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22.1.1 Extract from FRS 102 – Section 22.1-22.2.
22.2 Classification of an instrument as liability or equity.
22.2.1 Extract from FRS 102 – Section 22.3.
22.2.2.1 Definition of financial liability.
22.2.2.2 Definition of equity.
22.2.3 Accounting treatment of instruments classified as debt
22.2.5 Treatment of dividend on instruments classified as equity.
22.2.6 Examples illustrating whether an instrument meets the definition of debt or equity.
22.2.6.1 Redeemable preference shares at option of the holder with mandatory coupon.
22.2.6.2 Non-redeemable preference shares with mandatory coupon at market rate.
22.2.6.4 Shares/loan notes redeemable at the option of the holder
22.2.6.5 Non-redeemable preference shares with discretionary dividend.
22.2.6.6 Redeemable preference shares at option of issuer with discretionary dividend.
22.2.6.7 Redeemable preference shares at option of issuer with mandatory.
22.2.6.9.1 Treatment of difference between present value ad actual amount subscribed for
22.2.6.13 Fixed for fixed arrangement
22.2.6.14 Equity issued in return for a forward contract to issue foreign currency.
22.3.2.2 Contingency element is not genuine.
22.3.2.3 contingency occurring on liquidation.
22.3.2.5 Examples of uncertain future/changed events outside the control of the issuer
22.3.2.6 Example of instruments to be classified as a debt or equity.
22.4 Original issue of shares or other equity instruments.
22.4.1 Extract from FRS 102 – Section 22.7-22.10.
22.4.2 OmniPro comment – Accounting treatment
22.4.2.4 Examples of share issues – accounting treatment
22.5 Exercise of options, rights and warrants.
22.5.1 Extract from FRS 102 – Section 22.11.
22.6 Capitalisation or bonus issues of shares and share splits.
22.6.1 Extract from FRS 102 – Section 22.12.
22.7.1 Extract from FRS 102 – Section 22.13-22.15.
22.7.2.1 Determining the split of debt and equity.
22.7.2.2 Treatment of transaction cost
22.7.2.3 Subsequent revisions.
22.7.2.4 Accounting for the liability.
22.7.2.5 Examples of compound financial instruments.
22.7.2.6 Compound Financial instrument example.
22.7.2.7 Accounting for the convertible option once exercised or option to exercise is not taken.
22.7.2.8 Allocation of transaction costs.
22.8.1 Extract from FRS 102 – Section 22.17-22.18.
22.8.2.1 Distribution of shares classified in equity.
22.8.2.2 Distributions on shares classified as debt (i.e. On shares classified on debt)
22.8.2.3 Disclosure of fair value of non-cash distributions.
22.9 Non-controlling interest and transactions in shares of a consolidated subsidiary.
22.9.1 Extract from FRS 102 – Section 22.19.
22.9.2.2 Accounting for acquiring a further controlling interest
22.9.2.3 Accounting for disposals of controlling interests but controlling interest retained.
22.10.1.1 Statement of changes in equity.
22.10.1.2 Accounting Policies.
22.10.1.3 Note to the financial statements.
22.10.1.4 Notes in relation to dividends
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22.9 Non-Controlling Interest and Transactions in Shares of a Consolidated Subsidiary
22.9.1 Extract from FRS 102 – Section 22.19
22.19 In the consolidated financial statements, a non-controlling interest in the net assets of a subsidiary is included in equity. An entity shall treat changes in a parent’s controlling interest in a subsidiary that do not result in a loss of control as transactions with equity holders in their capacity as equity holders. Accordingly, the carrying amount of the non-controlling interest shall be adjusted to reflect the change in the parent’s interest in the subsidiary’s net assets. Any difference between the amount by which the non-controlling interest is so adjusted and the fair value of the consideration paid or received, if any, shall be recognised directly in equity and attributed to equity holders of the parent. An entity shall not recognise a gain or loss on these changes. Also, an entity shall not recognise any change in the carrying amounts of assets (including goodwill) or liabilities as a result of such transactions
22.9.2 OmniPro comment
22.9.2.1 Overview
As per section 22.19 of FRS 102, where an entity has a subsidiary and has consolidated this over the periods on the basis that it had control i.e. owned more than 50% of the voting rights but not 100% or had control by some other method where 50% or less is held, and then acquires a further amount of share capital so as to increase ownership, in the consolidated accounts of the parent company the transaction is an equity transaction.
No goodwill is recognised nor is there a requirement to fair value the assets and liabilities at the date the further interest is acquired. See 22.9.2.2. Similarly, for disposals that do not result in a lossn of control, these transactions are equity transactions, (i.e. a reclassification of the amount included in ‘group profit and loss measures to ‘non- controlling interest see 22.9.2.3). No profit or loss is recognised in the consolidated financial statements.
