[et_pb_section bb_built=”1″ admin_label=”Header – All Pages” 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|” next_background_color=”#ffffff” custom_padding_tablet=”50px|0|50px|0″ custom_padding_last_edited=”on|desktop” global_module=”1221″][et_pb_row admin_label=”row” global_parent=”1221″ background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”off” 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|||” parallax=”on” background_color=”rgba(255,255,255,0)” /][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ 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″ prev_background_color=”#1e73be” next_background_color=”#ffffff” custom_padding_tablet=”0px||0px|” global_module=”1228″][et_pb_row global_parent=”1228″ 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” background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ background_layout=”light” text_orientation=”left” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid” background_position=”top_left” background_repeat=”repeat” background_size=”initial”]
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ 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″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#ffffff” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.106″ title=”Index” open=”off”]Section 9 – Consolidated and Separate Financial Statements
9.2 Requirement to present consolidated financial statements
9.2.1 Extract from FRS102: Section 9.2-9.3
9.2.2.1 No exception on the basis of activities being dissimilar or causing undue cost of effort
9.3 Definition of a subsidiary
9.3.1. Extract from FRS102: Section 9.4-9.6 and Section 9.8A
9.3.2.1 Definition of a parent
9.3.2.2 Definition of a subsidiary and control
9.3.2.2.1 Strategic, financial and operating decisions
9.3.2.2.2 Interpretation of benefits to be obtained as a result of power to control
9.3.2.2.3 Power to control even if not exercise
9.3.2.3 Potential voting rights
9.3.2.4 Less than 50% of share capital held but still have control
9.3.2.5 Greater than 50% of share capital owned but still not have control
9.3.2.6 Agreement entered into by a party with other shareholders
9.3.2.7 Shares held in bare trust
9.4 Subsidiaries excluded from consolidation
9.4.1 Extract from FRS102: Section 9.9-9.9B
9.4.2.1 a) Long term restrictions
9.4.2.1.1 Accounting policy choice
9.4.2.2 b) Subsidiary held with a view to a subsequent sale
9.4.2.2.1 Accounting requirements
9.5.1 Extract from FRS102: Section 9.10-9.12
9.6.1 Extract from FRS102: Section 9.13 – 9.14
9.6.2 OmniPro comment – The Subsidiary
9.6.2.1 Process of consolidation
9.6.2.3 Allocation to non-controlling interests where options are exercisable
9.7 Intragroup balances and transactions
9.7.1 Extract from FRS102: Section 9.15
9.7.2.3 Eliminating intra group transactions 100% owned – not in inventory at year end
9.7.2.4 Eliminating intra group transactions 100% owned – in inventory at year end
9.7.2.5 Eliminating intra group transactions not 100% owned – not in inventory at year end
9.7.2.6 Eliminating intra group transactions not 100% owned – some in inventory at year end
9.7.2.7 Year-end intra-group balance
9.7.2.8 Intra-group balances – sale of fixed assets within a group
9.7.2.9 Transactions between subsidiaries not consolidated
9.7.2.10 Elimination of notional amounts on intercompany/group loans not at market rates
9.7.2.11 Elimination of Intergroup dividends
9.7.2.12 Restatement of investment property to PPE for group purposes
9.8 Uniform reporting date and reporting period
9.8.1 Extract from FRS102: Section 9.16
9.9 Uniform accounting policies
9.9.1 Extract from FRS102: Section 9.17
9.10 Acquisition and disposal of subsidiaries
9.10.1 Extract from FRS102: Section 9.18-9.19D
9.10.2.2 Accounting for an acquisition where control is achieved in one transaction
9.10.2.3 Accounting for an acquisition where control is achieved in stages
9.10.2.4 Acquisitions where controlling interest is increased
9.10.2.5 Disposals where controlling interest is still retained
9.10.2.6 Disposal of a subsidiary where control is lost fully
9.10.2.6.1 Control lost but less than controlling interest still held
9.10.2.6.2 Indicators that control is lost
(see further details of how control is attained and by definition how control could be lost at 9.3.2)
