1. IAS & IFRS applicable to company investments
IAS 27 separate financial statements
IAS 28 investments in associates & joint ventures
IFRS 10 consolidated financial statements
IFRS 11 joint arrangements
IFRS 12 disclosure of interests in other entities
IFRS 13 fair value measurement

2. company investment relationships
% Holding in equity
Relationship
Standard
10% - 19%
Trade investment
IAS 27
20% - 49%
Associate
IAS 28
50%
Joint venture
IAS 28
51% - 89%
Subsidiary
IFRS 10
90% - 100%
Subsidiary/partner
IFRS 11

3. Relationship
accounting method
Trade investment
Non-current or current asset
Associate
Net equity accounting
Gross equity accounting accepted
Joint venture
Proportional preferred
Subsidiary
Acquisition accounting
Merger accounting
Partner
Also known as pooling of interests

4. Group balance sheets - the main issues
Subsidiary company reserves
Group shareholding in subsidiary
Goodwill arising on acquisition
Inter-company activity
Inter-company dividends

5. Group share of subsidiary company reserves
Pre-acquisition - non-distributable so capitalise
and / or
Post acquisition - distributable thus part of group retained profits

6. Group shareholding in subsidiary
Wholly-owned
Minority interest
(non controlling interest)
Preference shares

7. Goodwill arising on acquisition
Positive
capitalise as non-amortisable, intangible, non-current asset
Negative
write back to reserves

8. Inter-company activity
balance inter-company accounts
unrealised profits
inter-company trading

9. Inter-company dividends
Always eliminate in the consolidation
The only subsidiary dividend that will appear in the consolidated balance sheet is that payable to minority shareholders

10. Group structure
P plc and S plc are seen as a single economic unit

11. SIMPLE GROUP STRUCTURE (1)
Parent company P
100%
Subsidiary company A

12. SIMPLE GROUP STRUCTURE (2)
Parent company P
80%
Subsidiary company A
20%
Minority interest

13. SIMPLE GROUP STRUCTURE (3)
Parent company P
100%
100%
Subsidiary company A
Subsidiary company B

14. SIMPLE GROUP STRUCTURE (4)
Parent company P
80%
60%
Subsidiary company A
Subsidiary company B
20%
40%
Minority interest
Minority interest

15. Acquisition Accounting
Consolidated statements
Balance sheets

16. P plc and S plc are both incorporated on 1 January 2012
EXAMPLE 1 (a)
P plc and S plc are both incorporated on 1 January 2012
P plc has a share capital of €400m
S plc has a share capital of €150m
P plc purchased all of the shares in S plc on 1 January 2012 at par

17. BALANCE SHEETS AT 01 JANUARY 2012
P plc
S plc €m €m
Sundry assets
500
250
Shares in S plc at cost
150 -
Sundry liabilities
(250)
(100)
Net assets
400
150
Ordinary shares of 100p each
400
150

18. BALANCE SHEETS AT 01 JANUARY 2012
P plc
S plc
Group €m €m €m
Sundry assets
500
250
750
Shares in S plc at cost
150 - -
Sundry liabilities
(250)
(100)
(350)
Net assets
400
150
400
Ordinary shares of 100p each
400
150
400
Shares in S plc have now been removed from both balance sheets

19. P plc and S plc are both incorporated on 1 January 2012
EXAMPLE 1 (b)
P plc and S plc are both incorporated on 1 January 2012
P plc has a share capital of €400m
S plc has a share capital of €150m
P plc purchased all of the shares in S plc on 1 January 2012 at par
P plc and S plc have been trading for one year

20. BALANCE SHEETS AT 31 DECEMBER 2012
P plc
S plc €m €m
Sundry assets
680
345
Shares in S plc at cost
150 -
Sundry liabilities
(270)
(125)
Net assets
560
220
Ordinary shares of 100p each
400
150
Retained profit
160 70
560
220

21. BALANCE SHEETS AT 31 DECEMBER 2012
P plc
S plc
Group €m €m €m
Sundry assets
680
345
1025
Shares in S plc at cost
150 - -
Sundry liabilities
(270)
(125)
(395)
Net assets
560
220
630
Ordinary shares of 100p each
400
150
400
Retained profit
160 70
230
560
220
630

22. X plc and Y plc have both been trading since 1 January 2012
EXAMPLE 2
X plc and Y plc have both been trading since 1 January 2012
X plc purchased all of the shares in Y plc on 31 December 2012 at a price of €310m

