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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://frs102.com/members/premium-toolkit/section-1/” type=”big” color=”red”] Return to Section 1 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=” ” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Example 1: Potential voting rights
Company A acquired 25% of the voting shares of company B. At that date Company B had also issued convertible preference shares to other shareholders who have the right to convert to ordinary shares at that time. In assessing the percentage ownership Company A would have to take these shares into account as the holders of the preference shares can now convert. This may result in Company A having only an 18% interest once these are converted, therefore this would not be accounted for as an associate.
If in this example, the preference share right to convert has not passed at the date of acquisition they would then be ignored in the assessment.
Example 1A: Potential voting rights
Company A purchased a 15% interest in Company B and at the same time acquired an option to purchase an additional 10% for a set price. In assessing whether a significant influence exists, 25% ownership would be looked at, as they can exercise that option at the point of acquisition if they wanted to.
Example 2: Cost model
Company A purchased a 25% interest in Company B for CU100,000 plus stamp duty of CU1,000 plus professional fees of CU1,000. The total cost of the investment to be shown on the balance sheet is CU102,000. This is kept at this cost over its life unless an impairment is identified.
Example 2A: Dividend paid out of pre-acquisition reserves.
Company A acquired an 25% interest in an associate for CU10,000 when the profit and loss reserves of the associate were CU5,000. During the year the company received a dividend of CU10,000 from the associate. This CU10,000 is recognised in the financial statements as income (i.e. credit profit and loss and debit bank). It is irrelevant that some of it was paid out of pre-acquisition reserves.
Example 3: Equity method accounting
Company A acquired a 35% interest in Company B at the start of the financial year of CU50,000. The net assets of Company B at that time was CU50,000 but the fair value of the net assets was CU70,000, the additional uplift being on the property in the company. The property has a remaining useful life of 10 years. Goodwill is assumed to have a useful life of 20 years.
The profit after tax of Company B for the year was CU50,000 and a dividend of CU10,000 was declared. Company B posted CU5,000 to other comprehensive income.
Prior to year-end Company B sold goods worth CU1,000 to Company A and a profit of CU500 was made by company B on this sale. These goods are still in stock in Company A at the year end.
Company A prepares consolidated financial statements. Assume there is no deferred tax on any unremitted dividends.
The carrying value of the investment in Company A’s consolidated financial statements is as follows:
|
|
CU |
|
Total price paid for 35% share |
50,000 |
|
Less fair value of net assets received (CU70,000*35%) |
(24,500) |
|
Goodwill on acquisition |
25,500 |
|
Amortisation of goodwill over useful life of 20 years (CU25,500/20yrs) |
1,275 |
|
|
CU |
|
Difference between fair value of net assets and carrying amount of net assets in the books of Company B (CU70,000-CU50,000) |
20,000 |
|
Company A’s share of the uplift (35%*CU20,000) |
7,000 |
|
Additional depreciation on uplift in fair value per annum (CU7,000/10yrs) |
700 |
|
|
CU |
|
Share of Company A’s allocation of the posting to Company B’s OCI (CU5,000*35%) |
1,750 |
|
|
CU |
|
Total share of unrealised profit on sale of goods to Company A which is still in Company A stock = CU500 * 35%= |
175 |
|
|
CU |
|
Carrying value of investment is: |
|
|
Company A’s share of net profit after tax (CU50,000*35%) |
17,500 |
|
Company A’s share of OCI debit |
(1750) |
|
Less goodwill amortization |
(1,275) |
|
Less additional depreciation on fair value adjustment |
(700) |
|
Less Company A’s share of dividend (CU10,000*35%) |
(3,500) |
|
Less elimination of unrealised profit |
(175)* |
|
Total movement in the year |
10,100 |
|
Initial cost of investment |
50,000 |
|
Total carrying amount at end of year |
60,100 |
*note it would also be acceptable if this was set against inventory in the consolidated financial statements
|
|
CU |
CU |
|
The journal required to be posted to account for the movement is: |
|
|
|
Dr Investment in Associate |
10,100 |
|
|
Dr Share of Associates less in OCI |
1,750 |
|
|
Cr Share of Associates Profit for year in P&L |
|
11,850 |
Example 4: Elimination of profit where investor sells goods to investee
Company A the investor sells goods to its 35% associate Company B for CU100,000. The cost of this sale is CU40,000. At the year end the associate company still has these items in stock. Therefore a journal is required to eliminate 35% of the profit on this transaction as follows:
|
|
CU |
CU |
|
Dr Revenue (CU100,000*35%) |
35,000 |
|
|
Cr Cost of Sales (CU40,000*35%) |
|
14,000 |
|
Cr Investment in Associate (CU60,000*35%) |
|
21,000 |
Example 5: loss in excess of investment
Company A has a 35% associate. The cost was CU100,000. At the end of year 1 the associate made a loss of CU150,000. In this instance the CU100,000 would be credited against the investment but the CU50,000 would not be recognised as there is no obligation on Company A with regard to these losses.