9.11 Non-controlling interest in subsidiaries
9.11.1 Extract from FRS102: Section 9.20-9.22
9.12 Transferring a business within a group
9.13 Intermediate payment arrangements
9.13.1 Extract from FRS102: Section 9.33-9.38
9.14 Individual and separate financial statements
9.14.1 Extract from FRS102: Section 9.23A-9.26A
9.14.2.1 Overview and accounting policy choices
9.14.2.2 Fair Value through Profit and Loss Account
9.15.1 Disclosures in consolidated financial statements
9.15.1.1 Extract from FRS102: Section 9.23
9.15.1.2.1 Accounting Policies
9.15.1.2.1.1 Basis of consolidation
9.15.1.2.1.2 Subsidiary undertakings
9.15.1.2.1.3 Associates and joint ventures
9.15.1.2.1.4 Transactions eliminated on consolidation
9.15.1.2.1.5 Business combinations and goodwill
9.15.1.2.1.8 Intangible assets
9.15.1.2.1.9 Contingent acquisition consideration
9.15.1.2.2 Notes to the Financial Statements
9.15.1.2.2.1 Business combinations.
9.15.1.2.2.2 Financial assets – Group disclosure.
9.15.1.2.2.3 Financial assets note for the parent company in the consolidated financial statements.
9.15.1.2.2.4 Contingent consideration note.
9.15.2 Disclosures in separate financial statements.
9.15.2.1 Extract from FRS102: Section 9.27.
9.15.2.2.1 Accounting Policies.
9.15.2.2.1.1 Consolidated accounts.
9.15.2.2.1.5 Intangible assets.
9.15.2.2.1.6 Contingent acquisition consideration.
9.15.2.2.2. Notes to the financial statements.
9.15.2.2.2.1 Intangible assets.
9.15.2.2.2.3 Extract from the notes in the consolidated financial statements – negative goodwill.
9.15.2.2.3 Profit and Loss account.
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9.7 Intragroup Balances and Transactions
9.7.1 Extract from FRS102: Section 9.15
9.15 Intragroup balances and transactions, including:
– income, expenses and dividends, are eliminated in full.
– Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and property, plant and equipment, are eliminated in full.
– Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements (see Section 27 Impairment of Assets).
– Section 29 Income Tax applies to timing differences that arise from the elimination of profits and losses resulting from intragroup transactions.
9.7.2 OmniPro comment
9.7.2.1 Overview
Section 9.13 of FRS 102 requires all inter-group transactions and balances to be eliminated on consolidation.
Where profits/losses are eliminated on consolidation, this has a deferred tax effect under Section 29-Income taxes as they have been taxed/got a tax deduction in the subsidiary’s tax return but in the consolidated financial statements they have not been posted to the profit and loss thus creating a timing difference. The deferred tax rate to be used will usually be the average rate of tax of the parent company.
9.7.2.3 Eliminating intra group transactions 100% owned – not in inventory at year end
Example 6: Eliminating intra group transactions 100% owned – not in inventory at year end
Company A owns a 100% subsidiary, Subsidiary B. During the year Company A sold CU100,000 of goods to Subsidiary B. The cost of the sale for Company A was CU50,000. Subsidiary B has sold these on by the year end. Detailed below are the accounting entries required on consolidation:
| CU | CU | |
| Dr Sales | 100,000 | |
| Cr Cost of Sales | 100,000 |
Being journal to derecognise intercompany sales as consolidated financial statements should only show external sales and purchases.
There is no deferred tax impact here as there is no impact on the consolidated profit.
If Subsidiary B sold these goods the journal would be the same.
9.7.2.4 Eliminating intra group transactions 100% owned – in inventory at year end
Example 7: Eliminating intra group transactions 100% owned – in inventory at year end
Company A owns a 100% subsidiary, Subsidiary B. During the year Company A sold CU100,000 of goods to Subsidiary B. The cost of the sale for Company A was CU50,000.
At the year-end Subsidiary B still had CU30,000 of this in inventory. Detailed below are the accounting entries required on consolidation:
| CU | CU | |
| Dr Sales | 100,000 | |
|
Cr Cost of Sales (i.e. the cost of sales posted in sub accounts ex items in stock excluding the intra-group profit)) |
75,000 | |
|
Cr Inventory (CU30,000 x (CU50,000/CU100,000) |
15,000 |
Being journal to derecognise intercompany sales as consolidated financial statements should only show external sales and purchases and eliminate profit included in inventory
If Subsidiary B sold these goods the journal would be the same.
The deferred tax journal required in the consolidated financial statements is:
| CU | CU | |
|
Dr Deferred Tax Asset (CU15,000*10% assuming a deferred tax rate of 10%) |
1,500 | |
| Cr Deferred Tax in P&L | 1,500 |
Being journal to reflect deferred tax on the above journal.
