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E-14 Advanced Accounting and Financial Reporting Lecture 09 & 10 Complex Groups, Piecemeal Acquisition and Disposal of Subsidiary IAS 7 Consolidated Statement.

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Presentation on theme: "E-14 Advanced Accounting and Financial Reporting Lecture 09 & 10 Complex Groups, Piecemeal Acquisition and Disposal of Subsidiary IAS 7 Consolidated Statement."— Presentation transcript:

1 E-14 Advanced Accounting and Financial Reporting Lecture 09 & 10 Complex Groups, Piecemeal Acquisition and Disposal of Subsidiary IAS 7 Consolidated Statement of Cash Flows Sajid Shafiq, ACA

2 Consolidated Statement of Cash Flow 2CSCF and Complex Groups The method of preparation is the same as for the individual company statement of cash flow but additional cash flows may arise as follows: Dividends paid to Non Controlling Interest Dividends received from Associate Cash consequences of Acquisition or Disposal of Subsidiaries

3 3CSCF and Complex Groups Non Controlling Interest Rs Dividend to NCI (Balancing figure) xxxB/f (NCI- as per CSFP) (Dividend Payable to NCI-as per CSFP) xxx B/f (NCI- as per CSFP) (Dividend Payable to NCI-as per CSFP) xxx% age of Ss Total Comprehensive Income* (as per CSCI) xxx * Profit, revaluation, translation reserve etc. Investment in Associate (IIA) Rs B/f (IIA- as per CSFP) (Dividend Receivable from A) XxxDividend from A (Balancing figure) xxx % age of Ss Total Comprehensive Income* (as per CSCI) xxxC/f (IIA- as per CSFP) (Dividend Receivable from A) Xxx * Profit, revaluation, translation reserve etc.

4 4CSCF and Complex Groups

5 5

6 Acquisition and disposal of Subsidiary Cash flows are reported net of cash given up or acquired with the subsidiary 6CSCF and Complex Groups

7 Each of the individual net assets of a subsidiary acquired/disposed of during the period must be excluded when comparing group balance sheets for CF calculations. Subsidiary acquired in the periodSubsidiary sold in the period SUBTRACT inventory, receivables, payables etc. at the date of acquisition from the movement on these items when calculating the cash flows ADD inventory, receivables, payables etc. at the date of disposal from the movement on these items when calculating the cash flows Acquisition and disposal of Subsidiary 7CSCF and Complex Groups

8 Example: acquisition during the year 8CSCF and Complex Groups

9 9

10 Disposal during the year 10CSCF and Complex Groups

11 Disposal during the year 11CSCF and Complex Groups

12 Consolidation of Complex Group Multiple Subsidiaries Groups involving Sub-subsidiaries Groups involving Sub-Associates 12CSCF and Complex Groups

13 Consolidation of Complex Group Multiple Subsidiaries The fundamental technique remains same except that – Now there will be multiple calculations of Goodwill Non-Controlling Interest, & Share in Post acquisition retained earnings for Consolidated Retained earnings – CSFP will show a single(combined) figure of GW and NCI. A NGW will not be off set against GW, however. 13CSCF and Complex Groups

14 Consolidation of Complex Group Multiple Subsidiaries Example P acquired 80% shareholding in S two years ago when Ss reserves stood 700. P also acquired 90% shares in T when its reserves stood 400 one year ago. Required: Prepare Consolidated SFP at 31 Dec December 2008 PST Cost of investment –S –T Other net assets6001, ,8001, Share Capital Retained Earnings1,6001, ,8001, CSCF and Complex Groups

15 Consolidation of Complex Group Multiple Subsidiaries Solution P Group Consolidated SFP at 31 December CSCF and Complex Groups

16 Consolidation of Complex Group Multiple Subsidiaries Solution Subsidiaries Net assets summary 16CSCF and Complex Groups

17 Consolidation of Complex Group Multiple Subsidiaries Solution Goodwill Non Controlling Interest 17 Consolidated Retained Earnings CSCF and Complex Groups

18 Consolidation of Complex Group Groups involving Sub-subsidiaries-Vertical 18CSCF and Complex Groups

19 Consolidation of Complex Group Groups involving Sub-subsidiaries-Mixed(D) 19CSCF and Complex Groups

20 Consolidation of Complex Group Groups involving Sub-subsidiaries-Rules 20 -For control, Actual %ages -For GW, NCI, Consolidated RE, effective SH -Cost of Investment in Sub- subsidiary is %age investment in Subsidiary -Acquisition date with reference to Ultimate Parent is relevant Dividend by Sub-subsidiary is accounted for using Actual and not effective SH CSCF and Complex Groups