If in year 2 a profit of CU40,000 was recognised by the associate, this CU40,000 would not be recognised as a loss of CU50,000 has went unrecognised previously. Only when another CU10,000 of profits are made can the entity recognise the profit in the parent company consolidated accounts.
If there was a loan which met the definition of a long term investment then CU50,000 of the loss above would be taken off that loan.
Example 6: Full derecognition of associate due to sale
If we take example 3 above and assume at the start of year 2, Company A sold its 35% interest in the associate to a third party for CU70,000. The journals to post in the consolidated accounts are:
|
|
CU |
CU |
|
Dr Bank |
70,000 |
|
|
Cr Investment in Associate |
|
60,100 |
|
Cr Profit on Disposal of Associate |
|
9,900 |
Example 7: Partial derecognition of associate due to sale but significant influence still retained
If we take example 3 above and assume at the start of year 2, Company A reduced in holding in the associate from a 35% to a 25% interest. On sale the company received CU20,000 on sale. The journals to post in the consolidated accounts are:
|
|
CU |
CU |
|
Dr Bank |
CU20,000 |
|
|
Cr Investment in Associate (CU60,100*(10/35)) |
|
CU17,171 |
|
Cr Profit on Disposal of Associate |
|
CU2,829 |
From that date on the remaining carrying amount of CU42,929 (CU60,100-CU17,171) is treated as the investment cost.
Example 8: Transfer of associate as a result of loss of significant influence due to sale
If we take example 3 above and assume at the start of year 2, Company A reduced its holding in the associate from a 35% to a 15% interest. On sale the company received CU30,000 on sale. The journals to post in the consolidated accounts are:
|
|
CU |
CU |
|
Dr Profit on Disposal of Associate |
4,343 |
|
|
Dr Bank |
30,000 |
|
|
Cr Investment in Associate (CU60,100*(20/35)) |
|
34,343 |
From the date of sale, the remaining 15% with the a carrying amount of CU25,757 (CU60,100-CU34,343) is reclassed as a financial asset and accounted for in accordance with Section 11-Basic Financial Instruments. Where fair value can be determined it will be fair valued at the end of each reporting date with movements posted in the profit and loss.
Example 9: Loss of significant influence not due to sale
If we take example 3 and assume significant control was lost due to additional shares being issued due to certain preference shares converting for example. In this instance no profit or loss is recognised on disposal instead the carrying amount of CU60,100 becomes the investment cost and is accounted for in accordance with Section 11 of FRS 102.
Example 10: Initial carrying amount of an associate following loss of control of an entity
In Year 1 Company A purchased a 100% interest in Company B for CU100,000. At the beginning of year 2, Company A disposes of 70% of its interest for CU65,000. Therefore at that point the remaining 30% interest is treated as an associate assuming there is significant influence. At the date of disposal the carrying amount of the net assets in Company A’s consolidated financial statements was CU70,000 and goodwill was CU10,000. The fair value of Company B’s net assets is CU90,000.
On the sale Company A deconsolidates Company B and accounts for the associate’s share of the net assets under the equity method. The amount to be recognised as an investment in the associate is based on the carrying amount of the net assets and goodwill that has been retained i.e. 30%:
CU24,000 ((CU70,000+CU10,000)*30%).
Example 11: Step increase in an existing associate
Section 14 does not specifically deal with such circumstances. However it would be appropriate for the additional interest to be added to the existing carrying amount of the associate and the existing interest in the associate is not re-measured.
Company A obtained a 35% interest in Company B for CU50,000 and had significant influence at that time. At the date of acquisition, the net assets of Company B was CU50,000 but the fair value of the net assets was CU70,000, the additional uplift being on the property in the company. The property has a remaining life of 10 years. Goodwill is assumed to have a life of 20 years.
