IFRS 10 Consolidated
Financial Statements
Ben Waled I. Abduhasan
BSACC 1 - 1
IFRS 10 Consolidated Financial Statements
. Abduhasan, BSACC 1-1
IFRS 10 Consolidated Financial Statements
Learning Objectives:
1. State the elements of control.
2. Describe the consolidation procedures
Definition of terms
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
Group- A parent and its subsidiaries.
Parent- An entity that controls one or more entities.
Subsidiary- An entity that is controlled by another entity.
Non-controlling interest- Equity in a subsidiary not attributable, directly or indirectly, to a parent.
Control of an investee- An 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
Power- Existing rights that give the current ability to direct the relevant activities.
Relevant activities- For the purpose of this IFRS, relevant activities are activities of the investee that
significantly affect the investee’s returns.
Scope
1. All parent entities are required to prepare consolidated financial statements, except:
a. It is a subsidiary of another entity, and all its other owners do not object to its non-presentation of
consolidated financial statements;
b. Its debt or equity instruments are not traded in a public market( or being processed for such
purpose); and
c. Its ultimate or any intermediate parent produces consolidated financial statements that are
available for public use and comply with PFRSs
2. Post-employment benefit plans or other long-term employee benefit plans to which PAS 19 applies.
IFRS 10 Consolidated Financial Statements
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Control
Control is the basis for consolidation. PFRS 10 requires an investor to determine whether it is a parent by
assessing whether it controls the investee.
Control exists if the investor has all of the following:
a. Power over the investee;
b. Exposure, or rights to variable returns from the investee; and
c. Ability to affect returns through use of power.
Power
An investor has power over an investee when the investor has existing rights that give it the current ability
to direct the investee’s relevant activities.
The investor’s current ability to direct the investee’s relevant activities is often evidenced by the
investor’s ability to establish and direct the investee’s operating and financing policies.
Power arises from rights and that it may be obtained directly from the voting rights conferred by
shareholdings. However power may also arise from other sources, such as contractual arrangements.
Examples of rights that, either individually or in combination, can give an investor power:
Rights
Substantive
● Unilateral rights
● Voting rights
● Potential voting rights
● Substantive removal rights
Non-substantive
● Protective rights
● Administrative rights
IFRS 10 Consolidated Financial Statements
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Substantive rights
In assessing whether it has a power, an investor considers only substantive rights, ie., rights where the
holder has the ability to exercise.
Voting rights
The investor’s ability to direct the relevant activities of an investee is normally obtained through voting or
similar rights.
Power with a majority of the voting rights
An investor that holds more than half of the voting rights of an investee is presumed to have power over
the investee, except when this is clearly not the case.
Holding more than half of the voting rights results to power when:
a. The relevant activities are directed through majority vote; or
b. A majority of the members of the governing body that directs the relevant activities are
appointed through majority vote.
Majority of the voting rights but no power
AN investor does not have power over an investee, even if the holds more than half of the voting rights,
if:
a. The right to direct the investee’s relevant activities is conferred to a third party who is not an
agent of the investor. For example, the investee’s relevant activities are subject to direction by a
government, court, administrator, receiver, liquidator, or regulator.
b. The investor’s voting rights are not substantive.
Power without a majority of the voting rights
An investor can have power even if he holds less than a majority of the voting rights of an investee. For
example, through:
a. Contractual arrangement between the investor and other vote holders;
b. Rights arising from other contractual arrangements;
c. The investor’s voting rights
d. Potential voting rights or
e. A combination of (a)-(d).
Contractual arrangement with other vote holders
A contractual arrangement between an investor and other vote holders can give the investor power if the
contractual arrangements gives the investor:
a. The right to exercise the voting rights of other vote holders sufficient to give the investor power;
or
b. The right to direct how other vote holders vote to enable the investor to make decisions about the
relevant activities.
IFRS 10 Consolidated Financial Statements
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Exposure or rights to variable returns
An investor is exposed, or has a right, to variable returns if its returns from its involvement with the
investee vary depending on the investee’s performance.
Ability to use power to affect investor’s returns
The investor’s ability to use its power to affect its returns from its involvement with the investee provides
the link between power and variable returns. Only if this ability is present along with power and
exposure, or right to variable returns does the investor obtain control over the investee.
Accounting requirements
If a parent and a subsidiary’s reporting periods do not coincide, the subsidiary shall prepare financial
statements that coincide with the parent’s reporting period before consolidation.
