Ch12-ComplexGroups

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Chapter 12 Complex Groups

LEARNING OBJECTIVES

1. Apply the method of accounting for business combinations, including complex group

structures (vertical and D-shaped/mixed groups).

. Determine the appropriate procedures to be used in preparing group financial

statements.

! e r t i c a l

" r o u p

# i x e d

" r o u p

( D - $ h a p e d )

% o m p l e x" r o u p s

1&


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4'ned by outside shareholders in :

4'ned by outside shareholders in 5(1 6 ) 2 ;7 1&

8ffective 3% in $


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subsidiary

: ; 1= : ; 1=

Bou ascertain the follo'ing+(a) D ac>uired uired :, C1 shares in ? on = ?une 1 'hen the retained earnings

of ? amounted to Cuisition of %. At that date, the fair value of the non-controlling interest in ?

(both direct and indirect), based on effective shareholdings, 'as valued at

C=1,.

(c) "ood'ill has suffered no impairment.

Re)uire#&

Eroduce the consolidated statement of financial position of the D group at =1

December 1. t is group policy to use the full good'ill method.

Solutio$&

F1 "roup structure

% ?

"roup interest


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1 1

F 3et assets of subsidiaries at ac>uisition date

C J

At a)-$ At a)-$

C C

8>uity capital 1, uestion 1 ; =

ess+ Ere-ac>. retained earnings (:) (


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3ote that again, only the group or effective interest of ; is ta*en of the post-

ac>uisition retained earnings of ?.

F< 3on-controlling interest

C J

/// ///

3% H! at ac>uisition =& =1

3% share of post-ac>. retained earnings

(


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Bou ascertain the follo'ing+

(a) % ac>uired :, C1 shares in ? on 1 ?anuary 1 'hen the retained

earnings of ? amounted to Cuired


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C J

At a)-$ At a)-$

C C

8>uity capital 1,


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Co$soli#ate# stateme$t o! !i$a$ial positio$ as at '1 (eem0er 2/12

C

"ood'ill (1uity capital

etained earnings (F:) 11uipment and importer of

fruit. 8 is a listed entity and 'as incorporated over years ago to distribute 'arehouse

e>uipment. $ince then the group has diversified its activities to include the import and

distribution of fruit, and it expanded its operations by the ac>uisition of shares in # in

and in J in 0, both listed entities.

Accounts for all entities are prepared up to =1 December.

he draft statements of comprehensive income for 8, # and J for the year ended =1

December 1 are as follo's+

E 5 6

/// /// ///

evenue :


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3otes

E 5 6

/// /// ///Dividends paid in the year 0,uired ,, C1 e>uity shares in # for C;,;uired 1,;, C1 e>uity shares in J for C=,&, at

'hich date there 'as a credit balance on the retained earnings of J of C0uired its interest.

&


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=. During 1, J had made inter-company sales to # of C:&, ma*ing a profit of

uipment at on cost. t is company

policy to charge a full years depreciation in the year of ac>uisition to be included in the

cost of sales.

. t is group policy to account for non-controlling interest on a proportionate basis. $ince

ac>uisition, the good'ill of # has been fully 'ritten off as a result of an impairment

revie' 'hich too* place t'o years ago. he good'ill of J has been impaired ; by

=1 December 11 and a further


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2. 5ixe# 7(8shape#9 Groups

2.1 (e!i$itio$

.1.1 n a mixed group situation the parent entity has a direct controlling interest in at least

one subsidiary. n addition, the parent entity and the subsidiary together hold a

controlling interest in a further entity.

controls ; of $@ $ is therefore a subsidiary of .

controls = of directly and another = indirectly via its interest in $. is

therefore a sub-subsidiary of the group.

2.2 (ate o! a)uisitio$

..1 $uppose ac>uired a ; interest in $ on 1 ?anuary 1, and ac>uired its =

interest on the same date. $ subse>uently ac>uired its = interest in on 1 ?uly

1.

nitially, from 1 ?anuary 1, exercises significant influence over as an associateentity. t is only from 1 ?uly 1 that has access to more than


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po'er in @ is therefore consolidated into the group accounts from 1 ?uly 1.

.. 3ote that the definition of a mixed group does not include the situation 'here the

parent and an associate together hold a controlling interest in a further entity. Hor

example+

o'ns =


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.=.: Example '

he statements of financial position of , $ and #, as at =1 December 1, are as

follo's+

$ #C C C

:


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$ #

"roup interest 6 direct


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F: "roup retained earnings

4 S 5

Eer >uestion 0


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3uestio$ 'he follo'ing are the summariMed statements of financial position of , $ and as at =1

December 1.

$

C C C

3on-current assets 1:, ;1, 1,

nvestments , ;

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Ch12-ComplexGroups