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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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The below extracts and guidance is applicable for periods beginning before 1 January 2019 and are based on the September 2015 version of FRS 102. For periods beginning on or after 1 January 2019, the March 2018 version of FRS 102 applies which incorporates the changes made by the Triennial review of FRS 102. Note the March 2018 version of FRS 102 can be voluntarily applies for periods beginning before 1 January 2019. For the extracts from the March 2018 version of FRS 102 and the related guidance please click on the following link. For details of a summary of the main changes as a result of the triennial review please see the following link.
9.6 Consolidation Procedures
9.6.1 Extract from FRS102: Section 9.13 – 9.14
9.13 The consolidated financial statements present financial information about the group as a single economic entity. In preparing consolidated financial statements, an entity shall:
(a) combine the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income and expenses;
(b) eliminate the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary;
(c) measure and present non-controlling interest in the profit or loss of consolidated subsidiaries for the reporting period separately from the interest of the owners of the parent; and
(d) measure and present non-controlling interest in the net assets of consolidated subsidiaries separately from the parent shareholders’ equity in them. Non-controlling interest in the net assets consists of:
(i) the amount of the non-controlling interest’s share in the net amount of the identifiable assets, liabilities and contingent liabilities recognised and measured in accordance with Section 19 Business Combinations and Goodwill at the date of the original combination; and
(ii) the non-controlling interest’s share of changes in equity since the date of the combination.
9.14 The proportions of profit or loss and changes in equity allocated to the owners of the parent and to the non-controlling interest are determined on the basis of existing ownership interests and do not reflect the possible exercise or conversion of options or convertible instruments.
9.6.2 OmniPro comment – The Subsidiary
Section 9.13 of FRS 102 provides guidelines when preparing consolidated Financial Statements. See simple consolidated checklist that can be used when preparing consolidated financial statements.
9.6.2.1 Process of consolidation
Example 5: Process of consolidation
Section 9 provides minimal guidance on the process of consolidation however the best method for groups to consolidate is to:
1) obtain the individual financial statements of each subsidiary and aggregate these in a spreadsheet etc. and then add together the profit and loss, balance sheet and cash flow figures on a line by line basis. Ensure there are uniform year ends and if not that they are prepared at least 3 months before the present period end of the parent and adjust for intercompany and material transactions in the meantime. See 9.8.2. If the subsidiary period-end is not within 3 months, then up to date accounts must be prepared for the subsidiary. Section 9.16(a) FRS 102
2) then adjust individual figures in the individual subsidiary financial statements to uniform accounting policies.
3) then incorporate goodwill into the consolidation (eliminate the investments and the related share capital of the subsidiaries) and post the relevant journals for depreciation on fair value adjustments on acquisition including to fixed assets and amortisation of goodwill etc. in the consolidated financial statements etc. The journals required to recognise goodwill and derecognise the investment in the subsidiary in the parent company are:
| CU | CU | |
| Dr Goodwill | XXX | |
| Cr Investment in Subsidiary in the Parent Company Financials | XXX | |
| Dr Ordinary Share Capital/Share Premium | XXX | |
| Dr Profit and Loss Reserves (i.e. profit and loss reserves in existence at date of acquisition) | XXX | |
| Cr Non-Controlling Interest (i.e. fair value of net assets of subsidiary at the date of acquisition * % owned at date of acquisition) | XXX |
The above journals assume there were positive reserves on acquisition. If not, the journal would be the opposite way around.
4) then eliminate intra-group transactions e.g. inter group sales and purchases, unrealised profits included in inventory and property, plant and equipment etc.
5) Measure and present the result attributable to the parent and those attributable to the non-controlling interests. Do the same for the balance sheet showing the allocation since the acquisition of the entity.
9.6.2.3 Allocation to non-controlling interests where options are exercisable
As per Section 9.14 of FRS 102 when assessing the net assets to be attributed to non-controlling interest, it is based on the percentage of shares held, any exercisable shares not exercised are ignored. See further details at 9.3.2.3
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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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