E-14 Advanced Accounting and
Financial Reporting
Lecture 09 & 10
Complex Groups, Piecemeal Acquisition and Disposal of
SubsidiaryIAS 7 Consolidated Statement of Cash
Flows
Sajid Shafiq, ACA
Consolidated Statement of Cash Flow
The method of preparation is the same as for
the individual company statement of cash flow
but additional cash flows may arise as follows:
• Dividends paid to Non Controlling Interest
• Dividends received from Associate
• Cash consequences of Acquisition or Disposal
of Subsidiaries
CSCF and Complex Groups
2
Non Controlling Interest
Rs
Rs
Dividend to NCI
(Balancing figure)
xxx
B/f (NCI- as per CSFP)
(Dividend Payable to NCI-as per
CSFP)
xxx
B/f (NCI- as per CSFP)
(Dividend Payable to NCI-as
per CSFP)
xxx
% age of S’s Total Comprehensive
Income* (as per CSCI)
xxx
* Profit, revaluation, translation
reserve etc.
Investment in Associate (IIA)
Rs
Rs
B/f (IIA- as per CSFP)
(Dividend Receivable from A)
Xxx
Dividend from A
(Balancing figure)
xxx
% age of S’s Total Comprehensive
Income* (as per CSCI)
xxx
C/f (IIA- as per CSFP)
(Dividend Receivable from A)
Xxx
* Profit, revaluation, translation
reserve etc.
CSCF and Complex Groups
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CSCF and Complex Groups
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CSCF and Complex Groups
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Acquisition and disposal of Subsidiary
Cash flows are reported net of cash given up or acquired with the subsidiary
CSCF and Complex Groups
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Acquisition and disposal of Subsidiary
• Each of the individual net assets of a
subsidiary acquired/disposed of during the
period must be excluded when comparing
group balance sheets for CF calculations.
Subsidiary acquired in the period
Subsidiary sold in the period
SUBTRACT inventory, receivables,
payables etc. at the date of acquisition
from the movement on these items when
calculating the cash flows
ADD inventory, receivables, payables etc.
at the date of disposal from the
movement on these items when
calculating the cash flows
CSCF and Complex Groups
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Example: acquisition during the year
CSCF and Complex Groups
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CSCF and Complex Groups
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Disposal during the year
CSCF and Complex Groups
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Disposal during the year
CSCF and Complex Groups
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Consolidation of Complex Group
• Multiple Subsidiaries
• Groups involving Sub-subsidiaries
• Groups involving Sub-Associates
CSCF and Complex Groups
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Consolidation of Complex Group
Multiple Subsidiaries
• The fundamental technique remains same except
that
– Now there will be multiple calculations of
• Goodwill
• Non-Controlling Interest, &
• Share in Post acquisition retained earnings for Consolidated
Retained earnings
– CSFP will show a single(combined) figure of GW and
NCI. A NGW will not be off set against GW, however.
CSCF and Complex Groups
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Consolidation of Complex Group
Multiple Subsidiaries
Example
31 December 2008
P
S
T
Cost of investment –S
–T
800
400
Other net assets
600
1,100
600
1,800
1,100
600
200
100
100
1,600
1,000
500
1,800
1,100
600
Share Capital
Retained Earnings
P acquired 80% shareholding in S two years ago when S’s
reserves stood 700. P also acquired 90% shares in T when its
reserves stood 400 one year ago.
Required: Prepare Consolidated SFP at 31 Dec 08
CSCF and Complex Groups
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Consolidation of Complex Group
Multiple Subsidiaries
Solution
P Group Consolidated SFP at 31 December 2008
CSCF and Complex Groups
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Consolidation of Complex Group
Multiple Subsidiaries
Solution
Subsidiaries’ Net assets summary
CSCF and Complex Groups
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Consolidation of Complex Group
Multiple Subsidiaries
Solution
Goodwill
Consolidated Retained Earnings
Non Controlling Interest
CSCF and Complex Groups
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Consolidation of Complex Group
Groups involving Sub-subsidiaries-Vertical
CSCF and Complex Groups
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Consolidation of Complex Group
Groups involving Sub-subsidiaries-Mixed(‘D’)
CSCF and Complex Groups
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Consolidation of Complex Group
Groups involving Sub-subsidiaries-Rules
-For control, Actual %ages
-For GW, NCI, Consolidated RE,
effective SH
-Cost of Investment in Subsubsidiary is %age investment in
Subsidiary
Dividend by Sub-subsidiary is
-Acquisition date with reference
accounted for using ‘Actual’ and
to “Ultimate” Parent is relevant
not effective SH
CSCF and Complex Groups
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Consolidation of Complex Group
Groups involving Sub-subsidiariesExample
31 December 2008
P
Cost of investment –S
–T
Other net assets
1.
