SUMMARY OF CHAPTER 4: CONSOLIDATED SUBSTANTIVE RIGHTS the rights which the

FINANCIAL STATEMENTS (PART 1) investor has the ability to exercise.

PFRS 10 deals with the preparation and VOTING RIGHTS the investor’s ability to direct
presentation of consolidated fs after the relevant activities of an investee.
business combination.
CONSOLIDATION starts when control is
CONSOLIDATED FINANCIAL STATEMENTS – FS obtained and ceases when control is lost.
of the parent and its subsidiaries are presented
CFS are prepared using uniform accounting
as those of a single reporting entity.
policies and same reporting date.
PARENTS are all required to prepare CFS,
Consolidation at Acquisition Date – is simple
except as follows:
because only SFP of the combining entities are
 Subsidiary of another entity whether consolidated.
wholly-owned or partially owned.
The consolidation involves following steps:
 Debt or equity instruments are not
traded in public market. Step 1. Eliminate the Investment in Subsidiary
 Ultimate or any intermediate parent account
CFS that are available for public use.
a. Measure P&S A,L at acquisition date FV
 Post-employment benefit plans or long-
b. Recognize goodwill
term employee benefit plan.
c. Ewplace the sub’s pre-combination
CONTROL is the basis of consolidation. It exists equity accts w\ the NCI in net assets.
if an investor has the ff over an investee:
Step 2. Add, Line by line, similar items of assets
power, exposure, or rights, to variable returns,
and liabs of the combining constituents.
and ability to affect returns.
TN: Non-Controlling Interest is presented w/in
POWER investor has power over an investee
equity separately from the equity of the owners
when the investor has existing right that give it
of the parent.
the current ability to direct the investee’s
relevant activities. Consolidation at Subsequent Date
ADMINISTRATIVE RIGHTS investor needs to The consolidation procedures subsequent to
assess those contractual arrangements in order the acquisition date involve the same
to determine whether it has rights sufficient to procedures of:
give it power over the investee.
a. Eliminating the investment in
UNILATERAL RIGHTS investor that has the subsidiary account
current ability to direct the activities that most b. Adding line by line similar items of A,L
significantly affect the return of the investee Inc and Exp of the P and S.
has power over the investee.
Step 1. Analysis of subsidiary’s net assets
PROTECTIVE RIGHTS designed to protect the
interest of party holding those rights w/o giving a. FV at Ad
that party power over the entity to which those b. FV at Ad-S depn
rights relate Step 2. Goodwill Computation
 It is the amount determined at the acq date
less

accumulated impairment losses.

Step 3. Non-Controlling Interest in net assets

Step 4. Consolidated retained earnings

Step 5. Consolidated profit or loss

CONSOLIDATED RETAINED EARNINGS include

RE of the Parent plus the parent’s share in the
change in net assets of the subsidiary since
acquisition date.

NCI in net assets includes the NCI at the

acquisition date plus the NCI’s share in the
change in net assets of the subsidiary since
acquisition date.

NCI in net assets is presented within equity but

separate from the equity of the owners of the
parent.

The consolidated P/L is attributed to the

owners of the parent and NCI.
CHAPTER 5. CONSOLIDATED FINANCIAL C. Intercompany Dividends
STATEMENTS (PART 2) a. Investment in subsidiary is
measured at cost or in accordance
Intercompany Transactions are transactions
with PFRS 9, Dividends received
between a parent and a subsidiary.
from the subsidiary are recognized
The effects of these transactions are eliminated in P/L.
when preparing CFS because the parent and the - Eliminate dividend income in the
subsidiary are viewed as a single reporting CFS of P/L.
entity. b. If measured using equity method,
Dividends received from the
A. Intercompany sale of inventory: subsidiary are recognized as
Downstream - the parent sells to the reduction to the carrying amount
subsidiary. of the investment.
- Reduction to the investment
- Parent recognizes the profit. NCI is not account, add back the dividends
affected. to the investment account.
Upstream – the subsidiary sells to the D. Intercompany bond transaction
parent. Investment in bonds and the bonds
– subsidiary recognizes profit. NCI is payable are eliminated in the CSF when P
affected. and S acquires bonds issued by the other.

