[et_pb_section admin_label=”Header – All Pages” global_module=”1221″ transparent_background=”off” background_color=”#1e73be” 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″ custom_padding=”||0px|”][et_pb_row global_parent=”1221″ admin_label=”row”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ admin_label=”Post Title” title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”on” text_orientation=”left” text_color=”light” text_background=”off” text_bg_color=”rgba(255,255,255,0.9)” module_bg_color=”rgba(255,255,255,0)” title_all_caps=”off” use_border_color=”off” border_color=”#ffffff” border_style=”solid” title_font=”|on|||” title_font_size=”35″ custom_padding=”10px|||”] [/et_pb_post_title][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” global_module=”1228″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”0px||0px|” padding_mobile=”on” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row global_parent=”1228″ admin_label=”Row” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” gutter_width=”3″ custom_padding=”0px||0px|” padding_mobile=”off” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ admin_label=”Text” background_layout=”light” text_orientation=”left” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”]
[/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=”https://uk.frs102.com/members/premium-toolkit/section-9/” type=”big” color=”red”] Return to Section 9 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”]Section 9 – Example 1 – Disclosures Requirements
Example 23 – Extract from the Accounting policy notes in the consolidated financial statements (excluding negative goodwill)
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, ‘Investments in Associates’ and Section 15, ‘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 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.
Goodwill
Positive goodwill acquired on each business combination is capitalised, classified as an asset on the statement of financial position and amortised on a straight line basis over its useful life of 10 years. Goodwill acquired in a business combination is, from the date of acquisition, allocated to each cash generating unit that is expected to benefit from the synergies of the combination. If an investment is disposed of any unamortised goodwill is subsumed within goodwill in the profit and loss on sale or discontinuance. Useful life is determined by reference to the period over which the values of the underlying businesses are expected to exceed the values of their identifiable net assets.
Goodwill is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.
Negative goodwill represents the fair value of net assets on acquisition in excess of the fair value of consideration. Negative goodwill is capitalised and amortised through the profit and loss account in the period in which the non-monetary assets are recovered. In the case of fixed assets acquired, this is the period over which they are depreciated and in the case of stocks it is the period over which they are sold or otherwise realised.
Intangible assets
Intangible assets acquired as part of a business combination are initially recognised at fair value being their deemed cost as at the date of acquisition. These generally include brand and customer related intangible assets. Computer software that is not an integral part of an item of computer hardware is also classified as an intangible asset. Where intangible assets are separately acquired, they are capitalised at cost. Cost comprises purchase price and other directly attributable costs.
Intangible assets with are amortised over the period of their expected useful lives in equal annual instalments, as follows;
| Brands | 5 to 10 years |
| Customer related | 5 to 20 years |
| Supplier agreements | 4 to 10 years |
| Computer related | 3 to 7 years |
Subsequent to initial recognition, intangible assets are stated at cost less accumulated amortisation and impairment losses incurred.
Contingent acquisition consideration
Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with Section 21. Any adjustments to the estimated contingent consideration are accounted for as an adjustment to goodwill as a current period adjustment as it reflects a change in estimate and the adjusted goodwill is amortised from that date. Contingent consideration that is classified as equity is not remeasured and its subsequent settlement is accounted for within equity. To the extent that contingent acquisition consideration is payable after more than one year from the date of acquisition, it is discounted at an appropriate loan interest rate and, accordingly, carried at net present value on the Balance Sheet. An appropriate interest charge, at a constant rate on the carrying amount adjusted to reflect market conditions, is reflected in the Profit and Loss over the earnout period, increasing the carrying amount so that the obligation will reflect its settlement at the time of maturity.
