Group financial

statements
Changes in
ownership C
 Other
H Ltd shareholders
(NCI)
(1) H Ltd buys shares from NCI
(2) H Ltd sells shares to NCI
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Chapter 14
› Changes resulting from issue of
additional shares (rights issue/
capitalisation issue ) and any other
changes (share buy backs/expiry of
agreement)
› Share based payments are not in
syllabus
 Increase in
sub/ass shares
› Via Capitalisation
issue/Rights issue
 5
Issue of shares
Capitalization vs Rights Issue
Self CAPITALISATION
study RIGHTS ISSUE
ISSUE
Ex
14.1
› S Bpk issues additional shares to
› S Ltd uses current retained
existing shareholders (P Ltd and
earnings or other reserves to NCI).
issue further shares instead
› Existing shareholders do PAY for
of declaring a dividend.
these additional shares.
› Existing shareholders (P Ltd
› Shares are issued in proportion to
and NCI) do not pay for existing shareholding.
these additional shares.
› P Ltd and the NCI decide
› Normally NO change in themselves how much of these
ownership takes place (are shares they want to take up.
normally issued in proportion › It CAN therefore result in a
to existing shareholding), change in ownership.
except if shares are taken up
› How do you account for this
on a fractional basis.
transaction in the separate AFS?
Rights issue

› Increase/decrease in
shareholding via rights
issue
 7
Rights issue by S Ltd– how do you account for
transaction in the separate AFS?

P LTD S LTD

Dr Investment in S (P) (SoFP) xxx Dr Bank (S) (SoFP) xxx

Cr Bank (P) (SoFP) (xxx) Cr Share Capital (S) (SoCE) (xxx)

In the SEPARATE financial statements of P Ltd it is recognised:

– At Cost; or
– As a financial Asset i.t.o. IFRS 9; or
– Equity Method i.t.o. IAS 28.

In the SEPARATE financial statements of S Ltd it is recognised i.t.o.

IFRS 9.
 CLASS QUESTION 1
› S: separate AFS
› Dr Bank (R2 x 250 000/4) = R125 000
› Cr Share capital R125 000
› H: separate AFS
› Dr Investment in S (R2 x 57 500)=R115 000
› Cr Bank R115
000
› NCI would have processed the following
entry
› Dr Investment in S (R2 x 10 000)=R10 000
› Cr Bank R10 000
CLASS QUESTION 1 CONTINUED
› S: Separate AFS
Eliminate
› Dr Bank (R2 x 250 000/4) = R125 000 additional scap
of S in change
› Cr Share capital R125 000 in ownership
journal
› H: Separate AFS
› Dr Investment in S(R2 x 57 500)=R115 000 Eliminate
additional
› Cr Bank R115 000 Investment
in H has in

› NCI would have processed the following S in CIO

journal

entry
› Dr Investment in S (R2 x 10 000)=R10 000 NCI initially
gets bigger
› Cr Bank R10 in CIO
000 journal
CLASS QUESTION 1 CONTINUED
› Assume the group gain was R 8 000

› The pro-forma journal for the change in

ownership would be:
› Dr Share capital R125 000
› Cr Investment in S R115 000
› Cr NCI(SoFP) R10 000
› Dr NCI(SoFP) R8 000
› Cr Changes in ownership(Equity) R8 000
› Can combine NCI into one line net credit of R 1000
GS example 14.2, 14.3
› A rights issue does not always result in a
change in ownership
 Steps to follow: Rights issue –
change of shareholding in sub
1. Calculate the shareholding before, after & total.
(For H, NCI, and Total)
2. Record new shares issued by S. (changing equity of S so put in
total column on Analysis)
3. Update your investment at cost and NCI's investment at cost
(cost of rights issue)
4. Rebalance NCI closing balance to their share of equity
(reminder: Prop share they always stay at their share of equity, FV
at their share of equity plus gwill)
5. Rebalance NCI = gain or loss on variation
6. Balancing amount is profit/loss on change in ownership
NB!!!!!!! Keep in EQUITY if no change in status
 Amount to be recognised for changes in
ownership (increase in P's ownership)
Changes in ownership From NCI
perspective
Consideration paid -xx
NCI after transaction xxx
NCI before transaction -xx
Recognise for changes in ownership xxx

Changes in ownership From Parent's

perspective

Consideration paid xxx

P after transaction xxx
P before transaction -xx
Recognise for change in ownership xxx
GS 14.5 – increase of parent's interest
(s – S prop share)
› P Ltd acquired 120 000 shares in S Ltd on 1 Jan 2017 for R150,000. Equity of
S:
1 Jan 2017 2019

