1. AC506 lecture 10 Complex group structures Pierce/Brennan chapter 6

2. Types of group structures Fellow subsidiaries Vertical group Mixed group Controlling interests – basis of relationship Effective interests – basis of accounting entries

3. Determining group structures When deciding whether P controls another undertaking (X), it is necessary to aggregate –shares in X held directly by P –shares in X held by undertakings which are subsidiaries of P –share in X held by associates/JVs of P are not considered for deciding control (which determines consolidation method) Once consolidation method has been decided, the percentage interest in the net assets is by reference to all holdings in X (direct, indirectly through subsidiaries and indirectly through associates and JVs)

4. Example of effective interest Parent SubsidiarySub-subsidiary 80% 40% 35% Direct interest in sub-subsidiary = 40% Indirect interest = 80% x 35% = 28% Total interest in net assets = 68%

5. Example of effective interest Parent Subsidiary Sub-subsidiary 80% 60% 25% Direct interest in sub-subsidiary = 25% Indirect interest = 80% x 60% = 48% Interest in net assets = 73%

6. Example Reserves of Subsid and Sub-subsid at date of acq. were €1,400 and €450 respectively. Show (i) Group structure and (ii) consolidation workings

7. Group structure Parent Subsidiary Sub-subsidiary 75% 66.67%

8. Acquisitions at different dates S Limited acquires SS Limited 1 Jan 2000 P Limited acquires S Limited 30 June 2004 SS Limited reserves at 1 Jan 2000 = €2,000 SS Limited reserves at 30 Jun 2004 = €3,500 S Limited reserves at 30 June 2004 = €1,500 How much are pre-acq reserves when preparing group accounts of P Limited?

9. Order of acquisition In previous slide, S Ltd had acquired SS Ltd (1 Jan 2000) prior to P Ltd acquiring S Ltd (30 June 2004) What if P Limited had acquired S Limited on 1 Jan 2004 and S Limited acquired SS Ltd on 30 June 2004