ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)
CONSOLIDATED FINANCIAL STATEMENTS
(SUBSEQUENT TO DATE OF ACQUISITION)
Definition of Terms
a. Consolidated Financial Statements – the financial statements of a group in which the assets, liabilities,
equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single
economic entity.
b. Control of an investee – as investor controls an investee when the investor is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to affect those returns through
its power over the investee.
c. Decision Maker – as entity with decision-making rights that is either a principal or an agent for other
parties.
d. Group – a parent and its subsidiaries.
e. Investment Entity – and entity that:
1. Obtains funds from one or more investors for the purpose of providing those investor(s) with Investment
management services;
2. Commits to its investor(s) that its business purpose is to invest funds solely for returns from Capital
Appreciation, investment income, or both; and
3. measures and evaluates the performance of substantially all of its investments on a fair value Basis.
f. Non-controlling interest – equity in a subsidiary not attributable, directly or indirectly, to a parent.
g. Parent – an entity that controls one or more entities.
h. Power – existing rights that give the current ability to direct the relevant activities.
i. Protective rights – rights designed to protect the interest of the party holding those rights without giving
the party power over the entity to which those rights relate.
j. Relevant activities – for the purpose of this IFRS, relevant activities are activities of the investee that
significantly affect the investee’s returns.
k. Removal rights – rights to deprive the decision maker of its decision-making authority.
l. Subsidiary – an entity that is controlled by another entity.
PFRS 10 prescribe the principles for the presentation and preparation of consolidated financial statements when an
entity controls one or more entities.
To meet the objective, PFRS 10:
a. requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated
financial statements;
b. defines the principle of control, and establishes control as the basis for consolidation;
c. sets out how to apply the principle of control to identify whether an investor controls an investee and
therefore must consolidate the investee;
d. sets out the accounting requirements for the preparation of consolidated financial statements; and
e. defines an investment entity and sets out an exception to consolidating particular subsidiaries of an
investment entity
PFRS states that parent entity shall present consolidated financial statements. It also provides that consolidated
financial statements shall include all subsidiaries of the parent. A subsidiary is not excluded from consolidation even
if its business activities are dissimilar from those of the other entities.
An entity that is a parent shall present consolidated financial statements. This IFRS applies to all entities, except as
follows:
A. The parent entity is not required to present consolidated financial statements if all of the following conditions
are met:
1. The is a wholly owned subsidiary or is a partially owned subsidiary of another entity and all its owner,
including those not otherwise entitled to vote do not object to the parent not presenting consolidated
financial statements.
2. The parent debt or equity instruments are not traded in public market (domestic of foreign stock
exchange or an over the counter market).
3. The parent did not file or is not in the process of filing its financial statements with a securities
commission or other regulatory body for the purpose of issuing any class of instruments in a public
market. And
4. Its ultimate or any intermediate parent produces consolidated financial statements that are available
for public use and comply with IFRSs.
B. Post-employment benefit plans or other long-term employee benefit plans to which IAS 19 Employee
Benefits applies.
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C. An investment entity need not present consolidated financial statements if it is required, in accordance with
paragraph 31 of this IFRS, to measure all of its subsidiaries at fair value through profit or loss.
Control
An investor, regardless of the nature of its involvement with ana entity (the investee), shall determine whether it is
a parent by assessing whether it controls the investees.
An investor controls an investee when it is exposed, or has rights, the variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the investees. Thus, an investor controls
an investee if and only if the investor has all the following:
a. Power over the investee;
b. Exposure, or rights, to variable returns from its involvement with the investee; and
c. The ability to use its power over the investee to affect the amount of the investor’s returns.
An investor shall consider all facts and circumstances when assessing whether it controls an investee. The investor
shall reassess whether it controls as investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control.
Two or more investors collectively control an investee when they must act together to direct the relevant activities,
in such cases, because no investor can direct the activities without the co -operation of the others, no investor
individually controls the investee, each investor would account for its interest in the investee in accordance with the
relevant PFRSs, such as IFRS 11 Joint Arrangements, PAS 28 Investments in Associates and Joint Ventures or PFRS
9 Financial Instruments.
Power
An investor has power over an investee when the investor has existing rights that give it the current ability to direct
the relevant activities, ie the activities that significantly affect the investee’s returns.
Power arises from rights. Sometimes assessing power is straightforward, such as when power over an investee is
obtained directly and solely from the voting rights granted by equity instruments such as shares, and can be assessed
by considering the voting rights from those shareholdings. In other cases, the assessment will be more complex
power results from one or more than one factor to be considered, for example when power results from one or more
contractual arrangements.
An investor with the current ability to direct the relevant activities has power eve if its rights to direct have yet to be
exercised. Evidence that the investor has been directing relevant activities can help determine whether the investor
has power, but such evidence is not, in itself, conclusive in determining whether the investor has power over an
investee.
If two or more investors each have existing rights that give them the unilateral ability to direct different relevant
activities, the investor that has the current ability to direct the activities that most significantly affect the returns of
the investee has power over the investee.
