tailieunhanh - Lecture Framework of financial reporting - Lecture 31

The main contents of the chapter consist of the following: Principles of consolidated financial statements, IFRS 10 consolidated financial statements, related parties, treatment of goodwill, pre-and post acquisition reserves,. | Revise lecture 31 1 Principles of consolidated financial statements 2 Principles of consolidated financial statements The concept of group accounts What is a group? If one company owns more than 50% of the ordinary shares of another company: This will usually give the first company ‘control’ of the second company. The first company (the parent company, P) has enough voting power to appoint all the directors of the second company (the subsidiary company, S). 3 Principles of consolidated financial statements Group accounts The key principle undertaking group accounts is the need to reflect the economic substance of the relationship. P is an individual legal entity. S is an individual legal entity. P controls S and therefore they from a single economic entity, the group. 4 Principles of consolidated financial statements The single economic unit concept The purpose of consolidated accounts is to: Present financial information about a parent undertaking and its subsidiary undertakings as a single economic unit. Show the economic resources controlled by the group. Show the obligations of the group. Show the results the group achieves with its resources. 5 IFRS 10 consolidated financial statements 6 IFRS 10 IFRS 10 consolidated financial statements uses the following definitions: Parent: an entity that controls one or more entities Subsidiary: an entity that is controlled by another entity (known as the parent) Control of an investee: an investor controls an investee when the investor is exposed. 7 IFRS 10 IFRS 10 outlines the circumstances in which a group is required to prepare consolidated financial statements. Consolidated financial statements should be prepared when the parent company has control over the subsidiary (control is usually established based on ownership of more than 50% of voting power). 8 IFRS 10 Control is identified by IFRS 10 as the sole basis for consolidation and comprises the following three elements: Power over the investee Exposure, or rights, . | Revise lecture 31 1 Principles of consolidated financial statements 2 Principles of consolidated financial statements The concept of group accounts What is a group? If one company owns more than 50% of the ordinary shares of another company: This will usually give the first company ‘control’ of the second company. The first company (the parent company, P) has enough voting power to appoint all the directors of the second company (the subsidiary company, S). 3 Principles of consolidated financial statements Group accounts The key principle undertaking group accounts is the need to reflect the economic substance of the relationship. P is an individual legal entity. S is an individual legal entity. P controls S and therefore they from a single economic entity, the group. 4 Principles of consolidated financial statements The single economic unit concept The purpose of consolidated accounts is to: Present financial information about a parent undertaking and its subsidiary undertakings as a