Business combinations, consolidations and group accounts
This domain tests acquisition accounting and the preparation of consolidated financial statements. The key question is whether the investor controls the investee: power over relevant activities, exposure to variable returns, and ability to use power to affect returns. Control gives consolidation; significant influence gives equity accounting; joint control follows IFRS 11.
Acquisition method
IFRS 3 requires identifying the acquirer, the acquisition date and consideration transferred. Recognise identifiable assets acquired and liabilities assumed at fair value, subject to specific exceptions. Measure non-controlling interest either at fair value or at its proportionate share of identifiable net assets. Goodwill is consideration plus NCI plus any previously held interest less the fair value of net assets. Bargain purchases are remeasured and any gain is recognised. Acquisition-related costs are expensed. Contingent consideration is measured at fair value.
Consolidation mechanics
Combine like items line by line. Eliminate the parent's investment against the parent's share of equity. Recognise NCI in equity and in profit. Include only post-acquisition results. Eliminate intra-group balances, income, expenses and unrealised profits in inventory or PPE. Align accounting policies and use consistent reporting dates. Depreciate fair value uplifts over remaining useful lives; test goodwill for impairment annually or when indicators exist.
Worked example
Parent pays 900 for 80% of Subsidiary. At acquisition, identifiable net assets have a fair value of 1,000. NCI is measured at proportionate share: 20% × 1,000 = 200. Goodwill = 900 + 200 − 1,000 = 100. If NCI were measured at fair value of 250, goodwill = 900 + 250 − 1,000 = 150. The choice changes NCI and goodwill, not the equity attributable to the parent's owners.
Traps
Do not consolidate pre-acquisition profits. Do not eliminate only the parent's share of an intra-group profit when NCI exists. Do not amortise goodwill. Do not ignore fair value depreciation. Do not treat associates as subsidiaries.