2.
T
700
450
1,100
900
600
1,800
1,350
600
200
100
100
1,600
1,250
500
1,800
1,350
600
Share Capital
Retained Earnings
S
P bought 70% of S 2 years ago when S’s reserves stood 500. Later(1 year ago) S
bought 60% of T when T’s retained earnings were 200.
The companies declared following dividends:
–
P---150, S---100, T—80
Required: Prepare Consolidated SFP
CSCF and Complex Groups
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Consolidation of Complex Group
Groups involving Sub-subsidiariesSolution
Group Structure:
CSCF and Complex Groups
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Consolidation of Complex Group
Groups involving Sub-subsidiariesSolution
P Group Consolidated SFP as at 31 December 2008
CSCF and Complex Groups
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Consolidation of Complex Group
Groups involving Sub-subsidiariesSolution
Net Assets Summary
CSCF and Complex Groups
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Consolidation of Complex Group
Groups involving Sub-subsidiariesSolution
Goodwill:
Non Controlling Interest:
Consolidated Retained Earnings:
CSCF and Complex Groups
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Consolidation of Complex Group
Groups involving Sub-Associates
Here two tier approach is followed i.e.
• First consolidate sub-associate under equity
method in the books of Subsidiary
• Then consolidate as normal
CSCF and Complex Groups
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Piecemeal acquisition and
Disposal
Piecemeal acquisition and Disposal
• Piecemeal acquisition
– Where acquisition does not change control
– Where acquisition does change control
– A business combination achieved without the
transfer of consideration
• Disposal
– Where disposal does not change control
– Where disposal does change control
– Deemed Disposal
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Piecemeal acquisition- Where acquisition does not
change control e.g. earlier 60%, later 80%
• Goodwill
– will NOT be re-measured due to subsequent acquisition
– The difference between change in NCI at the date of
subsequent acquisition and Cost of subsequent
investment will be taken directly to equity
• CSFP will be prepared as per shareholding existing at
consolidation date
• CSCI will be prepared having regard to status of
investment
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Piecemeal acquisition- Where acquisition does not change control
Example
31 December 2008
P(000)
S(000)
Cost of investment –S
400
Other net assets
600
550
1,000
550
Share Capital
200
100
Retained Earnings
800
450
1,000
550
P acquired its holding in S as follows:
1.
Date
Prop acq
Cost of inv
S’s ret earngs
30 Sep 2007
60%
255,000
300,000
1 July 2008
20%
145,000
390,000
The PAT for year ended 31 Dec 2008 of P and S were
200,000 and 120,000 respectively
Required: Prepare Consolidated SFP and CSCI extract
2.
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Piecemeal acquisition- Where acquisition does not change control
Solution
P Group Consolidated SFP at 31 December 2008
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Piecemeal acquisition- Where acquisition does not change control
Solution
Net Asset’s summary
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Piecemeal acquisition- Where acquisition does not change control
Solution
Goodwill
Non Controlling interest
Consolidated Retained Earnings
• P’s Retained earnings
• Share in S’s post acquisition retained
earnings
• 60% of post(1st) acquisition
• 20% of post(subsequent) acq.
• Cost of subsequent investment
Less
• Change in NCI (including attributable
GW) at subsequent acq date
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Piecemeal acquisition- Where acquisition does not change control
Solution
P Group Consolidated SCI for year ended 31 Dec 2008(extract)
Profit after Tax
Attributable to:
• Owners of the Parent
• Non Controlling Interest
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Piecemeal acquisition-Where acquisition does change control
• Possible Scenarios:
– From simple investment(10%) TO Subsidiary (60%)
– From Associate (30%)
TO Subsidiary (60%)
• CSFP and CSCI will be prepared as usual.
• Goodwill, however, be calculated as follows:
– The previous investment will be re-measured at FV
with resulting gain-loss in profit and loss
– Goodwill will now be calculated with reference to
combined Cost of investment (FV of previously
held plus cost paid for subsequent investment)
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Piecemeal acquisition-Where acquisition does change control
Example
P acquired following shares in S on different
dates
Date
Prop acq
Cost of inv
S’s net assets
30 Sep 2007
40%
200,000
300,000
1 July 2008
20%
160,000
400,000
Required: Calculate goodwill the above case.