At the start of year 2 Company A acquires a further 10% of Company B for CU10,000. The fair value of the net assets at that time were CU75,000
After the second acquisition Company B is still an associate as Company A only owns 45% of the Company. For reference see below the goodwill calculated on initial recognition
|
Goodwill recognised at start of year 1 |
|
|
|
CU |
|
Total price paid for 35% share |
50,000 |
|
Less fair value of net assets received (CU70,000*35%) |
(24,500) |
|
Goodwill on acquisition |
25,500 |
|
Goodwill recognised on subsequent acquisition |
|
|
|
CU |
|
Total price paid for 10% share |
CU10,000 |
|
Less fair value of net assets received (CU75,000*10%) |
(CU7,500) |
|
Goodwill on acquisition |
CU3,500 |
Therefore the price paid of CU10,000 is made up of CU3,500 goodwill for the additional 10% acquired. This goodwill will be written off over the useful life.
As can be seen above the previous acquisition is not re-measured. It stays the same.
Example 11A: Step increase from investment to associate
Company A acquired a 10% investment in Company B which was accounted for under Section 11. At the start of year 2 the company acquired a further 20% interest giving it significant influence. In this case the goodwill on the acquisition would be calculated as per Section 19 as the difference between the total cost of the 10% acquisition plus the total cost of the 20% acquisition and the percentage of the net assets acquired. This differs from the calculation of goodwill under example 11 above. If under Section 11 the investment was carried at fair value any adjustments would have to be reversed.
Example 12: Derecognition of associates losses
Parent A prepares consolidated financial statements. At the date of transition, it had a 25% investment in an associate company. The associate company had net liabilities of CU100,000 on its balance sheet at the date of transition. A provision of CU25,000 was included in the consolidated financial statements of old GAAP at the date of transition to reflect the 25% ownership of these losses. A loss of CU5,000 was recognised in the 2014 accounts.
Assume the date of transition is 1 January 2014 and no deferred tax was recognised as it was not tax deductible. The journals required on transition are:
|
On 1 January 2014 |
|
|
|
|
CU |
CU |
|
Dr Provision for Losses of Associate |
25,000 |
|
|
Cr Profit and Loss Reserves |
|
25,000 |
Being journal to derecognise provision for associates share of net liabilities
Journals to be posted at 31 December 2014 assuming the above journals were posted to reserves
|
|
CU |
CU |
|
Dr Provision for Losses of Associate |
5,000 |
|
|
Cr Profit and Loss Reserves |
|
5,000 |
Being journal to derecognise provision for associate’s share of net liabilities for the 2014 year.
A similar journal would be required for the 31 December 2015 year if the consolidated financial statements have been prepared under old GAAP.
- Investments not deemed to have significant influence under old GAAP.
Under old GAAP, in order for an entity to have a significant influence they must be actively exercising that interest. If they were not exercising, then it was not treated as an associate. Under Section 14, even where an entity does not actively exercise its significant influence it can still be classed as an associate i.e. they have the power to exercise significant influence but they are not actively enforcing this. On transition such investments would now be accounted for as associates so therefore a transition adjustment will be required. On transition the investment would need to be adjusted for the parent’s share of the associate’s profits/losses. In reality the likelihood of an adjustment in this area is remote.
2. Adjustments required to adjust carrying value in the consolidated financial statements for parent’s percent of the associates net assets under FRS 102.
The associates individual financial statements will need to be restated to comply with FRS 102 which may result in a different net asset carrying amount than was previously determined under old GAAP. As a result, an adjustment will be required on transition to show the updated carrying amount for the change in net assets. The deemed goodwill is the difference between the investing entity’s share of those adjusted carrying amounts and the cost of the investment under old GAAP.
Example 13: Updated carrying amounts as a result of associate’s transition to FRS 102
Company A has a 30% interest in Company B which cost CU10,000. Company A prepares consolidated financial statements. At 1 January 2014 the net assets of Company B was CU120,000 and the carrying amount of the investment in the consolidated financial statements under old GAAP was CU39,000 ignoring any goodwill amortisation. Assume the date of transition is 1 January 2014 and no deferred tax is recognised on the uplift as the investment will be settled through dividends which will not be subject to tax on receipt of dividends from the associate. The associates balance sheet has been restated to FRS 102 compliance figures and the new net asset figure is CU100,000.