Share Capital 150 000 (31/12/2019) 250 000

RE 30 000 (01/01/2019) 125 000

› On 30 June 2009 S Ltd made a rights issue for every 3 shares previously held
@ R2 per share.
Rights issue was taken up as follows Number of shares

P Ltd 46 000

NCI 4 000

› S Ltd's profit of R60 000 accrued evenly throughout the year

› Dividend paid by S Ltd 31/05/2019 – 20 000
› NCI at prop share, investm – FVA in OCI (IFRS 9)
Prepare analysis, calc amount to be recognised for change in ownership, prepare PFJE to account for
the rights issue for YE 31 Dec 2019
Change in shareholding
P's shareholding 80% –
83%
Original shareholding 120 000/150 000 80%

After rights issue

Original (dilution from 80% – 60%) 120 000/200 000 60%

Re-purchase of 20% and purchase of add 3% 46 000/200 000 23%

Total 166 000/200 000 83%

150 000/3 = 50 000 add shares @ R2 each = R100 000

 Total P At – 80% P Since NCI

Share Cap 150 000 120 000 30 000

RE 30 000 24 000 6 000

180 000 144 000 36 000

Goodwill
Analysis
6 000 6 000

Consideration 150 000

RE (125 – 30) 95 000 76 000 19 000

Profit (60 000 x 6/12) 30 000 24 000 6 000

Dividend -20 000 -16 000 -4 000

291 000 84 000 57 000

Rights issue (46 000 x 2) (4 000 x 2)

Shares issued 100 000 92 000 8 000

Changes in ownership (equity) (450) 450

391 000 65 450

Profit 30 000 24 900 5 100

421 000 108 900 70 550

 Amount to be recognised for changes
in ownership
Changes in ownership From NCI perspective
Consideration paid -8 000
NCI after transaction (391 000 – 6 000) x 17% 65 450
NCI before transaction (291 000 – 6 000) x 20% -57 000
Recognise for change in 450
ownership

Changes in ownership From Parent's perspective

Consideration paid -92 000

P after transaction (391 000 – 6 000) x 83% 319 550

P before transaction (291 000 – 6 000) x 80% -228 000

Recognise for change in -450

ownership
Additional PFJE to eliminate rights
issue on consol
Example 14.5

DR CR
Share capital 100 000
Changes in ownership (equity) 450
NCI (SOFP) 8 450
Investment in S Ltd (cost) 92 000
 GS 14.6– decrease of parent's interest
(S – s NCI FV)
› P Ltd acquired 120 000 shares in S Ltd on 1 Jan 2017 for R150
000. Equity of S:
1 Jan 2007 2009
Share Capital 150 000 (31/12/2019) 250 000
RE 30 000 (01/01/2019) 125 000

› On 30 June 2019 S Ltd made a rights issue for every 3 shares

previously held @ R2 per share.
› All shares were taken up by NCI
› S Ltd's profit of R60 000 accrued evenly throughout the year
› Dividend paid by S Ltd 31/05/2019 – 20 000
› NCI at FV (36 600 @ acq), investm – FVA in OCI (IFRS 9)
Prepare analysis, calc amount to be recognised for change in
ownership, prepare PFJE to account for rights issue for YE 31 Dec
2019
 Change in shareholding
P's shareholding 80% – 60%

Original shareholding 120 000/150 000 80%

After rights issue

Original (dilution from 80% – 60%) 120 000/200 000 60%

 Total P At – 80% P Since NCI

Share Cap 150 000 120 000 30 000

RE
Analysis30 000 24 000 6 000

180 000 144 000 36 000

Goodwill 6 600 6 000 600

Consideration 186 600 150 000 36 600

RE (125 – 30) 95 000 76 000 19 000

Profit (60 000 x 6/12) 30 000 24 000 6 000

Dividend -20 000 -16 000 -4 000

291 600 84 000 57 600

Rights issue Shares issued 100 000 100 000

Changes in ownership (equity) 1 500 - 1 500

391 600 156 100

Profit 30 000 60% 18 000 12 000

421 600 102 000 168 100

 Amount to be recognised for changes
in ownership
Changes in ownership From NCI perspective

Consideration paid 100 000

NCI after transaction (391 600 – 6 600) x 40% + (600 + 6 000 x 20/80) 156 100
NCI before transaction (291 600 – 6 600) x 20% + (600) -57 600