Impairment
The carrying amounts of the Group’s assets, other than inventories (which are carried at the lower of cost and net realisable value), deferred tax assets (which are recognised based on recoverability), investment properties (which are carried at fair value), and those financial instruments, which are carried at fair value, are reviewed to determine whether there is an indication of impairment when an event or transaction indicates that there may be. If any such indication exists, an impairment test is carried out and the asset is written down to its recoverable amount.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Consolidated Profit and Loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis. An impairment loss, other than in the case of goodwill, is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Example 24 – Extract from notes to the financial statements – Business combination and financial asset note in the consolidated financial statements
Business combinations
On the XX December 20X4 the company acquired 70% of the voting rights of XYZ Limited for a total consideration of €1,000,000. XYZ manufactures agricultural equipment. The useful life of the goodwill acquired is 10 years which is consistent with industry norms and the business acquired.
(i) The net assets of the company at that date were as follows:
| Book value on acquisition | Fair value Adjustments | Fair value on acquisition | |
| CU | CU | CU | |
| Investments | XXXXX | – | XXXXX |
| Tangible fixed assets | XXXXX | (XXXXX) | XXXXX |
| Stock | XXXXX | – | XXXXX |
| Cash at bank and in hand | XXXXX | – | XXXXX |
| Debtors | XXXXX | – | XXXXX |
| Creditors | (XXXX) | – | (XXXX) |
| Provisions | (XXXX) | – | (XXXX) |
| XXXXX | (XXXXX) | XXXXX | |
| Provisional fair value attributable to non-controlling interest | (XXXXX) | ||
| Provisional fair value attributable to group (70%) | 2,010,000 | ||
| Consideration for acquisition (see (ii) below) | (1,000,000) | ||
| Directly attributable acquisition costs | (10,000) | ||
| Positive Goodwill | (1,000,000) | ||
(ii) The split of the consideration for the acquisition is as follows:
| Cash | XXXXX | ||
| Equity instruments | XXXXX | ||
| Debt instruments | XXXXX | ||
| Total consideration | 1,000,000 | ||
| 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 | |
| Financial assets Investments in joint venture | 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 |
| Financial assets note for the parent company in the consolidated financial statements | |||||||
| Joint Venture and associates | Other investments | Total | |||||
| CU | CU | CU | |||||
| Cost | |||||||
| At 1 January 2015 & 1 January 2014 & 1 January 2013 | XXX | XXX | XXX | ||||
| Additions | XXX | XXX | XXX | ||||
| Fair value adjustments | XXX | – | XXX | ||||
| Disposals | – | – | (XXX) | ||||
| At 31 December 2015 | XXX | XXX | XXX | ||||
| Amounts provided: | |||||||
| At 1 January 2015, 1 January 2014 & 1 January 2013 | XXX | XXX | XXX | ||||
| Additional provision | – | – | XX | ||||
| At 31 December 2015 | XXX | XXX | XXX | ||||
| Carrying amount | |||||||
| At 31 December 2015 | XXXX | XXXX | XXXX | ||||
| At 31 December 2014 | XXXX | XXXX | XXXX | ||||
(a) Investment in Subsidiary undertakings are stated at cost less impairment. Investments in joint ventures are measured at fair value based on the quoted share prices. Other investments are held at cost less impairment. The fair value of the associate interest cannot be determined as there is no published price quotations.
(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% |
Extract from notes to the financial statements – contingent consideration note
| Deferred consideration | 2015 CU | 2014 CU |
| At 1 January | XXX | – |
| Charge for year | – | XXXX |
| Utilised in the year | (XXX) | – |
| Provision carried at 31 December | 100,000 | 90,000 |
| 2015 | 2014 | |
| CU | CU | |
| Split as follows: | ||
| Amounts falling due within one year (note 10) | 40,000 | 45,000 |
| Amounts falling due after one year (note 11) | 60,000 | 45,000 |
| 100,000 | 90,000 |
Deferred consideration of CUXXX is payable upon the achievement of certain minimum targets arising in respect of an asset/SHARE purchase agreement entered into by the company in XXXXX. This provision represents the minimum amount which is reasonably expected to be paid under the terms of the asset/SHARE purchase agreement. The provision is not discounted due to materiality.