The adjustments required on transition are:
1 January 2014
|
|
CU |
CU |
|
Dr Profit and Loss Reserves CU6,000 |
1,000 |
|
|
Cr Investment in Associate ((CU100,000* the percentage ownership of 30%=CU30,000) plus the initial cost of CU10,000 less carrying amount under old GAAP of CU3,900=CU1,000) |
|
1,000
|
Being journal to reflect the updated allocation of the associates net assets based on FRS 102 numbers
For 31 December 2014 the below journals would need to be posted depending how the net assets of the associate has moved:
|
Dr/Cr Investment in Associate |
XX |
|
Cr/Dr Share of Associates Results |
XX |
Example 14: Adoption of fair value through profit and loss on transition
Company A in its individual financial statements has adopted a policy of fair valuing investments in associates through the profit and loss. Assume 1 January 2014 is the date of transition. The carrying value under old GAAP was CU100,000 at 1 January 2014 and 31 December 2014 & 2015 which represented the original cost. The fair value of the investment at 1 January 2014, 31 December 2014 and 31 December 2015 was CU120,000, CU95,000 and CU125,000 respectively. Assume a deferred tax sales rate of 20% assuming investment is held for future sale if not the dividend tax rate should be used. Consuming interest is held for future sale if not the dividend tax rate should be uilised. The adjustments required on transition to reflect the fair value policy and the related deferred tax are:
1 January 2014
|
|
CU |
CU |
|
Dr Investments in Associates (CU120,000-CU100,000) |
20,000 |
|
|
Cr Profit and Loss Reserves |
|
20,000 |
Being journal to reflect uplift in value on transition to show fair value
|
|
CU |
CU |
|
Dr Profit and Loss Reserves (CU20,000*20%) |
4,000 |
|
|
Cr Deferred Tax Liability |
|
4,000 |
Being journal to reflect deferred tax on the uplift
Journals required in the 31 December 2014 year assuming the above journals are posted to reserves
|
|
CU |
CU |
|
Dr Fair Value on movement in Associate in P&L |
25,000 |
|
|
Cr Investments in Associates (CU120,000-CU95,000) |
|
25,000 |
Being journal to reflect fall in value at 31 December 2014
|
|
CU |
CU |
|
Dr Deferred Tax Liability |
4,000 |
|
|
Cr Deferred Tax in P&L (CU20,000*20%) |
|
4,000 |
Being journal to reverse deferred tax recognised at 1 January 2014 as the investment is now stated below cost. No deferred tax asset recognised as assumed it is not probable there will be taxable profits to utilise the loss. If there was taxable profits then the deferred tax asset of CU1,000 would be recognised ((CU100,000-CU95,000)*20%)
Journals required in the 31 December 2015 year assuming the above journals are posted to reserves
|
|
CU |
CU |
|
Dr Investments in Associates (CU125,000-CU95,000) |
CU30,000 |
|
|
Cr Fair Value on movement in Associate in P&L |
|
CU30,000 |
Being journal to reflect uplift in value from 2014 to 2015
|
|
CU |
CU |
|
Dr Deferred Tax in P&L ((CU125,000-CU100,000)*20%) |
CU5,000 |
|
|
Cr Deferred Tax Liability |
|
CU5,000 |
Being journal to reflect deferred tax on the uplift. The movement of CU95,000 to CU100,000 is not recognised as the asset was not previously recognised.
Example 15: Adoption of fair value through other comprehensive income on transition
Company A in its individual financial statements has adopted a policy of fair valuing investments in associates through other comprehensive income this time assuming the previous entity carried it at cost. Assume 1 January 2014 is the date of transition. The carrying value under old GAAP was CU100,000 at 1 January 2014 and 31 December 2014 & 2015 which represented the original cost. The fair value of the investment at 1 January 2014, 31 December 2014 and 31 December 2015 was CU120,000, CU95,000 and CU125,000 respectively. Assume a deferred tax sales rate of 20%. The adjustments required on transition to reflect the fair value policy and the related deferred tax are:
The journals required would be as follows.