23. BALANCE SHEETS AT 31 DECEMBER 2012
X plc
Y plc €m €m
Sundry assets
900
550
Shares in Y plc at cost
310 -
Sundry liabilities
(420)
(240)
Net assets
790
310
Ordinary shares of 100p each
500
200
Retained profit
290
110
Capital employed
790
310

24. BALANCE SHEETS AT 31 DECEMBER 2012
X plc
Y plc
Group €m €m €m
Sundry assets
900
550
1,450
Shares in Y plc at cost
310 - -
Sundry liabilities
(420)
(240)
(660)
Net assets
790
310
790
Ordinary shares of 100p each
500
200
500
Retained profit
290
110
290
Capital employed
790
310
790

25. EXAMPLE 3
On 31 December 2012 T plc purchased 60% of the ordinary share capital of U plc
When T plc purchased the shares in U plc the balances on U plc’s reserves were as follows:
Share premium
€400m
Revaluation reserve
€200m
Retained profits
€300m
T plc paid €1,500m for the shares in U plc

26. BALANCE SHEETS AT 31 DECEMBER 2012
T plc
U plc
Sundry assets
3,800
3,100
Shares in U plc at cost
1,500 -
Sundry liabilities
(2,900)
(1,100)
Net assets
2,400
2,000
Ordinary shares of 100p each
1,000
800
Share premium
500
400
Revaluation reserve
400
300
Retained profit
500
500
Capital employed
2,400
2,000

27. Analysis of equity in U plc
Group share - 60%
Minority interest 40%
U plc Equity
Purchased by T plc
Earned by the Group
Share capital
800
480
320
Share premium
400
240
160
Revaluation reserve
200
120 80
Revaluation reserve
100 60 40
Retained profit
300
180
120
Retained profit
200
120 80
Net equity/net assets
2,000
1,020
180
800
Amount paid by T plc
1,500
Difference - Goodwill
480

28. T plc Group Consolidated Balance Sheet
As at 31 December 2012
Sundry assets
6,900
Goodwill
480
Sundry liabilities
(4,000)
Net assets
3,380
Share capital
1,000
Share premium
500
Revaluation reserve
460
Retained profit
620
Shareholders’ funds
2,580
Minority interest
800
Capital employed
3,380

29. Example 4
On the day that B plc was incorporated A plc purchased all of B plc’s ordinary share capital at a cost of 100,000
A plc purchased the whole of the ordinary share capital of C plc when the retained profit of C plc amounted to 15,000 paying 135,000

30. Balance Sheets at 30 September 2013
A plc
B plc
C plc
Shares in subsidiaries
235,000
Sundry net assets
275,000
220,000
200,000
Total net assets
510,000
220,000
200,000
Ordinary share capital
350,000
100,000
100,000
Retained profits
160,000
120,000
100,000
Capital employed
510,000
220,000
200,000

31. Analysis of equity in B plc
Group share - 100%
B plc Equity
000
Minority interest 0%
Purchased by A plc
Earned by the Group
Share capital
100
100
Pre-acquisition retained profit
Post-acquisition retained profit
120
120
Net equity/net assets
220
100
120
Amount paid by A plc
100
Goodwill

32. Analysis of equity in C plc
Group share - 100%
C plc Equity
000
Minority interest 0%
Purchased by A plc
Earned by the Group
Share capital
100
100
Pre-acquisition retained profit 15 15
Post-acquisition retained profit 85 85
Net equity/net assets
200
115 85
Amount paid by A plc
135
Goodwill 20

33. B plc since acquisition C plc since acquisition
GROUP RETAINED PROFIT
A plc
160,000
B plc since acquisition
120,000
C plc since acquisition
85,000
Balance at 30 September 2013
365,000

34. A plc Group Consolidated Balance Sheet
As at 30 September 2013
Sundry net assets
695,000
Goodwill
20,000
Net assets
715,000
Share capital
350,000
Retained profit
365,000
Capital employed
715,000

35. Example 5
On the day that E plc was incorporated D plc purchased 60% of E plc’s ordinary share capital at a cost of 120,000
D plc purchased 80% of the ordinary share capital of F plc on 1 October 2009 when the retained profit of F plc amounted to 100,000 paying 350,000

36. Balance Sheets at 30 September 2013
D plc
E plc
F plc
Shares in subsidiaries
470,000
Sundry net assets
515,000
350,000
450,000
Total net assets
985,000
350,000
450,000
Ordinary share capital
500,000
200,000
250,000
Retained profits
485,000
150,000
200,000
Capital employed
985,000
350,000
450,000

