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Section 7 – Overview
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- Section 1
- Section 2
- Section 3
- Section 4
- Section 5
- Section 6
- Section 7
- Section 8
- Section 9
- Section 10
- Section 11
- Section 12
- Section 13
- Section 14
- Section 15
- Section 16
- Section 17
- Section 18
- Section 19
- Section 20
- Section 21
- Section 22
- Section 23
- Section 24
- Section 25
- Section 26
- Section 27
- Section 28
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- Section 1
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- Section 3
- Section 4
- Section 5
- Section 6
- Section 7
- Section 8
- Section 9
- Section 10
- Section 11
- Section 12
- Section 13
- Section 14
- Section 15
- Section 16
- Section 17
- Section 18
- Section 19
- Section 20
- Section 21
- Section 22
- Section 23
- Section 24
- Section 25
- Section 26
- Section 27
- Section 28
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Section Downloads
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Section 7: Subsidiaries, Asscciates, Jointly Controlled Entities and Intermediate Payment Arrangements
Summary
Section 7 provides the recognition and measurement criteria for investments in subsidiaries, associates and jointly controlled entities including accounting for intermediate payment arrangements.
What is new?
Where consolidated financial statements are prepared, FRS 105/Micro Companies/entities Regime cannot be availed of (i.e. consolidated financial statements cannot be prepared under FRS 105).
If the company’s results are included in the parent’s consolidated financial statements FRS 105/ Micro Companies/entities Regime cannot be availed of.
A holding company that does not meet the conditions of a small group as stated in Section 280B of CA 2014 (ROI Companies) or Section 383 of CA 2006 (UK Companies) cannot apply the micro entities regime.
This compares to FRS 102/old GAAP/FRSSE whereby these GAAP’s permitted consolidated financial statements to be prepared and gave detailed rules on how they should be accounted for.
What is different?
Investments in subsidiaries, joint ventures and/or associates must be carried at cost less impairment under FRS 105. There is no choice. Under FRSSE/old GAAP it was possible to carry such investments at cost less impairment or at revalued amount through the STRGL/revaluation reserve.
Under FRS 102 it was possible to carry such investments at cost less impairment or at revalued amount through OCI/revaluation reserve or through the profit and loss account.
What are the key points?
Investments in subsidiaries, joint ventures and/or associates must be carried at cost less impairment.
Consolidated financial statements cannot be prepared under FRS 105.
Impairment to be recognised once an indicator of impairment exists. See section 9 for the indicators of impairment.
Impairments can be reserved if the indicator that caused the impairment originally reverses.
Other factors affecting Section 7 where differences arise?
Section 24 – Under FRS 102 where the investments were held at fair value/revalued amount, deferred tax was required to be recognised/considered. Under Section 24 of FRS 105, deferred tax cannot be recognised. Therefore on transition to FRS 105 from FRS 102 a transition adjustment will be required to derecognise any deferred tax previously recognised under FRS 102.
What do accountants need to do?
Advise clients who are considering adopting FRS 105 who previously held investments in subsidiaries, associates and/or joint ventures at revalued amount/fair value of the fact that an adjustment will be required on transition to derecognise any fair value uplifts and any deferred tax on those fair value adjustments recognised under previous GAAP.
Be aware of the fact that where a client wants to prepare consolidated financial statements that they cannot prepare the financial statements under FRS 105 and instead they must be prepared under FRS 102.
Advise clients whose micro entities are consolidated into a parent or ultimate parent set of financial statements of the fact that such a company cannot apply FRS 105
What do companies need to do?
Assess whether the micro entity wishes to prepare consolidated financial statements.
Review the group structure to assess if the entity is precluded from preparing financial statements under FRS 105.
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