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Individual and separate financial statements
Extract from FRS102: Section 9.23A-9.26A
Preparation of individual and separate financial statements
9.23A The requirements for the preparation of individual financial statements are set out in the Act or other statutory framework.
9.24 Separate financial statements are those prepared by a parent in which the investments in subsidiaries, associates or jointly controlled entities are accounted for either at cost or fair value rather than on the basis of the reported results and net assets of the investees. Separate financial statements are included within the meaning of individual financial statements.
9.25 An entity that is not a parent shall account for any investments in associates and any interests in jointly controlled entities in accordance with paragraph 14.4 or 15.9, as appropriate in its individual financial statements.
Accounting policy election in separate financial statements
9.26 When an entity that is a parent prepares separate financial statements and describes them as conforming to this FRS, those financial statements shall comply with all of the requirements of this FRS. The parent shall select and adopt a policy of accounting for its investments in subsidiaries, associates and jointly controlled entities either:
(a) at cost less impairment;
(b) at fair value with changes in fair value recognised in other comprehensive income in accordance with paragraphs 17.15E and 17.15F; or
(c) at fair value with changes in fair value recognised in profit or loss (paragraphs 11.27 to 11.32 provide guidance on fair value).The entity shall apply the same accounting policy for all investments in a single class (subsidiaries, associates or jointly controlled entities), but it can elect different policies for different classes.
9.26A A parent that is exempt in accordance with paragraph 9.3 from the requirement to present consolidated financial statements, and presents separate financial statements as its only financial statements, shall account for its investments in subsidiaries, associates and jointly controlled entities in accordance with paragraph 9.26.
OmniPro comment
The options for a holder of an investment in a subsidiary, associate or joint venture who is not an entity that prepares consolidated financial statements can choose to:
- carrying the investment at cost less impairment; or
- fair value through the profit and loss; or
- fair value through other comprehensive income.
An entity should apply the accounting policy chosen consistently for all investments of the same type i.e. an entity may apply fair value to associates but does not have to apply it to joint ventures and subsidiaries etc.
The fair value is determined in line with Section 11 i.e. first where available, the value from a quoted market, if this is not available then based on an identical transaction which was entered into within the recent past and if this is not available a valuation technique which uses the most of the external data and very little of entity data.
Where the valuation cannot be measured reliably then the investment must be carried at cost less impairment.
Example 18A: Adoption of fair value through profit and loss on transition
Company A in its individual financial statements has adopted a policy of fair valuing investments in subsidiaries through the profit and loss. The subsidiary was acquired at the start of year 1 and original cost was CU100,000. The fair value of the investment at 31 December 2015 and 31 December 2016 was CU95,000 and CU125,000 respectively. Assume a deferred tax rate of 10% (assuming the investment is held for future dividends that will be taxable on receipt). The adjustments required to reflect the fair value policy and the related deferred tax are:
Journals required in the 31 December 2015 year
|
|
CU |
CU |
|
Dr Fair Value on Movement in Subsidiaries in P&L |
5,000 |
|
|
Cr Investments in Subsidiaries (CU100,000-CU95,000) |
|
5,000 |
Being journal to reflect fall in value at 31 December 2015
|
|
CU |
CU |
|
Dr Deferred Tax Liability |
500 |
|
|
Cr Deferred Tax in P&L ((CU5,000)*10%) |
|
500 |
Being journal to reflect deferred tax on the downward valuation. The movement of CU95,000 to CU100,000 is recognised on the basis that the entity believes there will be taxable profits to utilise this in the future.
Journals required in the 31 December 2016 year assuming the above journals are posted to reserves
|
|
CU |
CU |
|
Dr Investments in Subsidiaries (CU125,000-CU95,000) |
30,000 |
|
|
Cr Fair Value on Movement in subsidiaries in P&L |
|
30,000 |
Being journal to reflect uplift in value from 2015 to 2016
|
|
CU |
CU |
|
Dr Deferred Tax in P&L ((CU125,000-CU95,000)*10%) |
3,000 |
|
|
Cr Deferred Tax Liability |
|
3,000 |
Being journal to reflect deferred tax on the uplift.
Example 18B: Adoption of fair value through other comprehensive income on transition
Company A in its individual financial statements has adopted a policy of fair valuing investments in subsidiaries through other comprehensive income. Previously the entity had adopted a cost policy. The subsidiary was acquired at the start of year 1 and original cost was CU100,000. The fair value of the investment at 31 December 2015 and 31 December 2016 and 31 December 2017 was CU120,000 and CU95,000 and CU125,000 respectively. Assume a deferred tax rate of 10%. The adjustments required to reflect the fair value policy and the related deferred tax are:
Journals required in the 31 December 2015 year
|
|
CU |
CU |
|
Dr Investments in Subsidiaries (CU120,000-CU100,000) |
20,000 |
|
|
Cr Revaluation Reserve |
|
20,000 |
Being journal to reflect uplift in value on transition to show fair value
|
|
CU |
CU |
|
Dr Deferred Tax in Revaluation Reserve (CU20,000*10%) |
2,000 |
|
|
Cr Deferred Tax Liability |
|
2,000 |
Being journal to reflect deferred tax on the uplift
Journals required in the 31 December 2016 year
|
|
CU |
CU |
|
Dr Fair Value Movement in Profit and Loss |
5,000 |
|
|
Dr Fair Value Movement in Subsidiaries in OCI/Revaluation reserve |
20,000 |
|
|
Cr Investments in Subsidiaries (CU120,000-CU95,000) |
|
25,000 |
Being journal to reflect fall in value at 31 December 2016. The CU5,000 is posted to the profit and loss as there is nothing left in the revaluation reserve after the CU20,000 has been debited in line with Section 17.
|
|
CU |
CU |
|
Dr Deferred Tax Liability |
2,000 |
|
|
Cr Deferred Tax in Revaluation Reserve (CU20,000*10%) |
|
2,000 |
Being journal to reverse deferred tax recognised at 1 January 2016 as the investment is now stated below cost. No deferred tax asset recognised as assumed it is not probable there will be taxable profits to utilise the loss. If there was taxable profits then the deferred tax asset of CU500 would be recognised ((CU100,000-CU95,000)*10%)
Journals required in the 31 December 2017
|
|
CU |
CU |
|
Dr Investments in Subsidiaries (CU125,000-CU95,000) |
30,000 |
|
|
Cr Profit and Loss Fair Value Movement |
|
5,000 |
|
Cr Fair Value Movement in Subsidiaries in P&L |
|
25,000 |
Being journal to reflect uplift in value on from 2016 to 2017. CU5,000 credit to profit and loss as CU5,000 had previously been debited to the profit and loss for the downward valuation
|
|
CU |
CU |
|
Dr Deferred Tax in P&L ((CU125,000-CU100,000)*10%) |
2,500 |
|
|
Cr Deferred Tax Liability |
|
2,500 |
Being journal to reflect deferred tax on the uplift. The movement of CU95,000 to CU100,000 was not recognised in 2016 as per narrative above as the asset was not deemed recoverable.
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