37. Analysis of equity in E plc
Group share - 60%
E plc Equity
000
Minority interest 40%
Purchased by D plc
Earned by the Group
Share capital
200
120 80
Pre-acquisition retained profit
Post-acquisition retained profit
150 90 60
Net equity/net assets
350
120 90
140
Amount paid by D plc
120
Goodwill

38. Analysis of equity in F plc
Group share - 80%
F plc Equity
000
Minority interest 20%
Purchased by D plc
Earned by the Group
Share capital
250
200 50
Pre-acquisition retained profit
100 80 20
Post-acquisition retained profit
100 80 20
Net equity/net assets
450
280 80 90
Amount paid by D plc
350
Goodwill 70

39. E plc since acquisition F plc since acquisition
GROUP RETAINED PROFIT
D plc
485,000
E plc since acquisition
90,000
F plc since acquisition
80,000
Balance at 30 September 2013
655,000

40. D plc Group Consolidated Balance Sheet
As at 30 September 2013
Sundry net assets
1,315,000
Goodwill
70,000
Net assets
1,385,000
Share capital
500,000
Retained profit
655,000
Shareholders’ funds
1,155,000
Minority interest (140, ,000)
230,000
Capital employed
1,385,000

41. COMPLEX GROUP STRUCTURE (1)
Parent company P
100%
Subsidiary company A
100%
Subsidiary company B

42. COMPLEX GROUP STRUCTURE (2)
Parent company P
100%
Subsidiary company A
80%
Subsidiary company B
20%
Minority interest

43. COMPLEX GROUP STRUCTURE (3)
Parent company P
60%
Subsidiary company A
40%
Minority interest
80%
Subsidiary company B
20%
Minority interest

44. Parent company P has a controlling interest in subsidiary A due to the majority (60%) shareholding
Subsidiary A has a controlling interest in subsidiary B due to the majority (80%) shareholding
Because parent P controls subsidiary A and subsidiary A controls subsidiary company B
P therefore controls subsidiary company B even though the effective mathematical shareholding of P in B is 48% (60% x 80%)

45. There is a direct minority interest in subsidiary A of 40%
There is a direct minority interest in subsidiary B of 20%
There is an indirect minority interest in subsidiary B of 32% (40% x 80%)

46. SUMMARY OF SHAREHOLDINGS
In subsidiary A:
Group
60%
100%
Minority
40%
In subsidiary B:
Group - indirect
48%
100%
Minority - Direct
20%
52%
Minority - Indirect
32%

47. COMPLEX GROUP STRUCTURE
Parent company P
60%
20%
Subsidiary company A
40%
Minority interest
60%
Subsidiary company B
20%
Minority interest

48. Parent company P has a controlling interest in subsidiary A due to the majority (60%) shareholding
Subsidiary A has a controlling interest in subsidiary B due to the majority (60%) shareholding
P has a direct interest in subsidiary B 20% and an indirect interest through subsidiary A 36% (60% x 60%) - the total effective mathematical shareholding of P in B is 56% (20% + 36%)

49. SUMMARY OF SHAREHOLDINGS
In subsidiary A:
Group
60%
100%
Minority
40%
In subsidiary B:
Group - Direct
20%
56%
Group - Indirect
36%
100%
Minority - Direct
20%
44%
Minority - Indirect
24%

50. CONTROLLING INTEREST
Note that a parent company can have a controlling interest in a subsidiary even though the effective mathematical shareholding is less than 50%

51. EXAMPLE 6
A plc purchased 60% of the ordinary shares in B plc on 1 January 2010 at a cost of €4,000. B plc’s retained profit was €1,000
P plc purchased 60% of the ordinary shares in A plc on 1 January 2011 at a cost of €15,000. A plc’s retained profit was €5,000
B plc’s retained profit at 1 January 2011 was €2,000

52. Balance Sheets at 31 December 2013
P plc
A plc
B plc
Sundry net assets
40,200
22,000
9,000
Shares in subsidiary at cost
15,000
4,000
Net assets
55,200
26,000
9,000
Ordinary share capital
25,000
10,000
5,000
Retained profit
30,200
16,000
4,000
Capital employed
55,200
26,000
9,000

53. Consolidation will take place from 1 January 2011
The acquisition on 1 January 2010 is not relevant

54. SUMMARY OF SHAREHOLDINGS
In subsidiary A:
Group
60%
100%
Minority
40%
In subsidiary B:
Group - indirect
36%
100%
Minority - Direct
40%
64%
Minority - Indirect
24%