22.9.2.2 Accounting for acquiring a further controlling interest
Example 21: Acquiring a further controlling interest
Application of guidance in section 22.19 of FRS 102
Parent A previously owned 55% of Company B which was consolidated in the financial statements. At the time of acquisition of the 55% its fair value of net assets was CU500,000 which was equal to book value. The purchase cost was CU300,000. The goodwill recognised was CU25,000 (CU500,000*55%=CU275,000-CU300,000). During the year the company acquired a further 25% from the non-controlling interest for CU220,000. The fair value of the net assets of Company B at the date of the acquisition of the additional 25% was CU800,000 (the NBV of the net assets was CU700,000). The carrying amount of the 45% non-controlling interest in the consolidated financial statements was CU250,000 at the date of purchase of the 25% interest.
The journals posted in the parent individual TB would be:
| CU | CU | |
| Dr Investment in Subsidiary | 220,000 | |
| Cr Bank | 220,000 |
The journals required to account for this transaction in the consolidated financial statements are:
| CU | CU | |
|
Dr Equity -Profit and Loss Reserves (CU220,000-CU138,889) |
81,111 | |
|
Dr Equity-Non Controlling Interest (CU250,000/45 being original amount owned by the MI *25 being the amount disposed of) |
138,889 | |
| Cr Investment in Subsidiary | 220,000 |
Being journal to reflect the acquisition as an equity transaction
Example 22: Acquiring a further controlling interest
Parent A previously owned 55% of Company B which was consolidated in the financial statements. During the year the company acquired the remaining 45% from the non-controlling interest for CU1,300,000. The non-controlling interest shown in the financial statements prior to the acquisition was CU1,000,000. The journals posted in the parent individual TB would be:
| CU | CU | |
| Dr Investment in Subsidiary | 1,300,000 | |
| Cr Bank | 1,300,000 |
The journals required to account for this transaction in the consolidated financial statements are:
| CU | CU | |
| Dr Equity -Profit and Loss Reserves | 300,000 | |
| Dr Equity-Non Controlling Interest | 1,000,000 | |
| Cr Investment in Subsidiary | 1,300,000 |
Being journal to reflect this as an equity transaction
22.9.2.3 Accounting for disposals of controlling interests but controlling interest retained.
Example 23: Disposing of controlling interest but controlling interest retained
Application of requests in section 22.19 of FRS 102
Parent A previously owned 100% of Company B which was consolidated in the financial statements. 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.
The journals posted in the parent individual TB would be:
| CU | CU | |
| Dr Loss on Disposal | 25,000 | |
| Dr Bank | 300,000 | |
|
Cr Investment in Subsidiary (CU1,300,000*25%) |
325,000 |
The journals required to account for this transaction in the consolidated financial statements are:
| CU | CU | |
| Dr Investment in Subsidiary | 300,000 | |
|
Cr Equity -Profit and Loss Reserves (CU300,000-CU212,500) |
87,500 | |
|
Cr Equity-Non Controlling Interest (CU850,000*25%) |
212,500 |
Being journal to reflect disposal as an equity transaction assuming usual goodwill journals were posted
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Examples
Example 1: Redeemable preference shares at option of the holder with mandatory coupon.
Example 2: Non-redeemable preference shares with mandatory coupon at market rate.
Example 4: Shares redeemable at the option of the holder
Example 5: Non-redeemable preference shares with discretionary dividend.
Example 6: Redeemable preference shares at option of issuer with discretionary dividend.
Example 7: Redeemable preference shares at option of issuer with mandatory dividend.
Example 13: Fixed for fixed arrangement
Example 13A: Application of Section 22.3(b)(ii) of FRS 102.
Example 13B: Future contingency amount
Example 13C: Future contingency.
Example 14: Accounting treatment on original issue of shares.
Example 15: Accounting treatment on original issue of shares – left as unpaid.
Example 16: Capitalisation/bonus issue.
Example 17: Accounting treatment for a compound financial instrument
Example 18: compound instrument where conversion is chosen.
Example 19: compound instrument where conversion is chosen.
Example 20: Accounting for transaction costs in acquiring a compound financial instrument
Example 21: Acquiring a further controlling interest
Example 22: Acquiring a further controlling interest
Example 23: Disposing of controlling interest but controlling interest retained.
Example 24: Extract of Statement of Changes in Equity from financial statements.
Example 25: Extract from accounting policies note.
Example 26: Extract from notes to the financial statements – liability
Example 27: Extract from notes to the financial statements – share capital
Example 28: Extract from notes to the financial statements – dividends on equity shares.
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