1 January 2014
|
|
CU |
CU |
|
Dr investments in associates (CU120,000-CU100,000) |
20,000 |
|
|
Cr revaluation reserve |
|
20,000 |
Being journal to reflect uplift in value on transition to show fair value
|
|
CU |
CU |
|
Dr Deferred Tax in Revaluation Reserve (CU20,000*20%) |
4,000 |
|
|
Cr Deferred Tax Liability |
|
4,000 |
Being journal to reflect deferred tax on the uplift
Journals required in the 31 December 2014 year assuming the above journals are posted to reserves
|
|
CU |
CU |
|
Dr Fair Value movement in Profit and Loss |
5,000 |
|
|
Dr Fair Value on movement in Associate in OCI/revaluation reserve |
20,000 |
|
|
Cr Investments in Associates (CU120,000-CU95,000) |
|
25,000 |
Being journal to reflect fall in value at 31 December 2014. The CU5,000 is posted to the profit and loss as there is nothing left in the revaluation reserve after the CU20,000 has been debited.
|
|
CU |
CU |
|
Dr Deferred Tax Liability |
4,000 |
|
|
Cr Deferred Tax in Revaluation Reserve (CU20,000*20%) |
|
4,000 |
Being journal to reverse deferred tax recognised at 1 January 2014 as the investment is now stated below cost. No deferred tax asset recognised as assumed it is not probable there will be taxable profits to utilise the loss. If there was taxable profits then the deferred tax asset of CU1000 would be recognised ((CU100,000-CU95,000)*20%).
Journals required in the 31 December 2015 year assuming the above journals are posted to reserves
|
|
CU |
CU |
|
Dr Investments in Associates (CU125,000- CU95,000) |
30,000 |
|
|
Cr Profit and Loss Fair Value movement |
|
5,000 |
|
Cr Fair Value on movement in Associate in revaluation reserve/OCI |
|
25,000 |
Being journal to reflect uplift in value on from 2014 to 2015. CU5,000 credit to profit and loss as CU5,000 had previously been debited to the profit and loss for the downward valuation
|
|
CU |
CU |
|
Dr Deferred Tax in revaluation reserve OCI ((CU125,000-CU100,000)*20%) |
5000 |
|
|
Cr deferred Tax Liability |
|
5000 |
Being journal to reflect deferred tax on the uplift. The movement of CU95,000 to CU100,000 is not recognised as the asset was not previously recorded.
Example 16: Deferred tax on unremitted earnings
Company A invested CU10,000 to acquire 25% of Company B. The carrying amount at 1 January 2014 in old GAAP books was CU15,000. The date of transition is 1 January 2014. The movement was due to income recognised since acquisition for the entity’s share of the profits year on year. Assume that the dividend when made to Company A by Company B is taxable in the hands of Company A at a rate of 10%. Under old GAAP deferred tax was not recognised as Company B was not legally obliged to pay a dividend. Assume the entity does not have control over when it will be distributed. The transition adjustments required on transition are:
1 January 2014
|
|
CU |
CU |
|
Dr Profit and Loss Reserves ((CU15,000-CU10,000)*10%) |
1,500 |
|
|
Cr Deferred Tax Liability |
|
1,500 |
Being journal to reflect deferred tax on unremitted earnings
An adjustment may also be required in 31 December 2014 and 2015 year end where the parent company’s consolidated profit included its share of income/losses of the associate.
Example 16A: Extract from the accounting policy notes to the consolidated financial statements
Basis of consolidation
The Group financial statements reflect the consolidation of the results, assets and liabilities of the parent undertaking, the Company and all of its subsidiaries, together with the Group’s share of profits/losses of associates and joint ventures. Where a subsidiary, associate or joint venture is acquired or disposed of during the financial year, the Group financial statements include the attributable results from, or to, the effective date when control passes, or, in the case of associates, when significant influence is lost.
Subsidiary undertakings
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition related costs are capitalised with the cost of the investment. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised as negative goodwill on the balance sheet and amortised through the profit and loss account in the period in which the non-monetary assets are recovered.
Associates and joint ventures
Associates are those entities in which the Group has significant influence over, but not control of, the financial and operating policies. Joint ventures are those entities over which the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic, financial and operating decisions. Investments in associates and joint ventures are accounted for using the equity method of accounting.
