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This document discusses consolidated and separate financial statements. It defines consolidation as aggregating the financial information from separate entities into group financial statements, including a consolidated balance sheet, income statement, cash flow statement, and notes. The key consolidation requirements are that the parent company must eliminate its investment in subsidiaries, recognize minority interests, and exclude intercompany transactions from the consolidated statements. The document also reviews the different levels of influence a parent can have in a subsidiary and the appropriate consolidation method to use, such as full consolidation for majority ownership and the equity method for significant influence.

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52 views27 pages

F13 PDF

This document discusses consolidated and separate financial statements. It defines consolidation as aggregating the financial information from separate entities into group financial statements, including a consolidated balance sheet, income statement, cash flow statement, and notes. The key consolidation requirements are that the parent company must eliminate its investment in subsidiaries, recognize minority interests, and exclude intercompany transactions from the consolidated statements. The document also reviews the different levels of influence a parent can have in a subsidiary and the appropriate consolidation method to use, such as full consolidation for majority ownership and the equity method for significant influence.

Uploaded by

Nhaj
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CONSOLIDATED AND SEPARATE

FINANCIAL STATEMENTS

Ing. Jana HINKE, Ph.D.


[email protected]
CONSOLIDATION

 Consolidation = aggregation of an economic


group

 Consolidation = aggregation information from


separate financial statements to one group
consolidated statement;
 Consolidated accounts are prepared by a parent
company.

 Consolidated statements are represented by:


Consolidated Balance Sheet, Consolidated
Statement of Comprehensive income,
Consolidated Cash-flow Statement, Consolidated
Statement of Changes in Equity and
Consolidated Notes
 No formats are given
 Parent Company – an entity has one or more
subsidiaries,
- Major influence = control – the power to govern
the financial and operating policies of an entity so
as to obtain benefits from its activities;
- Substantial influence – it reaches significant level
in subsidiary that is not major influence
- A group = a parent and its subsidiaries…
Differences in consolidated
statements and individual statements
Consolidated statements are NOT for:
a) Profit or loss distribution,
b) Relationship to individual customers and
suppliers,
c) Tax purposes;
Consolidation according to IAS/IFRS
 IAS 27 – Consolidated and Separate Financial
Statements
 IAS 28 – Investments in associates
 IAS 31 – Investments in joint ventures
Definition and method of consolidation.

EU – 7. Accounting Directive
Consolidation according to
IAS/IFRS

Amended standards from 2013:


 IAS 28 IFRS 12 – 'Disclosure of Interests in
Other Entities '
 IAS 31 IFRS 11 – 'Joint Arrangements'
 IAS 27 IFRS 10 – 'Consolidated Financial
Statements'
IAS 27 only for individual financial statement.
 It is important to distinguish: level of influence

and participation rate!

 They can be the same, but this is not always true.

 Lets explain these terms 


Level of influence

 It means the level of influence of parent comapny in

subsidiary!

 It represent the level of right of parent company to

decide in subsidiary, that means gain information,


impose tasks and goals, control their fulfillment, …
Level of influence

 Major influence – parent company has more than


50% of votes. It influences financial and operating
activity of subsidiary in benefit for parent company.
 Substantial influence – Parent company has
(directly or indirectly) 20% -50% votes. It can influence
financial and operating activity of subsidiary in benefit
for parent company.
 Minor influence – parent company has less than

20% votes (so called pasive investment), it can


not influence financial and operating activity of
subsidiary in benefit for parent company.

 Joint-control – two or more entities set up a

company and realize its management. No one of


them can control the company.
How to gain level of influence?
a) Buying of votes

b) Conclusion of contract with other investors –


they will vote according them.
Participation rate
 It is given by ratio on ordinary shares of
subsidiary
- Major influence – more than 50% ordinary shares
- Substantial influence – 20-50 % ordinary share
- Minority interest – less than 20% ordinary share
Date of consolidation

 There is no problem in case of the same balance


sheet date.

 If not, there are two methods for solution:


a) subsidiaries prepare interim financial statement
b) subsidiaries prepare final statement corrected
by transactions after balance sheet date to
consolidation
Consolidated rules

 Important rules for true and fair view is to have the


same consolidated rules:
- accounting
- consolidation
 It is important that individual financial statements
must be comparable
 Main problem is with entity in different countries
 It means to establish accounting rules:

- Valuation of inventory,

- How to value related costs to inventory

- How to value consumption of inventory,

- Creation and used of adjustments and allowances,

- Recognition and valuation of deferred tax,

- Depreciable method of long-term assets…….


Consolidation method

 Full Consolidation Method,


 Proportional Consolidation Method,
 Equity Method.
- Consolidation method depends on level of influence:
- Major influence = full consolidation method
- Substantial influence = proportional consolidation
method
- Joint interest = equity method
Full consolidation method

 Financial statement of parent company are

aggregated with subsidiary financial statement

 Accounting items are aggregated

 It is necessary to exclude transactions between

group:

- investments,

- receivable and liabilities, …


Equity method

 Financial Investment is recognised at purchase costs

 Parent company e.g. substantial influence, it has


also partial responsibility for its performance and
profitibality, that´s why the part on profit or loss is
recognised in parent company accounts…
Consolidation requirements
 Carrying value of investment of parent company

in subsidiary is excluded

 Minority interest for the period are recognised


Consolidation requirements
 Minority interest on net assets of subsidiary must
be recognised separately.
 Convertible bonds and potential votes are not
considered.
 Intergroup transactions, revenues and expenses
and dividends must be excluded..
Consolidation requirements
 Profit,

 Part of other comprehensive income

 Total comprehensive income

 Minority interest
Disclosures

Disclosures:

- a note of parent companies and subsidiaries

- consolidation method

- indirect relationship in group

- entities excluded from consolidation


Consolidation IFRS for SMEs
Section 9 = Consolidation and Individual Financial
statement
 New term = Combinated Final Statement =
Statement of two or more companies under
control of one investor
 The same regulation for individual statements
 Section 9 is in conformity with IFRS full
version
Section 9 – IFRS for SMEs
 Section 9 define when to prepare consolidated

statements and consolidation procedures.

 There is a rule for consolidated and individual

statements.
Consolidation – IFRS for SMEs

 The same method – aggregation of accounting

items

 Elimination of carrying value of parent company

investment in subsidiary

 Value and recognise minority interest

 Exclude intergroup transaction


THANK YOU FOR YOUR
ATTENTION

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