21 Consolidation of Complex Group Groups involving Sub-subsidiaries- Example 1.P bought 70% of S 2 years ago when Ss reserves stood 500. Later(1 year ago) S bought 60% of T when Ts retained earnings were The companies declared following dividends: – P---150, S---100, T80 Required: Prepare Consolidated SFP December 2008 PST Cost of investment –S –T Other net assets1, ,8001, Share Capital Retained Earnings1,6001, ,8001, CSCF and Complex Groups

22 Consolidation of Complex Group Groups involving Sub-subsidiaries- Solution Group Structure: 22CSCF and Complex Groups

23 Consolidation of Complex Group Groups involving Sub-subsidiaries- Solution P Group Consolidated SFP as at 31 December CSCF and Complex Groups

24 Consolidation of Complex Group Groups involving Sub-subsidiaries- Solution Net Assets Summary 24CSCF and Complex Groups

25 Consolidation of Complex Group Groups involving Sub-subsidiaries- Solution Goodwill: Non Controlling Interest: Consolidated Retained Earnings: 25CSCF and Complex Groups

26 Consolidation of Complex Group Groups involving Sub-Associates Here two tier approach is followed i.e. First consolidate sub-associate under equity method in the books of Subsidiary Then consolidate as normal 26CSCF and Complex Groups

27 Piecemeal acquisition and Disposal

28 Piecemeal acquisition – Where acquisition does not change control – Where acquisition does change control – A business combination achieved without the transfer of consideration Disposal – Where disposal does not change control – Where disposal does change control – Deemed Disposal 28CSCF and Complex Groups

29 Piecemeal acquisition and Disposal Piecemeal acquisition- Where acquisition does not change control e.g. earlier 60%, later 80% Goodwill – will NOT be re-measured due to subsequent acquisition – The difference between change in NCI at the date of subsequent acquisition and Cost of subsequent investment will be taken directly to equity CSFP will be prepared as per shareholding existing at consolidation date CSCI will be prepared having regard to status of investment 29CSCF and Complex Groups

30 Piecemeal acquisition and Disposal 30 Piecemeal acquisition- Where acquisition does not change control Example 31 December 2008 P(000)S(000) Cost of investment –S400 Other net assets , Share Capital Retained Earnings , DateProp acqCost of invSs ret earngs 30 Sep %255,000300,000 1 July %145,000390, P acquired its holding in S as follows: 2. The PAT for year ended 31 Dec 2008 of P and S were 200,000 and 120,000 respectively Required: Prepare Consolidated SFP and CSCI extract CSCF and Complex Groups

31 Piecemeal acquisition and Disposal 31 Piecemeal acquisition- Where acquisition does not change control Solution P Group Consolidated SFP at 31 December 2008 CSCF and Complex Groups

32 Piecemeal acquisition and Disposal 32 Piecemeal acquisition- Where acquisition does not change control Solution Net Assets summary CSCF and Complex Groups

33 Piecemeal acquisition and Disposal 33 Piecemeal acquisition- Where acquisition does not change control Solution Goodwill Non Controlling interest Consolidated Retained Earnings Ps Retained earnings Share in Ss post acquisition retained earnings 60% of post(1 st ) acquisition 20% of post( subsequent ) acq. Cost of subsequent investment Less Change in NCI (including attributable GW) at subsequent acq date CSCF and Complex Groups

34 Piecemeal acquisition and Disposal 34 Piecemeal acquisition- Where acquisition does not change control Solution P Group Consolidated SCI for year ended 31 Dec 2008 (extract) Profit after Tax Attributable to: Owners of the Parent Non Controlling Interest CSCF and Complex Groups

35 Piecemeal acquisition and Disposal Piecemeal acquisition- Where acquisition does change control Possible Scenarios: – From simple investment (10%) TO Subsidiary (60%) – From Associate (30%) TO Subsidiary (60%) CSFP and CSCI will be prepared as usual. Goodwill, however, be calculated as follows: – The previous investment will be re-measured at FV with resulting gain-loss in profit and loss – Goodwill will now be calculated with reference to combined Cost of investment (FV of previously held plus cost paid for subsequent investment) 35CSCF and Complex Groups

36 Piecemeal acquisition and Disposal Piecemeal acquisition- Where acquisition does change control Example P acquired following shares in S on different dates Required: Calculate goodwill the above case. 36 DateProp acqCost of invSs net assets 30 Sep %200,000300,000 1 July %160,000400,000 CSCF and Complex Groups