Under the equity method of accounting, the Group’s share of the post-acquisition profits or losses of its associates and joint ventures is recognised in the income statement. The income statement reflects, in profit before tax, the Group’s share of profit after tax of its associates and joint ventures in accordance with Section 14 of FRS102, ‘Investments in Associates’ and Section 15 of FRS 102, ‘Interests in Joint Ventures’. The Group’s interest in their net assets is included as investments in associates and joint ventures in the Group Statement of Financial Position at an amount representing the Group’s share of the fair value of the identifiable net assets at acquisition plus the Group’s share of post acquisition retained income and expenses. The Group’s investment in associates and joint ventures includes goodwill on acquisition. The amounts included in the financial statements in respect of the post acquisition income and expenses of associates and joint ventures are taken from their latest financial statements prepared up to their respective year ends together with management accounts for the intervening periods to the Group’s year end. The fair value of any investment retained in a former subsidiary is regarded as a cost on initial recognition of an investment in an associate or joint venture. Where necessary, the accounting policies of associates and joint ventures have been changed to ensure consistency with the policies adopted by the Group.
Transactions eliminated on consolidation
Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the Group financial statements. Unrealised gains and income and expenses arising from transactions with associates and joint ventures are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that they do not provide evidence of impairment.
Business combinations and goodwill
All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries, associates and joint ventures. In respect of acquisitions that have occurred since XXXXX (INSERT DATE OF TRANSITION WHERE SECTION 35.10(A) EXEMPTION IS CLAIMED), goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, i.e. original cost less accumulated amortisation from the date of acquisition up to XXXXX, which represents the amount recorded under UK and Irish GAAP. Goodwill is now stated at cost or deemed cost less any accumulated amortisation and impairment losses. In respect of associates and joint ventures, the carrying amount of goodwill is included in the carrying amount of the investment.
Example 17: Extract from notes to the financial statements – associated undertakings note in the consolidated financial statements and consolidated profit and loss
|
Financial assets Investments in associates |
2015 CU |
2014 CU |
|
|
|
|
|
At 1 January |
XXXX |
XXXX |
|
Share of profits after tax |
XXX |
XXX |
|
Dividends received |
(XXX) |
(XXX) |
|
Loss on dilution of investment |
(XX) |
(XX) |
|
Arising on acquisition |
XX |
XX |
|
Share of other comprehensive (expense)/income |
(XXX) |
(XXX) |
|
At 31 December |
XXXX
|
XXXX
|
(I) During the year the associate company, XXXX Limited issued equity to part finance an acquisition. As a result the company’s shareholding reduced from XX% to 25%. This gave rise to a gain of CUXXXX million arising on the dilution of the holding.
(a) Details of investments in which the parent Company holds 20% or more of the nominal value of any class of share capital are as follows:
|
Name and Registered Office |
Nature of Business |
Nature of Shares Held |
% of Share Class Held |
|
|
|
|
|
|
Subsidiary undertakings |
|
|
|
|
(i) XXXX Limited Address 1, Address 2,
|
Machinery Manufacturing |
Ordinary share capital |
100%
|
|
This investment has been fully provided against.
|
|
||
|
(ii) XXXX Limited Address 1, Address 2
|
Patent holding company |
Ordinary share capital |
100% |
|
Associate |
|
|
|
|
(iii) XXXX Limited Address 1, Address 2
|
Machinery Manufacturing |
Ordinary share capital |
25%
|
|
|
|
|
|
|
Joint Venture |
|
|
|
|
(iv) XXXX Limited Address 1, Address 2, |
Machinery Manufacturing |
Ordinary share capital |
50%
|
Extract from the consolidated profit and loss account showing share of associates interest
|
|
2015 |
2014 |
|
|
CU |
CU |
|
|
|
|
|
Turnover |
XXXXX |
XXXXX |
|
|
|
|
|
Cost of sales |
(XXXX)
|
(XXXX)
|
|
|
|
|
|
Gross profit |
XXXX |
XXXX |
|
|
|
|
|
Operating expenses |
(XXX) |
(XXX) |
|
|
|
|
|
Other operating income |
XXX
|
XXX
|
|
|
|
|
|
Group operating profit |
XXX |
XXX |
|
|
|
|
|
Share of profit in associate |
XXX |
XXX |
|
|
|
|
|
Profit before interest and taxation |
XXXX |
XXXX |
|
|
|
|
|
Interest receivable |
XXX |
XXX |
|
|
|
|
|
Interest payable |
(XXX)
|
(XXX)
|
|
|
|
|
|
Profit before taxation |
XXXX |
XXXX |
|
|
|
|
|
Tax on profit |
(XXX)
|
(XXX)
|
|
|
|
|
|
Profit for the financial year |
XXX |
XXX |
Example 18: Extract from accounting policy notes to the financial statements for the parent entity financial statements and for an entity that holds an associate interest but is not required to prepare consolidated financial statements
THE BELOW IS TO BE INCLUDED WHERE THE PARENT COMPANY IS EXEMPT FROM CONSOLIDATION DUE TO ITS IMMEDIATE PARENT COMPANY (WHICH IS IN THE EEA) PREPARING CONSOLIDATED FINANCIAL STATEMENTS
Consolidated accounts
The company has not prepared consolidated accounts for the period as, being a wholly owned subsidiary of the ultimate parent company, XXXXXX Limited, it is exempted from doing so under Section 9 of FRS 102 which is accommodated under Section 400 of the Companies Act 2006.