An investor can have power over an investee even if other entities have existing rights that give them the current
ability to participate in the direction of the relevant activities, for example when another entity has significant
influence. However, an investor that holds only protective rights does not have power over an investee (see
paragraphs B26-B28), and consequently does not control the investee.
Returns
An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s
returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s
return can be only positive, only negative or both positive and negative.
Although only one investor can control an investee, more than one party can share in the returns of an investee. For
example, holders of non-controlling interests can share in the profits or distributions of an investee and consequently
does not control the investee.
Accounting requirements
A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and
other events in similar circumstances.
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)
Consolidation of an investee shall begin from the date investor obtains control of the investee and cease when the
investor loses control of the investee.
Consolidation process
Consolidation financial statements:
a. Combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those
of its subsidiaries.
b. Offset (eliminate) the carrying amount of the parent’s investment in each subsidiary and the parent’s portion
of equity of each subsidiary.
c. Eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to
transactions between entities of the group (profits or losses resulting from intragroup transactions that are
recognized in assets, such as inventory and fixed assets, are eliminated in full). Intragroup losses may
indicate an impairment that requires recognition in the consolidated financial statements. PAS 12 Income
Taxes applies to temporary differences that arise from the elimination of profits and losses resulting from
intragroup transactions.
Uniform accounting policies
If a member of the group uses accounting policies other than those adopted in the consolidated financial statements
for like transactions and events is similar circumstances, appropriate adjustments are made to that group member’s
financial statements in preparing the consolidated financial statements to ensure conformity with the group’s
accounting policies.
Measurement
An entity includes the income and expenses of a subsidiary in the consolidated financial statements from the date it
gains control until the date when the entity ceases to control the subsidiary. Income and expenses of the subsidiary
are based on the amounts of the assets and liabilities recognized in the consolidated financial statements at the
acquisition date. For example, depreciation expense recognized in the consolidated statement of comprehensive
income after the acquisition date is based on the fair values of the related depreciable assets recognized in the
consolidated financial statements at the acquisition date.
Non-controlling interests
A parent shall present non-controlling interests in the consolidated statement of financial position within equity,
separately from the equity of the owners of the parent.
An entity shall attribute the profit or loss and each component of other comprehensive income to the owners of the
parent and to the non-controlling interests. The entity shall also attribute total comprehensive income to the owners
of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit
balance.
If a subsidiary has outstanding cumulative preference shares that are classified as equity and are held by non-
controlling interests, the entity shall compute its share of profit or loss after adjusting for the dividends on such
shares, whether or not such dividends have been declared.
Change of Ownership without Loss of Control
Changes in a parent’s ownership interest in a subsidiary that do not results in the parent losing control of the
subsidiary are equity transactions (ie transactions with owners in their capacity as owners). Because the Parent entity
continues to have the ability to control the subsidiary. Therefor, no gain or loss is recognized on the sale of interest.
An entity shall adjust the carrying amounts of the controlling and non-controlling interests to reflect the changes in
their relative interests in the subsidiary. The entity shall recognize directly in equity any difference between the
amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received,
the attribute it to the owners of the parent.
Loss of control (Deconsolidation)
If a parent loses control of a subsidiary, the parent:
a. Derecognizes the assets and liabilities of the former subsidiary from the consolidated statement of financial
position.
b. Recognizes any investment retained in the former subsidiary at its fair value when control is lost and
subsequently accounts for it and for any amounts owned by or to the former subsidiary in accordance with
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)
relevant PFRSs. The fair value shall be regarded as the fair value on initial recognition of a financial asset in
accordance with PFRS 8 or, when appropriate, the cost of initial recognition of an investment in an associate
or joint venture.
c. Recognizes the gain or loss associated with the loss of control attributable to the former controlling interests.
Deconsolidation
In deconsolidation, the control of parent over the subsidiary is lost, the parent entity derecognizes all assets, liabilities
and non-controlling interest at their carrying amount. The interest retained by the parent entity to its former
subsidiary is recognized at fair value at the date of control is lost. If the loss of control of the former subsidiary
involves the distribution of equity interests to owners of the parent acting in their capacity of owners, that distribution
is recognized at the date control is lost. A gain or loss of control is recognized as the net of the proceeds, if any, and
these transactions. Any gain or loss on disposal is recognized in profit or loss.
When a control of subsidiary is lost, and an interest is retained, that interest is measured at fair value, and this is
factored into the calculation of gain or loss on disposal.
Computation of Gain or Loss on Disposal
(1) Fair value of any retained in the former subsidiary XXX
(2) Carrying value of non-controlling interest held by other
Investors (including accumulated other comprehensive
Income) XXX
(3) Fair Value of consideration received XXX
Total XXX
Carrying value of the former subsidiary, net identifiable assets
At derecognition date
Carrying amount of goodwill at derecognition date (XXX)
Gain (loss) in Disposal XXX
Change of Ownership without Loss of Control
Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary
are equity transactions (ie transactions with owners in their capacity as owners). Because the Parent entity continues
to have the ability to control the subsidiary. Therefore, no gain or loss is recognized on the sale of interest.
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