Recognise for change in -1 500

ownership

Changes in ownership From Parent's perspective

Consideration paid -

P after transaction (391 600 – 6 600) x 60% + 6 000 – (6 000x20/80) 235 500

P before transaction (291 600 – 6 600) x 80% + (6 000) -234 000

Recognise for change in 1 500

ownership
Additional PFJE to eliminate rights
issue on consol
Example 14.6

DR CR
Share capital 100 000
Changes in ownership (equity) 1 500
NCI (SOFP) 98 500
SELF STUDY:
Rights issue by S becoming an A
› Difficult GS example 14.7 – decrease in %
› Change in status
› S to A  short cut approach
› Remember principles of Chapter 13
› Reminder you need a FV adjustment
› Bring in obal for NCI and Opening retained earnings
› Take out first 3 months profit/loss items
› Give NCI share of profit of amount above
› Reaslise since M2M to RE
› Then do equity accounting for last 9 months
 Principle test
› QUESTION 1: Draw up the ownership table for the
following:

S Shares 250,000
H held 200,000
NCI 50,000

› S had a rights issue one for every 4

› H took up 57 500 shares

› QUESTION 2: Explain the difference between a

capitalization issue and a rights issue.
 QUESTION 1: Solution

H NCI TOTAL H NCI TOTAL

Old SH 200,000 50,000 250,000 80% 20% 100%
SBB/RI 57,500 5,000 62,500 2% -2% 100%
New SH 257,500 55,000 312,500 82% 18% 100%
 QUESTION 2: SOLUTION
Capitalisation issue
 Sub/Ass uses RE/reserves
to issue further shares
instead of declaring a
dividend
 Does not normally result
in a change in ownership
(issued in prop to existing
ownership).
 Unless fractional dealings
 Example 14.1 (self study)
Rights issue
 Sub/Ass offers additional
shares to H/NCI
 Share offer in relation to
previous shareholding
 H/ NCI decide how many
shares they want to take up
 This can lead to a change in
ownership
Buy back of
shares
› Decrease in shares via SBB
Share buy back class example
› S issued 100 000 shares at incorporation in year 1 at
R1,50 each
› H bought 50 000 shares from former shareholder at
R3/share in year 2
› In year 3 S bought back 10 000 shares from H at
R20 a share. None from NCI.
› Assume H accounts for inv on cost model

Compile journals in the separate financial

statements of H and S for the share buy back in year
3
 Share buy back class example
› S Journal
› Dr Share capital 10 000 x R1,50 = 15 000
› Cr Bank 10 000 x R20 = 200 000
› Dr Retained earnings (bal no) = 185 000
› R18.50 a share
H Journal
› Dr Bank 100k x R20/share = 200 000
› Cr Investment in S 10k/50k x R3 share = 30 000
› Cr Gain on SBB(P/L) (bal no) = 170 000

› Dr Income tax (p/l) at CGT rate = 31 702

› Cr SARS liab (SoFP) 170 000*.666*.28= 31 702
 Share buy back class example

› Companies Act protection of capital:

› You can only take out of share capital
what you put into it…. The rest comes out
of retained earnings
 Share buy back
 Affects S’s equity so put in total column on
Analysis.
 Allocate to NCI and H
 Rebalance NCI
 Add back co profit put in group profit
Share buy-backs - steps

1. Calculate number of shares before/after share buy-back and

number of shares bought back
2. Determine the new % shareholding
3. Record shares bought back by S in your analysis
4. Calculate change in ownership amount
 Difference between consideration received and
1. What NCI/H had before the RI
2. What NCI/H had after the RI
 NB! No change in status – EQUITY!!
5. Reminder – you are disposing of shares – treat CIO similar
to gain/loss on disposal (but in EQUITY if no change)
› Eliminate separate co profit, account for group profit
› TIP – Do the journals for separate co first, then
eliminate!
Share buy-backs
› If buy back is in same proportion as previous
shareholding
› No change in ownership
› Self study GS example 14.9
 GS 14.10– increase of parent's interest (s-
S no change in status)
› P Ltd acquired 120 000 shares in S Ltd on 1 Jan 2017 for R200 000.
Equity of S:
1 Jan 2017 R 2019 R
Share Capital (150 000 shares) 250 000 (31/12/2019) 200 000
RE 30 000 (01/01/2019) 125 000

› On 30 June 2019 S Ltd bought back 30 000 shares at R5 per share. 20

000 of these shares were bought back from P Ltd, while 10 000 were
bought back from NCI.
› S Ltd's profit of R60 000 accrued evenly throughout the year
› Dividend paid by S Ltd 31/05/2019 – 20 000
› NCI at prop share, investm carried at cost

