1. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA Thilanka Warnakulasooriya B.Com Special (Col), ACA POSTGRADUATE DIPLOMA IN BUSINESS AND FINANCE - 2013/2014 Principles of Financial and Cost Accounting

2. LKAS 27 – Consolidated and Separate Financial Statements This standard shall be applied-  In preparation of consolidated financial statement for a group of a entities under the control of a parent.  In accounting for investment in subsidiaries jointly controlled entities and associates in separate financial statements.

3. Definitions Consolidated financial statements Financial Statements of a group presented as those of a single economic entity Control Power to govern financial and operating policies of an entity so that to obtain benefits from its activities Group Parent and all its subsidiaries

4. Non‐controlling interest Equity in a subsidiary not attributable, directly or indirectly, to a parent. Parent An entity that has one or more subsidiaries Subsidiary An entity that is controlled by another entity (known as the parent) – includes unincorporated entities

5. Separate Financial Statements Presented by A parent An investor in an associate A venturer in a Jointly Controlled Entity Where investments are accounted on the basis of direct equity interest rather than on the basis of reported results and the net assets

6. Subsidiaries and Control Control is presumed when >50% of the voting power is owned Directly or Indirectly through subsidiaries Unless such ownership is clearly demonstratednot to constitute control Even when ≤50% of voting power is owned, control exists when Power over more than half of the voting rights by virtue of an agreement with other investors Power to govern financial and operating policies of the entity under a statute or an agreement Power to ‘appoint’ or‘ remove’ majority of the members of the board Power to cast the majority of votes at meetings of the board

7. Control Potential Voting Rights – The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by another entity.

8. Consolidation procedure Combines the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income ad expenses. The carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiaries are eliminated. Non-controlling interests in the profit or loss of consolidated subsidiaries for the reporting period are identified.

9. Consolidation procedure Non-controlling interests in the net assets of consolidated subsidiaries are identified Intra-group balances, transactions, income and expenses shall be eliminated in full. when potential voting rights exist, the proportions of profit or loss and changes in equity allocated to the parent and non- controlling interests are determined on the basis of present ownership interests

10. Uniform reporting date The financial statements of the parent and its subsidiaries used I the preparation of the consolidated financial statements shall be prepared as of the same reporting date unless it is impracticable to do so.

11. Uniform accounting policies CFS shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances.

12. Non-controlling interest Non-controlling interest shall be presented in the consolidated statements of financial position within equity, separately from the equity of the owners of the parent.

13. Disclosure The nature of the relationship between the parent and a subsidiary The reasons why the ownership, directly or indirectly through subsidiaries of more than half of the voting or potential voting power of an investee does not constitute control. Reasons for using a different date or period for consolidated the FS of subsidiary.

14. The nature and extent of any significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances. Any changes in a parent’s ownership, interest in a subsidiary that do not result in a loss of control If control of a subsidiary is lost, the parent shall disclose the gain or loss. Explanation for exemption from consolidation has been used. A list of significant investments in subsidiaries, jointly controlled entities and associates, including the name, county of incorporation or residence

15. LKAS-28 Investments in Associates

16. Associate Entity over which the investor has significant influence, but not a subsidiary or a jointly controlled entity Equity Method Investment is initially recognized at cost. Thereafter adjusted for the post‐acquisition share of net assets of the investee P/L of the investor includes the investor’s share of the P/L of the investee – Definitions

17. Significant Influence Power to participate in the financial and operating policy decisions of the investee but not control or joint control If an investor hold, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case.

18. Equity method The equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee.

19. Equity method An investment in an associate is accounted for using the equity method from the date on which it becomes an associate. On acquisition of the investment any difference between the cost of investment and the investor’ share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as –  Goodwill relating to a associate is included in the carrying amount of the investment. Amortization of that goodwill is not permitted.  Any excess of the investor’s share of net fair value of the associate’s identifiable assets and liabilities over the cost of the investment is included as income in the determination of the investor’s share of the associate’s profit or loss in the period in which the investment is acquired

20. Equity method If an investor’s share of losses of an associate equals or exceeds its interest in the associates, the investor discontinues recognizing its share of further losses. Impairment testing is required

21. Disclosure The fair value of investments in associates Summarized financial information of associates The reasons why the presumption that an investors does not have significant influence The reasons why the presumption that an investor has significant influence is overcome

22. Disclosure The end of reporting period of the financial statements of an associate. The nature and extent of any significant restrictions The un-recognised hare of losses of an associates, both for the period and cumulatively The fact that an associate is not accounted for using the equity method

23. Disclosure Investment in associates accounted for using the equity method shall be classified as non-current assets Its share of the contingent liabilities of an associates incurred jointly with other investors