THE BELOW IS TO BE INCLUDED WHERE THE PARENT COMPANY IS EXEMPT FROM CONSOLIDATION DUE TO ITS ULTIMATE PARENT COMPANY (WHICH IS IN OR OUTSIDE THE EEA) PREPARING CONSOLIDATED FINANCIAL STATEMENTS
Consolidated accounts
The company has not prepared consolidated accounts for the period as, being a wholly owned subsidiary of the ultimate parent company, XXXXXX Limited, it is exempted from doing so under Section 9 of FRS 102 which is accommodated under Section 401 of the Companies Act 2006.
THE BELOW IS TO BE INCLUDED WHERE THE PARENT COMPANY IS EXEMPT FROM CONSOLIDATION DUE TO THE GROUP BEING CONSIDERED A SMALL COMPANY UNDER COMPANY LAW
Consolidation
The company and its subsidiaries combined meet the size exemption criteria for a group and the company is therefore exempt from the requirement to prepare consolidated financial statements by virtue of Section 479 of the Companies Act 2006. Consequently, these financial statements deal with the results of the company as a single entity.
Financial assets
Financial assets are stated at cost less provision for any diminution in value.
Financial assets which can be reliably measured are measured at their fair value.
Dividends
Dividends from the company’s shares are recognised as income on receipt of the dividend.
Example 19: Extract from notes to the financial statements for the parent entity financial statements – Financial asset note
|
Financial assets |
|
Subsidiary Undertakings |
Joint Venture and associates |
Other investments |
Total |
|
|
|
CU |
CU |
CU |
CU |
|
Cost |
|
|
|
|
|
|
At 1 January |
|
XXX |
XXX |
XXX |
XXX |
|
Additions |
|
XXX |
XXX |
XXX |
XXX |
|
Fair value adjustments |
|
– |
XXX |
– |
XXX |
|
Disposals |
|
(XXX)
|
–
|
–
|
(XXX)
|
|
At 31 December 2015 |
|
XXX
|
XXX
|
XXX
|
XXX
|
|
|
|
|
|
|
|
|
Amounts provided: |
|
|
|
|
|
|
At 1 January 2015 |
|
XXX |
XXX |
XXX |
XXX |
|
Additional provision |
|
XXX
|
–
|
–
|
XX
|
|
At 31 December 2015 |
|
XXX
|
XXX
|
XXX
|
XXX
|
|
|
|
|
|
|
|
|
Carrying amount |
|
|
|
|
|
|
At 31 December 2015 |
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
|
|
|
|
|
|
|
|
At 31 December 2014 |
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
(a) Investment in Subsidiary undertakings are stated at cost less impairment. Other in ivestments are held at cost less impairment.
Investments in joint ventures are measured at fair value based on valuation models which make the most of external market data such that the fair value represents the estimated value that could be obtained in an arm’s length transaction under normal business conditions. The discounted cash flows use a discount rate of 10%. The valuation used a multiple of earnings which is consistent with industry norms
(b) Details of investments in which the parent Company holds 20% or more of the nominal value of any class of share capital are as follows:
|
Name and Registered Office |
Nature of Business |
Nature of Shares Held |
% of Share Class Held |
|
|
|
|
|
|
Subsidiary undertakings |
|
|
|
|
(i) XXXX Limited Address 1, Address 2
|
Machinery Manufacturing |
Ordinary share capital |
100%
|
|
This investment has been fully provided against.
