tailieunhanh - Ebook Financial accounting: Part 2

(BQ) Part 2 book "Financial accounting - An international approach" has contents: Financial statements for a group of enterprises, measuring and reporting cash flows, corporate liquidity and solvency, operating performance, investment ratios, corporate reporting and corporate governance,.and other contents. | 12/14/05 11:37 AM Page 207 Financial statements for a group of enterprises 11 Objectives When you have completed this chapter you should be able to: • define different kinds of investments according to the interest owned • account for goodwill arising on consolidation • understand what minority interests are and how to account for them • report interests in joint ventures • explain why one enterprise may invest in another • account for investments at fair value. Introduction To grow or expand, enterprises can either form wholly owned domestic or foreign entities (organic growth) or invest in other enterprises by acquiring their equity. These investments are typically long-term investments; when they are large enough, they allow the investing enterprise varying degrees of control over the investee company. A group exists when an enterprise (a parent or holding company) controls, either directly or indirectly, another enterprise (the subsidiary). Therefore a group consists of a parent and its subsidiary/ies. We explained the reasons for such complex structures in Chapter 1 (section ). Control is defined as the power to govern the financial and operating policies of an enterprise so as to obtain benefits derived from its activities. Control is assumed when one party in the combination owns more than half of the voting rights of 12/14/05 11:37 AM Page 208 208 11: Financial statements for a group of enterprises Figure Different forms of groups Note: H represents the parent or holding company; SI represents a subsidiary directly controlled, while SII represents a subsidiary controlled through another one. the other either directly or through a subsidiary (see third group on the right in Figure ). However, even if the voting rights acquired are less than half, it may still be possible to have control if the parent acquires: (a) power over more than one half of the .