TN: Only upstream sales affect NCI. The bonds payable are considered
extinguished:
The entity that recognizes profit from a sale
transaction is the seller. a. The diff bet acq cost of the investment
in bonds and the carrying amount of
“What is mine is mine alone (downstream). the BP on the acq date is recognized as
What is yours is ours (upstream).” G/L in the CFS P/L
b. Any interest expense and interest
B. Intercompany Sale of PPE:
income recognized after the
a. Any gain or loss is deferred and:
intercompany transaction are
- Amortized over the asset’s remaining
eliminated in the CFS.
life (depreciable)
- Not amortized (non-depreciable)
b. Asset is subsequently sold to
another part, G/L is recognized in
P/L.
c. Downstream sale, G/L is adjusted
to controlling interest only. NCI not
affected
d. Upstream sale, G/L are shared
between CI and NCI. NCI is affected.
e. Unamortized balance of the
deferred G/L is eliminated when
CFS are prepared.
CHAPTER 6. CONSOLIDATED FINANCIAL contractual agreement. (w/o a change
STATEMENTS (PART 3) in the parent’s ownership interest)
b. The decision-making previously granted
Impairment of Goodwill
to the party have lapsed. (w/o the
a. Measured at proportionate share, parent being involved)
goodwill is attributed to the owners of c. Parent ceases to be entitled to receive
the parent. returns.
- Impairment of goodwill is only d. Parent’s previous status as a principal
attributed only to the owners of the change to an agent.
parent.
When a parent loses control over a
b. Measured at fair value, goodwill is
subsidiary, the parent shall:
attributed to both the owners of the
parent and NCI. a. Derecognize the A and L of the former
- IOG is allocated to both the owners of subsidiary from the CFS.
the parent and NCI. b. Recognize any investment retained in
the former subsidiary at its FV at the
Intercompany items in-transit and
date control is lost and subsequently
restatements
account for the investment in
Adjusted first for the ff before consolidation; accordance w/ relevant PFRS.
c. Recognize G/L associated w/ the loss of
a. Accruals and deferrals of income and control in P/L.
expense and COE.
b. In-transit items – recorded by one party Derecognition of OCI
but not yet by the other.
Directly in Equity
c. Hyper-inflationary economy – FS of a
group member that reports ibn a  Revaluation surplus
currency of a hyperinflationary  Actuarial G/L on defined benefit plans
economy.  Unrealized G/L FVOCI investments
d. Currency translations – FS of subsidiary
whose functional currency is diff from Profit or Loss
the group’s presentation currency.  Translation G/L on foreign operations
Changes in ownership interest not resulting to  Effective portion of cash flow hedges
loss of control the change is accounted for as Sale of a subsidiary to an associate or joint
an equity transaction. venture
The diff between the adjustment to the NCI and The G/L from the transaction is recognized in
the FV of the consideration paid or received is the parent’s P/L only to the extent of the
recognized directly in equity and attributed to unrelated investor’s interests in that associate
the owners of the parent. or joint venture.
Loss of control Consolidation of a reverse acquisition is
a. The subsidiary becomes a subject to the prepared after a reverse acquisition are issued
control of a gov’t, court, administrator under the name of the legal parent (acctg
or regulator, or as a result of a acquiree) but described in the notes as a
continuation of the FS of the legal subsidiary
(acctg acquirer)

Non-controlling interest arises in a reverse

acquisition when some of the owners of the
legal acquiree do not exchange their equity
interest of the legal parent.

CHAPTER 7. CONSOLIDATED FINANCIAL

STATEMENTS (PART 4)

Investment in subsidiary measured at other

than cost

Initial measured equal to the value assigned to

the consideration transferred at the acquisition
date.

Subsequently measured: at cost, in accordance

to PFRS9 Financial Instruments, or using equity
method

Complex group structure arises when the

parent obtains control over another entity
indirectly through its direct holdings over
another entity.

a. Vertical group – the parent’s has its

own subsidiary.
b. D-shaped (mixed) group – the parent
has a different controlling interest in at
least one subsidiary