|
|
||
|
(ii) XXXX Limited Address 1, Address 2 |
Patent holding company |
Ordinary share capital |
100% |
|
Associate |
|
|
|
|
(iii) XXXX Limited Address 1, Address 2 |
Machinery Manufacturing |
Ordinary share capital |
25%
|
|
Joint Venture |
|
|
|
|
(iv) XXXX Limited Address 1, Address 2 |
Machinery Manufacturing |
Ordinary share capital |
50%
|
Example 20: Extract from notes to the financial statements for the for an entity that holds an associate/subsidiary/joint venture interest but is not required to prepare consolidated financial statements – Financial asset note
|
Financial assets |
|
Subsidiary Undertakings |
Joint Venture and associates |
Other investments |
Total |
|
|
|
CU |
CU |
CU |
CU |
|
Cost |
|
|
|
|
|
|
At 1 January 2015 |
|
XXX |
XXX |
XXX |
XXX |
|
Additions |
|
XXX |
XXX |
XXX |
XXX |
|
Fair value adjustments |
|
– |
XXX |
– |
XXX |
|
Disposals |
|
(XXX)
|
–
|
–
|
(XXX)
|
|
At 31 December 2015 |
|
XXX
|
XXX
|
XXX
|
XXX
|
|
|
|
|
|
|
|
|
Amounts provided: |
|
|
|
|
|
|
At 1 January 2015 |
|
XXX |
XXX |
XXX |
XXX |
|
Additional provision |
|
XXX
|
–
|
–
|
XX
|
|
At 31 December 2015 |
|
XXX
|
XXX
|
XXX
|
XXX
|
|
|
|
|
|
|
|
|
Carrying amount |
|
|
|
|
|
|
At 31 December 2015 |
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
|
|
|
|
|
|
|
|
At 31 December 2014 |
|
XXXX
|
XXXX
|
XXXX
|
XXXX
|
(a) Investment in Subsidiary undertakings are stated at cost less impairment. Other investments are held at cost less impairment.
Investments in joint ventures are measured at fair value based on valuation models which make the most of external market data such that the fair value represents the estimated value that could be obtained in an arm’s length transaction under normal business conditions. The discounted cash flows use a discount rate of 10%. The valuation used a multiple of earnings which is consistent with industry norms.
(b) Details of investments in which the parent Company holds 20% or more of the nominal value of any class of share capital are as follows:
|
Name and Registered Office |
Nature of Business |
Nature of Shares Held |
% of Share Class Held |
Net Assets/ (Liabilities) |
Results for year |
|
|
|
|
|
CU |
CU |
|
Subsidiary undertakings |
|
|
|
|
|
|
(v) XXXX Limited Address 1, Address 2 |
Machinery Manufacturing |
Ordinary share capital |
100%
|
XXXX |
XXXX |
|
This investment has been fully provided against.
|
|
|
|
||
|
(vi) XXXX Limited Address 1, Address 2 |
Patent holding company |
Ordinary share capital |
100% |
XXX |
XXXX |
|
Associate |
|
|
|
|
|
|
(vii) XXXX Limited Address 1, Address 2 |
Machinery Manufacturing |
Ordinary share capital |
25%
|
XXXX |
XXXX |
|
Joint Venture |
|
|
|
|
|
|
(viii) XXXX Limited Address 1, Address 2 |
Machinery Manufacturing |
Ordinary share capital |
50%
|
XXXX |
XXXX |
Example 21: Extract from the profit and loss account for an entity which is not a parent that holds an investment in an associate/joint venture or an entity that is a parent but consolidated financial statements are not required to be prepared where income is received from an associate/joint venture/subsidiary
|
|
2015 |
2014 |
|
|
CU |
CU |
|
|
|
|
|
Turnover |
– |
– |
|
|
|
|
|
Cost of sales |
(XXX)
|
(XXX)
|
|
|
|
|
|
Gross profit |
– |
– |
|
|
|
|
|
Administrative expenses |
(XXX)
|
–
|
|
|
|
|
|
Operating loss |
(XXX) |
– |
|
|
|
|
|
Income from participating interests |
XXXX |
– |
|
|
|
|
|
Interest payable |
(XX)
|
(XXX)
|
|
|
|
|
|
Profit/(loss) for the financial year |
86,442 |
(22) |
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]