37 Piecemeal acquisition and Disposal Piecemeal acquisition-A business combination achieved without the transfer of consideration Circumstances include: a.The acquiree repurchases a sufficient number of its own shares for an existing investor (the acquirer) to obtain control. b.Minority veto rights lapse that previously kept the acquirer from controlling an acquiree in which the acquirer held the majority voting rights. c.The acquirer and acquiree agree to combine their businesses by contract alone. The acquirer transfers no consideration in exchange for control of an acquiree and holds no equity interests in the acquiree, either on the acquisition date or previously. In a business combination achieved by contract alone, the acquirer shall attribute to the owners of the acquiree the amount of the acquirees net assets recognized in accordance with this IFRS. In other words, the equity interests in the acquiree held by parties other than the acquirer are a non-controlling interest in the acquirers post-combination financial statements even if the result is that all of the equity interests in the acquiree are attributed to the non-controlling interest. 37CSCF and Complex Groups

38 Piecemeal acquisition and Disposal Disposal Where disposal does not change control e.g. earlier 80%, later 60% On disposal – No Gain or loss on disposal shall be calculated for group – GW will NOT be re-measured – The difference between change in NCI at the date of disposal and disposal proceeds will be taken directly to equity CSFP will be prepared as per shareholding existing at consolidation date CSCI will be prepared having regard to status of investment 38CSCF and Complex Groups

39 Piecemeal acquisition and Disposal 39 Disposal Where disposal does not change control Example 31 December 2008 P(000)S(000) Cost of investment –S (80%)400 Other net assets , Share Capital Retained Earnings Suspense account150 1, P acquired S two years ago when its reserves stood 300, On 31 March 2008, it sold 20% shares (i.e. retaining 60%) for 150,000 which have been credited to suspense account. 2. The PAT for year ended 31 Dec 2008 of P and S were 200,000 and 60,000 respectively. Required: Prepare Consolidated SFP and CSCI extract CSCF and Complex Groups

40 Piecemeal acquisition and Disposal 40 Disposal- Where disposal does not change control Solution P Group Consolidated SFP at 31 December 2008 CSCF and Complex Groups

41 Piecemeal acquisition and Disposal 41 Disposal- Where disposal does not change control Solution Net Assets summary CSCF and Complex Groups

42 Piecemeal acquisition and Disposal 42 Disposal- Where disposal does not change control Solution Goodwill Non Controlling interest Consolidated Retained Earnings Ps Retained earnings Share in Ss post acquisition retained earnings 80% of post acquisition till disposal date 60% of RE subsequent to disposal. Sale proceed of investment Less Change in NCI (including attributable GW) at disposal date CSCF and Complex Groups

43 Piecemeal acquisition and Disposal 43 Disposal- Where disposal does not change control Solution P Group Consolidated SCI for year ended 31 Dec 2008 (extract) Profit after Tax Attributable to: Owners of the Parent Non Controlling Interest CSCF and Complex Groups

44 Piecemeal acquisition and Disposal Disposal - Where disposal does change control Possible Scenarios: – From subsidiary TO full disposal – From subsidiary (60%) TO simple investment (10%) – From Subsidiary (60%) TO Associate (30%) CSFP and CSCI will be prepared as usual. Gain-loss on disposal, measured as follows, shall be taken to PL account: – Sum of [sale proceeds and FV of portion retained at disposal date] LESS – Goodwill(combined i.e. including share of NCI) – Net assets of subsidiary at the date of disposal – NCI in subsidiary at the date of disposal including attributable GW 44CSCF and Complex Groups

45 Piecemeal acquisition and Disposal Disposal- Where disposal does change control Example P acquired 80% shares of S on 1 December 2007 for 800,000 when Ss net assets stood 800, months later, P sold its 60% shares (i.e. retaining 20%) for 1,200,000 when Ss net assets were 1,000,000. Required: Calculate gain-loss on disposal. 45CSCF and Complex Groups

46 Piecemeal acquisition and Disposal Disposal- Where disposal does change control Solution Sale Proceed______ FV of portion retained______ _____ Less: Goodwill (Combined)______ Net assets of S on disposal______ Less Non Controlling Interest before disposal date, including GW( ) _____ 46CSCF and Complex Groups

47 Piecemeal acquisition and Disposal Disposal –Deemed Disposal Circumstances include: a.The acquiree issues a sufficient number of its shares to a new investor. b.Minority veto rights come into effect that keeps the acquirer from controlling an acquiree in which the acquirer held the majority voting rights. c.The acquirer and acquiree agree to end their business combination and quit the contract The rules relating to calculation of Gain-loss depend whether or not there is a change in control as discussed above. 47CSCF and Complex Groups


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