If this is impracticable, the subsidiary’s financial statements shall be adjusted for significant
transactions and events that occur between the end of the subsidiary’s reporting period and that of the
parent’s. The difference between the parent’s and subsidiary’s end of reporting periods shall not exceed
three months.
Uniform accounting policies shall be used. If the subsidiary uses different accounting policies, its
financial statements need to be adjusted to conform to the parent’s accounting policies before they are
consolidated.
Consolidation period
Consolidation begins from the date the investor obtains control of the investee and ceases when the
investor loses control of the investee.
Measurement
Income and expenses
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.
Investment in subsidiary- are accounted for in the parent’s separate financial statements either a. At cost,
b. In accordance with PFRS 9, or c. using equity method.
IFRS 10 Consolidated Financial Statements
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NCI in the net assets of the subsidiary
NCI in net assets is presented in the consolidated statement of financial position within equity, separately
from the equity of the owners of the parent.
NCI in the net assets of the subsidiary consists of:
a. The amount determined at the acquisition date using PFRS 3; and
b. The NCI’s share of the changes in equity since the acquisition date.
NCI in profit or loss and comprehensive income
The profit or loss and each component of other comprehensive income in the consolidated statement of
profit or loss and other comprehensive income are attributed to the following:
1. Owners of the parent
2. Non-controlling interest
Total comprehensive income is attributed to the owners of the parent and to the NCI even if this results in
the non-controlling interests having a deficit balance.
Preparing the Consolidated financial statements
Consolidated financial statements are prepared by combining the financial statements of the parent and its
subsidiaries line by line by adding together similar items of assets, liabilities, equity, income and
expenses.
Consolidation at date of Acquisition
Only the statements of financial position of the combining constituents are consolidated. These involve
the following steps.
1. Eliminate the ‘Investment in subsidiary’ account. This requires:
a. Measuring the identifiable assets acquired and liabilities assumed in the business
combination at their acquisition-date fair values.
b. Recognizing the goodwill from the business combination
c. Eliminating the subsidiary’s pre-combination equity accounts and replacing them with the
non-controlling interest.
2. Add, line by line similar items of assets and liabilities of the combining constituents. The
subsidiary’s assets and liabilities are included in the consolidated financial statements at 100% of
their amounts irrespective of the interest acquired by the parent.
IFRS 10 Consolidated Financial Statements
. Abduhasan, BSACC 1-1
Consolidation subsequent to date of Acquisition
The consolidation procedures subsequent to the acquisition date involve the same procedures as above,
but changes in the subsidiary’s net assets since the acquisition date are considered.
Illustration: Consolidation at acquisition date
Parent
Subsidiary
Cash
10,000
5,000
Accounts receivable
30,000
12,000
Inventory
40,000
23,000
Investment in subsidiary
75,000
-
Equipment, net
180,000
40,000
Total assets
335,000
80,000
Accounts payable
50,000
6,000
Share capital
170,000
50,000
Share premium
65,000
-
Retained earnings
50,000
24.000
Total liabilities and equity
335,000
80,000
Additional information:
● The carrying amounts of the subsidiary’s assets and liabilities approximate the acquisition-date
fair values, except for the following: Inventory-31,000 , Equipment,net- 48,000
● Goodwill under PFRS 3- 3,000
● NCI in the net assets of the subsidiary, also determined under PFRS 3- 18,000
Step 1:
IFRS 10 Consolidated Financial Statements
. Abduhasan, BSACC 1-1
Parent
Subsidiary
Cash
10,000
5,000
Accounts receivable
30,000
12,000
Inventory
40,000
31,000
Investment in subsidiary
—
—-
Equipment, net
180,000
48,000
Goodwill
-
3,000
Accounts payable
50,000
6,000
Share capital
170,000
—-----
Share premium
65,000
-
Retained earnings
50,000
NCI in net assets
-
18,000
IFRS 10 Consolidated Financial Statements
. Abduhasan, BSACC 1-1
Step 2:
Parent
Subsidiary
Consolidated
Cash
10,000
5,000
15.000
Accounts receivable
30,000
12,000
42.000
Inventory
40,000
31,000
71.000
Investment in
subsidiary
—
—-
—-
Equipment, net
180,000
48,000
228,000
Goodwill
—
3,000
3,000
Total assets
359,000
Accounts payable
50,000
6,000
56,000
Share capital
170,000
—-----
170,000
Share premium
65,000
-
65,000
Retained earnings
50,000
NCI in net assets
-
Total liabilities and
equity
50,000
18,000
18,000
359,000