Corporate Reporting
Corporate Reporting tests how well you prepare, adjust and interpret consolidated and entity financial statements under SLFRS. The exam favours complex groups, financial instruments, leases, revenue, deferred tax and the judgements behind the numbers.
Core rules
- Control (SLFRS 10): consolidate when the investor has power over relevant activities, exposure to variable returns and the ability to use power to affect returns. Reassess when facts change.
- Acquisition method (SLFRS 3): identify the acquirer and acquisition date; recognise identifiable assets and liabilities at fair value; measure NCI at fair value or proportionate share; the residual is goodwill.
- Intra-group adjustments: eliminate balances, income, expenses and unrealised profits in full. For upstream sales (subsidiary to parent), allocate the elimination between parent and NCI; for downstream sales, charge it to the parent.
- Deferred tax (LKAS 12): recognise on temporary differences arising from consolidation adjustments, fair value adjustments and revaluations, unless an exception applies.
Worked example
P acquires 80% of S for Rs. 900m. S's identifiable net assets at acquisition have a fair value of Rs. 800m. NCI is measured at proportionate share. Goodwill = consideration 900 + NCI (20% × 800 = 160) − net assets 800 = Rs. 260m. Later P sells goods to S at a profit of Rs. 40m; half the goods remain in S's inventory at year-end. The unrealised profit is 50% × 40 = Rs. 20m. Because the sale is downstream, reduce P's retained earnings and group inventory by Rs. 20m; NCI is unaffected. If tax relief follows the intra-group sale, the consolidated carrying amount is Rs. 20m below tax base, so recognise a deferred tax asset of Rs. 20m × 30% = Rs. 6m.
Traps
- Measuring NCI at fair value after acquisition; the choice is only at acquisition.
- Treating a change in ownership without loss of control as a gain or loss; it is an equity transaction.
- Forgetting deferred tax on consolidation adjustments.
- Eliminating only the group share of an upstream profit rather than the full profit and reallocating to NCI.
- Confusing the equity method for associates with full consolidation.