Extract from the consolidated profit and loss account showing split between controlling and non-controlling 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 associates | XXX | XXX |
| Share of profit in joint venture | XXX | XXX |
| Profit on ordinary activities before interest and taxation | XXXX | XXXX |
| Interest receivable | XXX | XXX |
| Interest payable | (XXX) | (XXX) |
| Profit on ordinary activities before taxation | XXXX | XXXX |
| Tax on profit on ordinary activities | (XXX) | (XXX) |
| Profit on ordinary activities after taxation | XXX | XXX |
| Profit for the financial year attributable to: Non-controlling interests | XXXX | XXXX |
| Owners of the parent company | XXX | XXX |
| XXXX | XXXX |
Extract from the Changes in Equity showing the movement on the cash flow hedge reserve in line with Section 9 and Section 12 disclosure requirements
| Equity Share | Revaluation | Other | Retained | Cash flow hedge | Total attributable | Non-controlling | Total | ||||||||
| To the | |||||||||||||||
| Capital | Reserve | Reserve | Earnings | Reserve | Parent | Interest | Equity | ||||||||
| CU | CU | CU | CU | CU | CU | CU | CU | ||||||||
| Balance at 1 January 2014 | 100,000 | 225,000 | 115,375 | 115,375 | 1,000 | 331,375 | 100,000 | 441,375 | |||||||
| Changes in ownership interests in subsidiaries which do not result in a loss of control | (100,000) | – | |||||||||||||
| Profit for the year | 10,000 | 83,818 | 91,818 | 2,000 | 93,818 | ||||||||||
| Balance at 31 December 2014 | 100,000 | 225,000 | 0 | 209,193 | 1,000 | 2,000 | 535,193 | ||||||||
| Balance at 1 January 2015 | 100,000 | 225,000 | 0 | 209,193 | 1,000 | 0 | 0 | 535,193 | |||||||
| Equity Shares issued net of issue costs | 20,000 | 30,000 | |||||||||||||
| Profit for the year | 1,005,772 | 1,005,772 | 10,000 | 1,005,772 | |||||||||||
| Equity dividends paid (see note XX) | (9,900) | (9,900) | (100) | (10,000) | |||||||||||
| Capitalisation of shares | 1,000 | (1,000) | – | – | |||||||||||
| Other Comprehensive Income | (15,000) | (15,000) | (15,000) | (15,000) | |||||||||||
| Balance at 31 December 2015 | 109,000 | 225,000 | (14,000) | 1,214,965 | (15,000) | XXXX | 10,100 | 1,554,965 | |||||||
[/et_pb_text][/et_pb_column][/et_pb_row][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”]
Section 9 – Example 2 – Disclosures in Separate Financial Statements
Example 23 – Extract from the Accounting policy notes in the consolidated financial statements (excluding negative goodwill)
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, ‘Investments in Associates’ and Section 15, ‘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 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.
Goodwill
Positive goodwill acquired on each business combination is capitalised, classified as an asset on the statement of financial position and amortised on a straight line basis over its useful life of 10 years. Goodwill acquired in a business combination is, from the date of acquisition, allocated to each cash generating unit that is expected to benefit from the synergies of the combination. If an investment is disposed of any unamortised goodwill is subsumed within goodwill in the profit and loss on sale or discontinuance. Useful life is determined by reference to the period over which the values of the underlying businesses are expected to exceed the values of their identifiable net assets.
Goodwill is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable.
Negative goodwill represents the fair value of net assets on acquisition in excess of the fair value of consideration. Negative goodwill is capitalised and amortised through the profit and loss account in the period in which the non-monetary assets are recovered. In the case of fixed assets acquired, this is the period over which they are depreciated and in the case of stocks it is the period over which they are sold or otherwise realised.
Intangible assets
Intangible assets acquired as part of a business combination are initially recognised at fair value being their deemed cost as at the date of acquisition. These generally include brand and customer related intangible assets. Computer software that is not an integral part of an item of computer hardware is also classified as an intangible asset. Where intangible assets are separately acquired, they are capitalised at cost. Cost comprises purchase price and other directly attributable costs.
