Accounting (Basics) - Lecture 2
Consolidated and separate financial statements


Contents
nRequirement to present consolidated financial statements
nConsolidation procedures
nDisclosures in consolidated financial statements
nSeparate financial statements
nCombined financial statements
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Requirement to present consolidated financial statements
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nConsolidated financial statements shall include all subsidiaries of the parent. A parent need not
present consolidated financial statements if:
a)both of the following conditions are met:
i.the parent is itself a subsidiary, and
ii.its ultimate parent (or any intermediate parent) produces consolidated general purpose financial
statements that comply with full IFRSs or with IFRS for SMEs; or
b)it has no subsidiaries other than one that was acquired with the intention of selling or
disposing of it within one year. A parent shall account for such a subsidiary:
i.at fair value with changes in fair value recognized in profit or loss, or
ii.otherwise at cost less impairment.
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Requirement to present consolidated financial statements
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nA subsidiary is an entity that is controlled by the parent. Control is the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities.
nControl is presumed to exist when the parent owns, directly or indirectly through subsidiaries,
more than half of the voting power of an entity. That presumption may be overcome in exceptional
circumstances if it can be clearly demonstrated that such ownership does not constitute control.
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Requirement to present consolidated financial statements
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nControl also exists when the parent owns half or less of the voting power of an entity but it has:
a)power over more than half of the voting rights by virtue of an agreement with other investors;
b)power to govern the financial and operating policies of the entity under a statute or an
agreement;
c)power to appoint or remove the majority of the members of the board of directors or equivalent
governing body and control of the entity is by that board or body; or
d)power to cast the majority of votes at meetings of the board of directors or equivalent governing
body and control of the entity is by that board or body.
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Requirement to present consolidated financial statements
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nControl can also be achieved by having options or convertible instruments that are currently
exercisable or by having an agent with the ability to direct the activities for the benefit of the
controlling entity.
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Consolidation procedures
nThe consolidated financial statements present financial information about the group as a single
economic entity. In preparing consolidated financial statements, an entity shall:
a)combine the financial statements of the parent and its subsidiaries line by line by adding
together like items of assets, liabilities, equity, income and expenses;
b)eliminate the carrying amount of the parent’s investment in each subsidiary and the parent’s
portion of equity of each subsidiary;
c)measure and present non-controlling interest in the profit or loss of consolidated subsidiaries
for the reporting period separately from the interest of the owners of the parent; and
d)measure and present non-controlling interest in the net assets of consolidated subsidiaries
separately from the parent shareholders’ equity in them. Non-controlling interest in the net assets
consists of:
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Consolidation procedures
i.the amount of the non-controlling interest at the date of the original combination calculated in
accordance with Section “Business Combinations and Goodwill”, and
ii.the non-controlling interest’s share of changes in equity since the date of the combination.
nIntragroup balances and transactions, including income, expenses and dividends, are eliminated in
full. Profits and losses resulting from intragroup transactions that are recognized in assets, such
as inventory and property, plant and equipment, are eliminated in full. Intragroup losses may
indicate an impairment that requires recognition in the consolidated financial statements.
nThe financial statements of the parent and its subsidiaries used in the preparation of the
consolidated financial statements shall be prepared as of the same reporting date and using uniform
accounting policies for like transactions and other events and conditions in similar circumstances.
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Consolidation procedures
nThe income and expenses of a subsidiary are included in the consolidated financial statements
until the date on which the parent ceases to control the subsidiary, that is, from acquisition
date.
nAn entity shall disclose non-controlling interest in the profit or loss of the group separately in
the statement of comprehensive income. Profit or loss and each component of other comprehensive
income shall be attributed to the owners of the parent and to the non-controlling interest. Total
comprehensive income shall be attributed to the owners of the parent and to the non-controlling
interest even if this results in the non-controlling interest having a deficit balance.
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Disclosures in consolidated financial statements
nThe following disclosures shall be made in consolidated financial statements:
a)the fact that the statements are consolidated financial statements.
b)the basis for concluding that control exists when the parent does not own, directly or indirectly
through subsidiaries, more than half of the voting power.
c)any difference in the reporting date of the financial statements of the parent and its
subsidiaries used in the preparation of the consolidated financial statements.
d)the nature and extent of any significant restrictions (eg resulting from borrowing arrangements
or regulatory requirements) on the ability of subsidiaries to transfer funds to the parent in the
form of cash dividends or to repay loans.
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Separate financial statements
nIFRS for SMEs requires a parent to present consolidated financial statements. These IFRS do not
require presentation of separate financial statements for the parent entity or for the individual
subsidiaries. The financial statements of an entity that does not have a subsidiary are not
separate financial statements.
nWhen a parent, an investor in an associate, or a venture with an interest in a jointly controlled
entity prepares separate financial statements, those separate financial statements shall disclose:
a)that the statements are separate financial statements, and
b)a description of the methods used to account for the investments in subsidiaries, jointly
controlled entities and associates, and shall identify the consolidated financial statements or
other primary financial statements to which they relate.
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Combined financial statements
nCombined financial statements are a single set of financial statements of two or more entities
controlled by a single investor. These IFRS does not require combined financial statements to be
prepared. If the investor prepares combined financial statements and describes them as conforming
to the IFRS for SMEs, those statements shall comply with all of the requirements of IFRS for SMEs.
nIntercompany transactions and balances shall be eliminated; profits or losses resulting from
intercompany transactions that are recognized in assets such as inventory and property, plant and
equipment shall be eliminated; the financial statements of the entities included in the combined
financial statements shall be prepared as of the same reporting date unless it is impracticable to
do so; and uniform accounting policies shall be followed for like transactions and other events in
similar circumstances.
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