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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://ie.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=”Main Body Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Transition exemptions
Section 35.10 provides an exemption whereby a first time adopter does not have to split a compound financial instrument if the liability component is not outstanding at the date of the transition. Given that old GAAP (FRS 25) was almost identical to Section 22, it is unlikely this exemption will need to be availed of. If there was an error in accounting for such a financial instrument a prior year adjustment would have to be shown.
Section 35.9 deals with non-controlling interests and mandates the below to be applied prospectively from the date of transition:
- To allocate profit and loss and total comprehensive income between non-controlling interest and owners of the parent.
- For accounting for changes in parents’ ownership in a subsidiary that does not result in loss of control; AND
- For accounting for a loss of control over a subsidiary.
Principal transition adjustments
1) Changes in a parents controlling interest in a subsidiary
Section 22 requires that acquisitions or disposals in interests of subsidiaries that does not result in a change/loss of control after the transaction are accounted for as equity transactions. Under old GAAP the acquisitions were accounted for under acquisition accounting and goodwill recognised, and on disposal the profit/loss on disposal was recognised in the consolidated financial statements. Section 35.9 makes it clear that where such acquisitions or disposals occurred pre transition date, they must not be restated instead this is applied prospectively. Hence where acquisitions or disposals have occurred in the comparative year included in the first set of FRS 102 financial statements a transition adjustment will be required.
Example 24: Acquisition not resulting in a change of control after date of transition
Prior to 1 January 2014, Parent A owned 55% of Company B which was consolidated in the financial statements. On 2 January 2014 the parent acquired the remaining 45% from the non-controlling party for CU1,300,000. The date of transition to FRS 102 is 1 January 2014. In the 2014 financial statements under old GAAP the parent calculated the goodwill acquired as a result of this transaction and reflected the additional fair value of assets and liabilities acquired at that date. Under old GAAP as a result of this transaction goodwill of CU200,000 was recognised and PPE uplift of CU100,000 was booked. The useful life of the PPE and goodwill is 10 years, hence the NBV of this goodwill and PPE was CU180,000 and CU90,000 at 31 December 2014. The NBV of this goodwill and PPE was CU160,000 and CU80,000 at 31 December 2015.
The transition journals required to show the correct treatment under FRS 102 in 31 December 2014 accounts are:
|
|
CU |
CU |
|
Dr Equity-Profit and Loss Reserves |
300,000 |
|
|
Cr Goodwill |
|
200,000 |
|
Cr Fixed Assets – PPE |
|
100,000 |
Being journal to reverse old GAAP posing
|
|
CU |
CU |
|
Dr Goodwill – Balance Sheet |
20,000 |
|
|
Cr Goodwill Amortisation P&L (CU200,000/10yrs) |
|
20,000 |
|
Dr Fixed Assets PPE |
10,000 |
|
|
Cr Depreciation P&L (CU100,000/10yrs) |
|
10,000 |
Being journal to reverse depreciation and amortisation charged for 2014 under old GAAP
An adjustment will also be required in 31 December 2015 financial statements to reverse any amortisation/depreciation charged on the additional goodwill/PPE revaluation if the consolidated accounts have already been produced. The journals will be the same as the above.
Example 25: Disposal resulting in no change in control in the subsidiary after date of transition
Parent A previously owned 100% of Company B which was consolidated in the financial statements for the year ended 31 December 2014. During the year the company disposed of 25% to a third party for CU300,000. The original cost of the investment in the individual entity accounts was CU1,300,000. The net assets of the subsidiary at the date of disposal was CU800,000 plus goodwill of CU50,000 in the consolidated accounts. Assume there were no fair value adjustments as the fair value of the net assets at the original date of acquisition were equal to the entity’s net assets.
The journals required to account for this transaction in the consolidated financial statements are:
|
|
CU |
CU |
|
Dr Profit on Disposal of 25% of Subsidiary in P&L |
87,500 |
|
|
Cr Equity -Profit and Loss Reserves ((CU850,000*25%)= CU212,500-CU300,000) |
|
87,500 |
Being journal to reflect disposal as an equity transaction and not show the profit on disposal in the consolidated financial statements.
An adjustment will also be required in the 2015 TB where a disposal took place during the year and consolidated financial statements have been prepared under old GAAP.
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