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Piecemeal acquisition-A business combination achieved without the transfer of
consideration
• Circumstances include:
a. The acquiree repurchases a sufficient number of its own shares for an existing
investor (the acquirer) to obtain control.
b. Minority veto rights lapse that previously kept the acquirer from controlling
an acquiree in which the acquirer held the majority voting rights.
c. The acquirer and acquiree agree to combine their businesses by contract
alone. The acquirer transfers no consideration in exchange for control of an
acquiree and holds no equity interests in the acquiree, either on the
acquisition date or previously.
• In a business combination achieved by contract alone, the acquirer shall attribute
to the owners of the acquiree the amount of the acquiree’s net assets recognized
in accordance with this IFRS. In other words, the equity interests in the acquiree
held by parties other than the acquirer are a non-controlling interest in the
acquirer’s post-combination financial statements even if the result is that all of
the equity interests in the acquiree are attributed to the non-controlling
interest.
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal Where disposal does not change control e.g. earlier 80%, later
60%
• On disposal
– No Gain or loss on disposal shall be calculated for group
– GW will NOT be re-measured
– The difference between change in NCI at the date of
disposal and disposal proceeds will be taken directly to
equity
• CSFP will be prepared as per shareholding existing at
consolidation date
• CSCI will be prepared having regard to status of
investment
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal Where disposal does not change control
Example
31 December 2008
P(000)
S(000)
Cost of investment –S (80%)
400
Other net assets
600
550
1,000
550
Share Capital
200
100
Retained Earnings
650
450
Suspense account
150
1,000
550
P acquired S two years ago when its reserves stood 300,000.
2.
On 31 March 2008, it sold 20% shares (i.e. retaining 60%) for
150,000 which have been credited to suspense account.
2.
The PAT for year ended 31 Dec 2008 of P and S were 200,000 and
60,000 respectively.
Required: Prepare Consolidated SFP and CSCI extract
1.
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal- Where disposal does not change control
Solution
P Group Consolidated SFP at 31 December 2008
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal- Where disposal does not change control
Solution
Net Asset’s summary
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal- Where disposal does not change control
Solution
Goodwill
Non Controlling interest
Consolidated Retained Earnings
• P’s Retained earnings
• Share in S’s post acquisition retained
earnings
• 80% of post acquisition till
disposal date
• 60% of RE subsequent to
disposal.
• Sale proceed of investment
Less
• Change in NCI (including attributable
GW) at disposal date
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal- Where disposal does not change control
Solution
P Group Consolidated SCI for year ended 31 Dec 2008(extract)
Profit after Tax
Attributable to:
• Owners of the Parent
• Non Controlling Interest
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal -Where disposal does change control
• Possible Scenarios:
–
–
–
•
•
From subsidiary TO full disposal
From subsidiary (60%) TO simple investment(10%)
From Subsidiary (60%) TO Associate (30%)
CSFP and CSCI will be prepared as usual.
Gain-loss on disposal, measured as follows, shall be taken
to PL account:
–
–
–
–
Sum of [sale proceeds and FV of portion retained at disposal date]
LESS
Goodwill(combined i.e. including share of NCI)
Net assets of subsidiary at the date of disposal
NCI in subsidiary at the date of disposal including attributable GW
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal-Where disposal does change control
Example
P acquired 80% shares of S on 1 December 2007
for 800,000 when S’s net assets stood 800,000.
7 months later, P sold its 60% shares (i.e.
retaining 20%) for 1,200,000 when S’s net assets
were 1,000,000.
Required: Calculate gain-loss on disposal.
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal-Where disposal does change control
Solution
Sale Proceed
FV of portion retained
______
______ _____
Less:
Goodwill (Combined)
______
Net assets of S on disposal
______
Less Non Controlling Interest before
disposal date, including GW
(
) _____
CSCF and Complex Groups
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Piecemeal acquisition and Disposal
Disposal –Deemed Disposal
• Circumstances include:
a. The acquiree issues a sufficient number of its shares to a new investor.
b. Minority veto rights come into effect that keeps the acquirer from
controlling an acquiree in which the acquirer held the majority voting
rights.
c. The acquirer and acquiree agree to end their business combination and
quit the contract
• The rules relating to calculation of Gain-loss
depend whether or not there is a change in
control as discussed above.
CSCF and Complex Groups
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