Intangible assets with are amortised over the period of their expected useful lives in equal annual instalments, as follows;
| Brands | 5 to 10 years |
| Customer related | 5 to 20 years |
| Supplier agreements | 4 to 10 years |
| Computer related | 3 to 7 years |
Subsequent to initial recognition, intangible assets are stated at cost less accumulated amortisation and impairment losses incurred.
Contingent acquisition consideration
Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with Section 21. Any adjustments to the estimated contingent consideration are accounted for as an adjustment to goodwill as a current period adjustment as it reflects a change in estimate and the adjusted goodwill is amortised from that date. Contingent consideration that is classified as equity is not remeasured and its subsequent settlement is accounted for within equity. To the extent that contingent acquisition consideration is payable after more than one year from the date of acquisition, it is discounted at an appropriate loan interest rate and, accordingly, carried at net present value on the Balance Sheet. An appropriate interest charge, at a constant rate on the carrying amount adjusted to reflect market conditions, is reflected in the Profit and Loss over the earnout period, increasing the carrying amount so that the obligation will reflect its settlement at the time of maturity.
Impairment
The carrying amounts of the Group’s assets, other than inventories (which are carried at the lower of cost and net realisable value), deferred tax assets (which are recognised based on recoverability), investment properties (which are carried at fair value), and those financial instruments, which are carried at fair value, are reviewed to determine whether there is an indication of impairment when an event or transaction indicates that there may be. If any such indication exists, an impairment test is carried out and the asset is written down to its recoverable amount.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Consolidated Profit and Loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis. An impairment loss, other than in the case of goodwill, is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Example 24 – Extract from notes to the financial statements – Business combination and financial asset note in the consolidated financial statements
Business combinations
On the XX December 20X4 the company acquired 70% of the voting rights of XYZ Limited for a total consideration of €1,000,000. XYZ manufactures agricultural equipment. The useful life of the goodwill acquired is 10 years which is consistent with industry norms and the business acquired.
(i) The net assets of the company at that date were as follows:
| Book value on acquisition | Fair value Adjustments | Fair value on acquisition | |
| CU | CU | CU | |
| Investments | XXXXX | – | XXXXX |
| Tangible fixed assets | XXXXX | (XXXXX) | XXXXX |
| Stock | XXXXX | – | XXXXX |
| Cash at bank and in hand | XXXXX | – | XXXXX |
| Debtors | XXXXX | – | XXXXX |
| Creditors | (XXXX) | – | (XXXX) |
| Provisions | (XXXX) | – | (XXXX) |
| XXXXX | (XXXXX) | XXXXX | |
| Provisional fair value attributable to non-controlling interest | (XXXXX) | ||
| Provisional fair value attributable to group (70%) | 2,010,000 | ||
| Consideration for acquisition (see (ii) below) | (1,000,000) | ||
| Directly attributable acquisition costs | (10,000) | ||
| Positive Goodwill | (1,000,000) | ||
(ii) The split of the consideration for the acquisition is as follows:
| Cash | XXXXX | ||
| Equity instruments | XXXXX | ||
| Debt instruments | XXXXX | ||
| Total consideration | 1,000,000 | ||
| 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 | |
| Financial assets Investments in joint venture | 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 |
| Financial assets note for the parent company in the consolidated financial statements | ||||
| Joint Venture and associates | Other investments | Total | ||
| CU | CU | CU | ||
| Cost | ||||
| At 1 January 2015 & 1 January 2014 & 1 January 2013 | XXX | XXX | XXX | |
| Additions | XXX | XXX | XXX | |
| Fair value adjustments | XXX | – | XXX | |
| Disposals | – | – | (XXX) | |
| At 31 December 2015 | XXX | XXX | XXX | |
| Amounts provided: | ||||
| At 1 January 2015, 1 January 2014 & 1 January 2013 | XXX | XXX | XXX | |
| Additional provision | – | – | XX | |
| At 31 December 2015 | XXX | XXX | XXX | |
| Carrying amount | ||||
| At 31 December 2015 |
XXXX
|
XXXX | XXXX | |
| At 31 December 2014 | XXXX | XXXX | XXXX | |
(a) Investment in Subsidiary undertakings are stated at cost less impairment. Investments in joint ventures are measured at fair value based on the quoted share prices. Other investments are held at cost less impairment. The fair value of the associate interest cannot be determined as there is no published price quotations.
