A $104,700 C $108,700 Under the equity method of accounting, an equity investment is initially recognised at the transaction price (including transaction costs) and is subsequently adjusted to reflect the investor’s share of the profit or loss and other comprehensive income of the associate. This is presented as ‘Share of profits of Associate’ as a new heading immediately before the consolidated profit before tax. e) any expenses that it has incurred in respect of its interest in the joint venture. Note: in many Paper FA questions, you will be expected to calculate the profit made by using margins or mark-ups, which are not discussed here.). Black Co – by looking at the percentage of equity shares, you may incorrectly conclude that Black Co is not a subsidiary, as Green Co has less than half of the voting rights. An associate is defined by IAS 28, Investments in Associates and Joint Ventures as ‘an entity over which the investor has significant influence’. It is imperative to note that investments in associates for which there is a published price quotation must be accounted for using the fair value model. The fair value of the non-controlling interest was $30,000 and the fair value of the net assets acquired was $125,000. Pink Co acquired 80% of Scarlett’s Co ordinary share capital on 1 January 20X2. At Paper FA level, it is assumed that control exists if the parent company has more than 50% of the ordinary (equity) shares – ie giving them more than 50% of the voting power. The purpose of this publication is to assist entities in Malaysia which are currently preparing t heir financial statements in accordance with Malaysian Financial Reporting Standards (“MFRSs”) issued by the Malaysian Accounting Standards Board (“MASB”). This gives them control and, therefore, Violet Co is a subsidiary. A parent is also exempted if it has no subsidiaries other than those acquired with the intention of selling or disposing of it within one year. Therefore, the consolidated revenue is calculated as: Had the question stem asked for the consolidated cost of sales figure, the answer would be correctly calculated as: $54,990 + $17,940 + $500 – $5,000 = $68,430. 17 An entity need not apply the equity method to its investment in an associate or a joint venture if the entity is a parent that is exempt from preparing consolidated financial statements by the scope exception in paragraph 4(a) of FRS 110 or if all the following apply: Investment in jointly controlled entities (JCE)The accounting treatment for investment in JCE under the MPERS framework is similar to investment in associates, as discussed earlier, whereby a venturer has a policy choice in using either cost model, equity method or fair value model. Such an SPE may take the form of a corporation, trust, partnership or unincorporated entity. Note: Red Co has only acquired 80% of Blue Co’s shares, so consideration transferred is 80% x 40,000 = 32,000 x $3.50 = $112,000. Under the PERS framework (MASB 11), there was no explicit mention on consolidating SPEs. The requirement to prepare consolidated financial statements, and the available exemptions, are governed by the Companies Act 2006, which is the same as the position for UK GAAP reporters. As Green Co only has 25% of the equity shares, they do not have control and, therefore, Amber Co is not a subsidiary. provision of essential technical information. Conversely, significant influence can still be demonstrated where less than 20% of the voting rights are obtained, usually evidenced by: Once we have identified an associate exists, we do not consolidate line by line like we do for a subsidiary. Always start by reading the question requirement carefully to determine what is being asked for. For the fair value model, an investment in an associate is recognised initially at the transaction price, excluding transaction costs. In particular, important simplifications are available for small companies and micro-entities when preparing and filing their annual accounts and reports. 30% of the non-voting preference share capital in Yellow Co, 18% of the ordinary share capital in Blue Co with directors of Indigo Co having two of the five places on the board of Blue Co, 45% of the ordinary share capital of Red Co, with directors of Indigo Co having four of the six places on the board of Red Co, read the questions requirement carefully and understand what is being asked for, think about relevant consolidation workings or extracts that may help you, calculate what you think the correct figure is before you look at OT answer options – be careful not to let the distracters catch you out, so think carefully about your calculation. Has there been any intra-group trading during the year, irrespective of whether the goods are still included in inventory at the year end? The other adjustment that requires careful consideration is the intra-group trading. Which of the following investments owned by Indigo Co should be accounted for using the equity method in the consolidated financial statements? Not all unlisted subsidiary companies are exempt from preparing consolidated financial statements. You should look at the specimen paper and extra MTQs available on the ACCA website. As at 31 December 20X2, extracts from their individual statements of financial position showed: As a result of trading during the year, Pink Co’s receivables balance included an amount due from Scarlett of $4,600. In this question the fair value of the non-controlling interest is given, so in our calculation we just need to add it to the consideration transferred. Under s399 of CA06, group accounts only have to be prepared where, at the end of a financial year, an undertaking is a parent company. Section 379(3) sets out two ways in which a holding company can be exempt from preparing consolidated financial statements: 1) if the holding company is a wholly owned subsidiary of another body corporate; or However, a parent need not present consolidated financial statements if the parent itself is a subsidiary, and its ultimate parent (or any intermediate parent) produces consolidated general purpose financial statements that comply with Malaysian Financial Reporting Standards or MPERS. IAS 28 also states that a holding of 20% or more of the ordinary (voting) shares can be presumed to give the investor significant influence unless it can be demonstrated otherwise. You do not need to prepare separate financial accounts for us. Under this syllabus, only the full goodwill method is examinable and is calculated as: This could be asked as an OT question but is more likely to be a MTQ where you will be calculating and submitting a figure for each of the component parts of the good will calculation – cost, NCI and net assets. In the second of a four-part series on the Malaysian Private Entities Reporting Standard (MPERS), which is effective for private entities in Malaysia from 1 January 2016, we take a closer look at how it impacts group accounting and accounting for associates and joint ventures as well as some key changes from the previous PERS framework. What should be the consolidated revenue for the year ended 30 September 20X2? Answer: As discussed in question 1.5, section 379(2) (being the requirement to prepare consolidated financial statements and the exemption from preparing company level financial statements) does not apply to a holding company that satisfies the requirements of section 379(3). Under the Companies Act a parent company is not required to prepare consolidated financial statements for a financial year in which the group headed by that company qualifies as a small group or a medium-sized group. You should ensure you have looked at the specimen paper (the full exam amd the additional MTQs) for practice of the fuller consolidation exam questions. Illustration (6) (1) How is a parent-subsidiary relationship identified? exemptions from preparing consolidated financial statements Source: A Dictionary of Accounting. If a venturer does not prepare consolidated financial statements, it uses the cost method or revalued amount to measure its interest in JCE in its financial statements, with the effects of equity accounting shown in the notes. Question, we can see that Pink Co only owns 80 % of the cost sales! To variable returns and the fair value of the following illustration demonstrates in. 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