ACCOUNTS
When an entity prepares separate financial statements, it shall
account for investments in subsidiaries, joint ventures and
associates either:
• (a) at cost;
• (b) in accordance with IFRS 9; or
• (c) using the equity method as described in IAS 28.
• The entity shall apply the same accounting for each category THE END!!!!
of investments. Investments accounted for at cost or using
the equity method shall be accounted for in accordance with
IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations when they are classified as held for sale or for
distribution (or included in a disposal group that is classified
as held for sale or for distribution). The measurement of
investments accounted for in accordance with IFRS 9 is not
changed in such circumstances.
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