Preparation of Financial Statements
Single entity preparation
Be able to build a statement of profit or loss and other comprehensive income, a statement of financial position, a statement of changes in equity and a statement of cash flows under IAS 7 (indirect method operating section, with interest and tax treated consistently). Know IAS 10: adjusting events provide evidence of conditions existing at the year end and change the figures; non-adjusting events are disclosed only. IFRS 5 presents a discontinued operation as a single amount in profit or loss. Deferred tax arises on temporary differences.
Consolidation
IFRS 10 control requires power over the relevant activities, exposure to variable returns, and the ability to use that power. Under the acquisition method, goodwill = consideration transferred + non-controlling interest + fair value of any previously held interest, less the fair value of identifiable net assets. NCI is measured either at fair value (full goodwill) or at its proportionate share of net assets (partial goodwill). Only the post-acquisition reserves of the subsidiary are consolidated. Intra-group sales and balances are eliminated and a provision for unrealised profit is charged against closing inventory and the selling company's profit. Fair value uplifts carry extra depreciation. Associates are equity accounted, not line-by-line consolidated.
Traps
- Applying the group share to total reserves instead of post-acquisition reserves.
- Forgetting the PURP adjustment or calculating it on the wrong profit element.
- Ignoring depreciation on fair value uplifts since acquisition.
- Treating an associate's revenue as group revenue.
Worked example. Parent pays $900,000 for 75% of a subsidiary whose identifiable net assets have a fair value of $800,000. NCI at proportionate share = 25% x 800,000 = $200,000, so goodwill = 900,000 + 200,000 - 800,000 = $300,000. If NCI is measured at fair value of $240,000, goodwill becomes $340,000 and $40,000 of it is attributed to the NCI.