55. Analysis of equity in A plc
Group share - 60%
Minority interest 40%
A plc Equity
Purchased by P plc
Earned by the Group
Share capital
10,000
6,000
4,000
Retained profit
5,000
3,000
2,000
Retained profit
11,000
6,600
4,400
Net equity/net assets
26,000
9,000
6,600
10,400
Amount paid by P plc
15,000
Goodwill
6,000

56. Analysis of equity in B plc
Group share - 36%
Minority interest 64%
B plc Equity
Purchased by P plc
Earned by the Group
Share capital
5,000
1,800
3,200
Retained profit
2,000
720
1,280
Retained profit
2,000
720
1,280
Net equity/net assets
9,000
2,520
720
5,760
Amount paid by P via A (4,000) (60:40)
2,400
(1,600)
Goodwill (capital reserve)
(120)
4,160

57. P plc Group Consolidated Balance Sheet As at 31 December 2013
Sundry net assets
71,200
Goodwill (6000 – 120)
5,880
Net assets
77,080
Share capital
25,000
Retained profit
37,520
Shareholders’ funds
62,520
Minority interest
14,560
Capital employed
77,080

58. EXAMPLE 7
A plc purchased 60% of the ordinary shares in B plc on 1 January 2010 at a cost of 4,000. B plc’s retained profit was 1,000
P plc purchased 60% of the ordinary shares in A plc on 1 January 2011 at a cost of 15,000. A plc’s retained profit was 5,000
P plc purchased 20% of the ordinary shares in B plc on 1 January 2011 at a cost of 3,000. B plc’s retained profit was 2,000

59. Balance Sheets at 31 December 2013
P plc
A plc
B plc
Sundry net assets
37,200
22,000
9,000
Shares in subsidiary at cost
18,000
4,000
Net assets
55,200
26,000
9,000
Ordinary share capital
25,000
10,000
5,000
Retained profit
30,200
16,000
4,000
Capital employed
55,200
26,000
9,000

60. Consolidation will take place from 1 January 2011
The acquisition on 1 January 2010 is not relevant

61. SUMMARY OF SHAREHOLDINGS
In subsidiary A:
Group
60%
100%
Minority
40%
In subsidiary B:
Group - Direct
20%
56%
Group - Indirect
36%
100%
Minority - Direct
20%
44%
Minority - Indirect
24%

62. Analysis of equity in A plc
Group share - 60%
Minority interest 40%
A plc Equity
Purchased by P plc
Earned by the Group
Share capital
10,000
6,000
4,000
Retained profit
5,000
3,000
2,000
Retained profit
11,000
6,600
4,400
Net equity/net assets
26,000
9,000
6,600
10,400
Amount paid by P plc
15,000
Goodwill
6,000

63. Analysis of equity in B plc
Group share - 56%
Minority interest 44%
B plc Equity
Purchased by P plc
Earned by the Group
Share capital
5,000
2,800
2,200
Retained profit
2,000
1,120
880
Retained profit
2,000
1,120
880
Net equity/net assets
9,000
3,920
1,120
3,960
Amount paid by P
3,000
Amount paid by P via A (4,000) (60:40)
2,400
(1,600)
Goodwill
1,480
2,360

64. P plc Group Consolidated Balance Sheet
As at 31 December 2013
Sundry net assets
68,200
Goodwill
7,480
Net assets
75,680
Share capital
25,000
Retained profit
37,920
Shareholders’ funds
62,920
Minority interest
12,760
Capital employed
75,680

65. What if a company has insufficient cash to purchase the shares in a subsidiary company?
Sometimes an acquiring company will issue new shares in exchange for the shares in a subsidiary
When acquisition accounting is used to report a business combination any shares issued will be recorded as issued at the market value

66. EXAMPLE 8
X plc wishes to acquire all of the ordinary shares in Y plc by means of a share exchange
The capitals of the two companies before the acquisition are as follows:
X plc
Y plc
Ordinary shares of €1
5.00m
2.00m
Retained profits
11.00m
4.50m
Total capital employed
16.00m
6.50m
The market price of the shares are X plc €5.00 and Y plc €4.00

67. 4 shares in X plc are worth 5 shares in Y plc thus X plc will issue 1
4 shares in X plc are worth 5 shares in Y plc thus X plc will issue 1.6m new shares in exchange for the 2m shares in Y plc. The total market value of these €5 each is €8m, i.e. 2m shares in Y €4 each
The capitals of the two companies after the acquisition are as follows:
X plc
Y plc
Ordinary shares of €1
6.60m
2.00m
Share premium
6.40m
0.00m
Retained profits
11.00m
4.50m
Total capital employed
24.00m
6.50m
Note - goodwill will be €1.5m (8m - 6.5m)