9.7.2.5 Eliminating intra group transactions not 100% owned – not in inventory at year end
Example 8: Eliminating intra group transactions not 100% owned – not in inventory at year end
Company A owns a 65% subsidiary, Subsidiary B. During the year Company A sold CU100,000 of goods to Subsidiary B. The cost of the sale for Company A was CU50,000.
At the year-end Subsidiary B had sold this on to a third party. Detailed below are the accounting entries required on consolidation:
| CU | CU | |
| Dr Sales | 100,000 | |
| Cr Cost of Sales | 100,000 |
Being journal to derecognise intercompany sales as consolidated financial statements should only show external sales and purchases. This gives the same answer as a 100% controlled entity.
9.7.2.6 Eliminating intra group transactions not 100% owned – some in inventory at year end
Example 9: Eliminating intra group transactions not 100% owned – some in inventory at year end
Company A owns a 65% subsidiary, Subsidiary B. During the year Company A sold CU100,000 of goods to Subsidiary B. The cost of the sale for Company A was CU50,000.
At the year-end Subsidiary B still had CU30,000 of this in inventory. Detailed below are the accounting entries required on consolidation.
| CU | CU | |
| Dr Sales | 100,000 | |
|
Cr Cost of Sales (i.e. the cost of sales posted in sub accounts ex item in stock excluding the intra-group profit) |
75,000 | |
|
Cr Inventory (CU30,000*50% profit margin) |
15,000 |
Being journal to derecognise intercompany sales as consolidated financial statements should only show external sales and purchases and eliminate profit included in inventory. This gives the same answer as a 100% controlled entity
The deferred tax journal required in the consolidated financial statements is:
| CU | CU | |
|
Dr Deferred Tax Asset (CU15,000*10% assuming a deferred tax rate of 10%) |
1,500 | |
| Cr Deferred Tax in P&L | 1,500 |
Being journal to reflect deferred tax on the above journal.
9.7.2.7 Year-end intra-group balance
Example 10: Year-end intra-group balances
Company A was owed CU100,000 from Subsidiary B at the year end. The journals required in the consolidated financial statements to eliminate this are:
| CU | CU | |
| Dr Amounts Due to Group Company A in Subsidiary B’s Books | 100,000 | |
| Cr Amounts Due from Group Subsidiary B in Company A’s Books | 100,000 |
9.7.2.8 Intra-group balances – sale of fixed assets within a group
Example 11: Intra-group balances – sale of fixed assets within a group
At the start of the year Company A sold a piece of equipment to Subsidiary B for CU100,000 when its net book value was CU60,000 thereby recognising a profit on disposal in Company A’s financial statements of CU40,000. The remaining life at that date was 10 years. Assume the depreciation in that year in Subsidiary B’s books on the fixed asset was CU10,000 (CU100,000/10yrs) and the NBV was CU90,000.
The consolidated journals at the year end to eliminate the intra-group profit recognised are:
| CU | CU | |
| Dr Profit on Disposal | 40,000 | |
|
Cr PPE (CU90,000 less NBV that it would have been carried at if there had been no intra-group sale CU60,000/10yrs*9yrs= CU54,000) |
36,000 | |
|
Cr Depreciation (CU10,000 charged less CU6,000 (CU60,000/10 yrs) which would have been charged if no intercompany sale arose) |
4,000 |
Being journal to derecognise the profit on disposal and additional depreciation charged
Note the same journal would be posted if Subsidiary B sold it to Company B. In future years the additional depreciation charged of CU4,000 would have to be eliminated i.e. credit depreciation, debit PPE) assuming the above journals are posted to profit and loss reserves year on year.
If a loss was made on disposal the opposite journals would be required. In addition as a loss was made this may indicate an indicator of impairment, so an impairment review may be necessary.
9.7.2.9 Transactions between subsidiaries not consolidated
Where sales are made between subsidiaries of the entity which are not consolidated, on the basis of the exclusions in Section 9.9 of FRS 102 then elimination of intra-group sales, purchases balances etc. does not need to be done.