Prepare journals in P's separate AFS, S's separate AFS, the analysis,
calc the amount recognised for change in ownership and prepare the
PFJE to account for the share buy-back
 Journal in separate AFS of P Ltd and S
Ltd
P Ltd DR CR
Bank (20 000 x R5 per share) 100 000
Investment in S Ltd (20 000/120 000 x 200 000) 33 333
(cost of shares bought back)
Gain on buy-back of shares (p/l) 66 667

S Ltd DR CR
Share Capital (250 000/150 000) x 30 000 50 000
RE (Balancing) 100 000
Bank (30 000 x 5) 150 000

These journals must be reversed upon consolidation, as the share buy back
represents an intragroup transaction between P Ltd and S Ltd on a group level
 Change in shareholding
P's shareholding 80% – 83,33%
Original shareholding 120 000/150 000 80%
After share buy back
Total after buy back (120 000 – 20 000)/(150 000 – 30 000) 83.33%
 Total P At – 80% P Since NCI

Share Cap 250 000 200 000 50 000

RE 30 000 24 000 6 000

Analysis280 000 224 000 56 000

Gain from bargain purchase -24 000 -24 000

Consideration 200 000

RE (125 – 30) 95 000 76 000 19 000

Profit (60 000 x 6/12) 30 000 24 000 6 000

Dividend -20 000 -16 000 -4 000

361 000 84 000 77 000

(30 000 x (20 000 x 5) (10 000 x

5) 5)
Share buy-back -150 000 -100 000 -50 000

Changes in ownership -12 167 12 167

(EQUITY)
211 000 39 167

Profit 30 000 24 900 5 100

421 000 109 000 44 167

 Amount to be recognised for changes
in ownership
Changes in ownership From NCI perspective
Consideration received 50 000
NCI after transaction (211 000 + 24 000) x 16.667% 39 167
NCI before transaction (361 000 + 24 000) x 20% -77 000
Recognise for change in 12 167
ownership

Changes in ownership From Parent's perspective

Consideration received 100 000
P after transaction (211 000 + 24 000) x 83.333% 195 833
P before transaction (361 000 + 24 000) x 80% -308 000
Recognise for change in -12 167
ownership
 Additional PFJE to eliminate share by-
back on consol
Example 14.10

DR CR
NCI (SOFP) (50 000 – 12 167) 37 833
Investment in S Ltd (reverse over-elimination) 33 333
Gain on share buy-back (p/l) 66 667
Changes in ownership 12 167
Share capital 50 000
RE 100 000
SELF STUDY:
GS 14.11– increase of parent's interest (S- s no change in
status)
› NCI at FV
› Buy back pro- forma
Cr Share capital 50,000
Cr Retained earnings 100,000
Dr NCI (SFP) 10,000
Dr Investment in S 56,000
Dr Gain on buy back H 84,000
Dr NCI (SFP) 11,500
Dr Change in ownership equity 11,500
SELF STUDY:
GS 14.12– buy back: A becomes s
› Compile own analysis
READ THROUGH:
Other changes in ownership
NOT EXAMINABLE
› Share based payment of sub  Not focus area in
3rd year
› Loss of control through expiry of agreement 
Not focus area in 3rd year
Changes in A or JV

› Example: 14.16: GS page

› Example: 14.17: GS page

 SELF STUDY:
Rights issue by Associate
GS 14.16 Increasing your % in associate
o No change in significant influence (no change in
status)
o Change in ownership results in a gain (difference
between consideration paid and equity acquired)
o Recognise in p/l
o Gain not seen as a gain on rights issue
o Seen as a gain on bargain purchase which forms part
of the cost of the Investment in A (just like
goodwill)
o Dr Investment in A
o Cr Share of profit of associate (p/l)
SELF STUDY:
Rights issue by Associate
GS 14.17 Decreasing your % in associate
o No change in significant influence (no change in
status)
o Change in ownership results in a loss (difference
between compensation sharing in new equity and
equity relinquished)
o Seen as a loss on rights issue which the carrying
amount of investment in A
o Dr Share of profit of associate (p/l)
o Cr Investment in A
SELF STUDY:
Share buy back by Associate
GS 14.18 Loss of significant influence
o Change in status
o Realise Since Reval surplus to RE
o Do Equity accounting BEFORE date of change
o Profit on share buy back goes to Investment in A
and profit and loss
o Look at FV adjustments made by H on Investment
in A
More examples of changes in A

Self study
o 11.12 GS
THANKS!
Any questions?