(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% |
Extract from notes to the financial statements – contingent consideration note
| Deferred consideration | 2015 CU | 2014 CU |
| At 1 January | XXX | – |
| Charge for year | – | XXXX |
| Utilised in the year | (XXX) | – |
| Provision carried at 31 December | 100,000 | 90,000 |
| 2015 | 2014 | |
| CU | CU | |
| Split as follows: | ||
| Amounts falling due within one year (note 10) | 40,000 | 45,000 |
| Amounts falling due after one year (note 11) | 60,000 | 45,000 |
| 100,000 | 90,000 |
Deferred consideration of €XXX is payable upon the achievement of certain minimum targets arising in respect of an asset/SHARE purchase agreement entered into by the company in XXXXX. This provision represents the minimum amount which is reasonably expected to be paid under the terms of the asset/SHARE purchase agreement. The provision is not discounted due to materiality.
Extract from the consolidated profit and loss account showing split between controlling and non-controlling 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 associates | XXX | XXX |
| Share of profit in joint venture | XXX | XXX |
| Profit on ordinary activities before interest and taxation | XXXX | XXXX |
| Interest receivable | XXX | XXX |
| Interest payable | (XXX) | (XXX) |
| Profit on ordinary activities before taxation | XXXX | XXXX |
| Tax on profit on ordinary activities | (XXX) | (XXX) |
| Profit on ordinary activities after taxation | XXX | XXX |
| Profit for the financial year attributable to: Non-controlling interests | XXXX | XXXX |
| Owners of the parent company | XXX | XXX |
| XXXX | XXXX |
Extract from the Changes in Equity showing the movement on the cash flow hedge reserve in line with Section 9 and Section 12 disclosure requirements
| Equity Share | Revaluation | Other | Retained | Cash flow hedge | Total attributable | Non-controlling | Total | ||||||||
| To the | |||||||||||||||
| Capital | Reserve | Reserve | Earnings | Reserve | Parent | Interest | Equity | ||||||||
| CU | CU | CU | CU | CU | CU | CU | CU | ||||||||
| Balance at 1 January 2014 | 100,000 | 225,000 | 115,375 | 115,375 | 1,000 | 331,375 | 100,000 | 441,375 | |||||||
| Changes in ownership interests in subsidiaries which do not result in a loss of control | (100,000) | – | |||||||||||||
| Profit for the year | 10,000 | 83,818 | 91,818 | 2,000 | 93,818 | ||||||||||
| Balance at 31 December 2014 | 100,000 | 225,000 | 0 | 209,193 | 1,000 | 2,000 | 535,193 | ||||||||
| Balance at 1 January 2015 | 100,000 | 225,000 | 0 | 209,193 | 1,000 | 0 | 0 | 535,193 | |||||||
| Equity Shares issued net of issue costs | 20,000 | 30,000 | |||||||||||||
| Profit for the year | 1,005,772 | 1,005,772 | 10,000 | 1,005,772 | |||||||||||
| Equity dividends paid (see note XX) | (9,900) | (9,900) | (100) | (10,000) | |||||||||||
| Capitalisation of shares | 1,000 | (1,000) | – | – | |||||||||||
| Other Comprehensive Income | (15,000) | (15,000) | (15,000) | (15,000) | |||||||||||
| Balance at 31 December 2015 | 109,000 | 225,000 | (14,000) | 1,214,965 | (15,000) | XXXX | 10,100 | 1,554,965 | |||||||
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]