9.7.2.10 Elimination of notional amounts on intercompany/group loans not at market rates
Example 11A: elimination of notional amounts on inter-company loans not at market rates
Subsidiary B was owed CU60,000 from Subsidiary A at the year end. This loan was interest free and not repayable on demand so therefore was present valued at market rate under Section 11 of FRS 102. The interest released on the effective interest rate was CU1,000 and was classified within interest income in Subsidiary B and interest expense in Subsidiary A. CU20,000 was included in a capital contribution in Subsidiary A’s books and CU20,000 was debited to reserves in Subsidiary B’s books on initial recognition of the loan less the interest income/expense released since the loan was issued in line with rules in Section 11.
Subsidiary B owed Parent Co CU10,000. The journals required in the consolidated financial statements to eliminate this are:
| CU | CU | |
| Dr Amounts Due to Group Subsidiary B in Subsidiary A’s Books currently included in creditors | 60,000 | |
| Cr Amounts Due from Group Subsidiary A in Subsidiary B’s Books currently included in debtors | 60,000 | |
| Dr Amounts Due to Group Parent Co in Subsidiary B’s Books currently included in creditors | 10,000 | |
| Cr Amounts Due from Group Subsidiary B in Parent Co Books currently included in debtors | 10,000 | |
| Being journal to eliminate intercompany balances |
| CU | CU | |
| Dr Interest income in Subsidiary B | 1,000 | |
| Cr Interest expense in Subsidiary A’s Books | 1,000 | |
| Dr Capital Contribution in Subsidiary A’s Books | 20,000 | |
| Cr Profit and loss reserves in Subsidiary B’s books | 20,000 | |
| Being journal to eliminate interest on group loans and to unwind the initial journals recognised as these loans are eliminated on consolidation | ||
9.7.2.11 Elimination of Intergroup dividends
Example 11B: elimination of intergroup dividends
Subsidiary A paid a dividend of €45,000 to Parent Co during the year.
The journals required in the consolidated financial statements are:
| CU | CU | |
| Dr Income from group undertakings in P&L | 45,000 | |
| Cr Profit and loss reserves for the dividend recognised | 45,000 |
Being journal to eliminate the intercompany dividends – goes to P&L reserves as this is where dividend was initially recognised
9.7.2.12 Restatement of investment property to PPE for group purposes
Example 11C: Restatement of investment property to property, plant and equipment
Subsidiary B rents a property to Subsidiary A. In the Sub B accounts this is classed as investment property and held at fair value. From a consolidation perspective this is property plant and equipment and should be depreciated.
Therefore, an adjustment is required to restate the property from fair value to cost less accumulated depreciation and impairment. Assume the depreciation that should be posted in the consolidated financial statements is CU2,000 and the NBV value of the property when held at cost less depreciation should be CU88,000 at period end. The actual carrying amount of the property was CU100,000 in Subsidiary B’s books as an investment property with CU10,000 of an uplift recognised in interest receivable in the entity financial statements. Deferred tax of CU3,300 was recognised on this uplift. We have ignored deferred tax.
The journal required is to:
| CU | CU | |
| Dr tangible fixed assets(€100,000-88,000) | 88,000 | |
| Cr Investment property | 100,000 | |
| Dr interest receivable | 10,000 | |
| Dr depreciation | 2,000 | |
| Dr deferred tax liability | 3,300 | |
| Cr deferred tax in P&L | 3,300 |
Being journal to reclassify the property from investment property to PPE and eliminate the revaluation recognised in the entity financial statements
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Examples
Example 1: Exercise of dominant influence
Example 2: Potential voting rights
Example 3: Ability to control composition of the board
Example 5: Process of consolidation
Example 6: Eliminating intra group transactions 100% owned – not in inventory at year end
Example 7: Eliminating intra group transactions 100% owned – in inventory at year end
Example 8: Eliminating intra group transactions not 100% owned – not in inventory at year end
Example 9: Eliminating intra group transactions not 100% owned – some in inventory at year end
Example 10: Year-end intra-group balances
Example 11A: elimination of notional amounts on inter-company loans not at market rates
Example 11B: elimination of intergroup dividends
Example 11C: Restatement of investment property to property, plant and equipment
Example 13: Uniform accounting policies
Example 14: Business combination achieved in stages
Example 15: Acquiring a further controlling interest
Example 16A: Acquiring a further controlling interest but 100% interest still not attained
Example 17: Disposing of controlling interest but controlling interest retained
Example 18: Disposal of a subsidiary where control is lost
Example 21: Extract from notes to the financial statements – contingent consideration note..
Example 28: Extract from the notes in the consolidated financial statements – negative goodwill
Example 29: Profit and loss account
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