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Summary FAC3762 - Tests & Exam Notes 2024
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FAC3762, FAC2602:
Consolidation of wholly-owned subsidiary at date of acquitition:
Basic consolidation techniques:
- Eliminate common items - (Eliminate investment & share capital)
- Eliminate intragroup items - Sales that took place in the group.
- Consolidate the remaining items
3 of the situations will arise when a parent obtains interest in a subsidiary:
- Acquisition at net asset value: Investment = Fair value of asssets and liabilities aquired.
- Acquisition at a premium: Investment < Fair value of asssets and liabilities aquired. {GOODWILL}
- Acquisition of a subsidiary at a discount: Investment > Fair value of asssets and liabilities aquired. {GAIN FROM A BARGAIN
PURCHASE}
Consolidation of partly-owned subsidiary at date of acquitition:
- Determine the persentage interest (Interest in Sub/Issued shares of the sub) x 100 = x%
- Eliminate common items - (Eliminate investment & share capital)
- Eliminate intragroup items - Sales that took place in the group.
- Consolidate the remaining items
A GROUP OF ENTITIES:
Theory question:
- Identify the format of what is required?
E-mails ; Memo ; Report
- Apply the theory to the scenatio
- Give the theory applicable to the scenario.
- Conclusion.
Degree of influence of investor Applicable to Accounting method
Simple investments (equity
No influence Fair value – IFRS 9
investments – IFRS 9)
Control Subsidiary Consolidation – IFRS 10
Significant influence Associate Equity method – IAS 28
Joint control Joint venture Equity method – IAS 28
Account for the assets, liabilities,
revenues and expenses relating
to its interest in a joint
Joint control Joint operations operation in accordance with
the IFRS applicable to the
particular assets, liabilities,
revenues and expenses – IFRS
11
CONTROL - IFRS 10.7:
According to IFRS 10, the investor controls and investee when all of the following three requirements are met:
• Power over the investee:
- It has existing rights
- That give it the current ability
- To direct the relevant activities
• Exposure or rights to variable returns from its involvement with the investee; and
• The ability to use its power over the investee to affect the amount of the investor’s returns.
SIGNIFICANT INFLUENCE:
An investor has the power to participate in the financial and operating policy decisions of an
JOINT CONTROL:
A contractually agreed sharing of control of an arrangement, which exists only when decisions
, BUSINESS COMBINATIONS: (IFRS 3)
NCI (Non-controlling interest) can be measured:
- At fair value at the acquisition date, or
- At its proportionate share of the aquiree's net identifiable assets at the acquisition date.
Methods of change in ownership
Increase of interest (increase in degree of control) by means of the following:
Additional equity shares in the acquired company are bought from the other investors or from a share issue of
Decrease of interest (decrease in degree of control) by means of the following:
Shares in a subsidiary are sold, but the acquired company still remains a subsidiary, while the parent has a
STEP ACQUISITIONS OF INTERESTS IN INVESTEES
Different scenarios where there is an increase in the degree of control:
1 - Acquisition of an additional interest in an existing subsidiary (change in the degree of control, but not in status where
control has already been obtained)
The carrying amounts of the controlling and non-controlling interests, including any goodwill attributable to the non-
controlling interests (if applicable), need to be adjusted to reflect the non-controlling interests’ reduced interest in the
subsidiary.
(ii) The difference between the non-controlling interests’ adjustment amount (as discussed above) and the
consideration transferred by the parent for the additional interest, must be recognised directly in equity in the change
in ownership reserve.
(iii) No additional goodwill or gain on bargain purchase is recognised.
(iv) No gain or loss should be recognised in the statement of profit or loss and other comprehensive income.
2 - Acquisition of an additional interest where an IFRS 9 simple investment becomes a subsidiary.
- In this case it is important to realise that there is a change In status: control is obtained.
The following steps are taken:
- On the acquisition date (the date when control is obtained over the investee), remeasure the previously held interest (i.e.
- On the acquisition date, goodwill or gain On bargain purchase is recognised.
DISPOSAL OF INTERESTS IN AN INVESTEE:
Different scenarios where there is a decrease in the degree of control:
1 - Partial disposal of an interest in an existing subsidiary, control not lost (no change in status):
The profit or loss on disposal, that was recognised in the parent’s separate financial statements, will be reversed upon
consolidation.
- the difference between the amount that the non-controlling interests are adjusted by and the consideration received by
- No gain or loss should be recognised In the statement of profit or loss and other comprehensive income.
- The total amount of goodwill that arose at acquisition date is not adjusted. However, allocation of goodwill between the
2 - Partial disposal of an interest in an existing subsidiary, with a simple investment retained: control is lost (change in
status):
The profit or loss on disposal, that was recognised in the parent’s separate financial statements, will be reversed upon
consolidation.
- a consolidated profit or loss On disposal will be recognised In the consolidated statement of profit or loss and other
- The remaining investment (i.e. the portion of net assets and goodwill retained) is remeasured to fair value on the date
, FAIR VALUE
WHAT IS FAIR VALUE?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
IFRS 13.B2 clarifies that the objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the
(a) The particular asset or liability that is the subject of the measurement (consistent with its unit of account, for example, “price per
(b) For a non-financial asset, the valuation premise that is appropriate for the measurement (consistent with its highest and best use).
(c) The principal (or most advantageous) market for the asset or liability.
(d) The valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that
The next step is to explore the various elements that make up the definition of fair value. That is, the asset or liability being
CONSIDERING THE ASSET OR LIABILITY
In terms of IFRS 13.11:
A fair value measurement is for a particular asset or liability. Therefore, when measuring fair value an entity shall take into account
(a) The condition and location of the asset; and
(b) Restrictions, if any, on the sale or use of the asset.
THE TRANSACTION
In terms of IFRS 13.15:
A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants, to
IFRS13, Appendix A, defines an orderly transaction as:
A transaction that assumes exposure to the market for a period before the measurement date, to allow for marketing activities that
Furthermore, IFR13.16 states:
A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either
(a) in the principal market for the asset or liability; or
(b) in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal market and most advantageous market are defined as follows, in terms of IFRS 13, Appendix A:
Principal market: The market with the greatest volume and level of activity for the asset or liability. For example: in South Africa, the
Most advantageous market: The market that maximises the amount that would be received to sell the asset, or that minimises the
MARKET PARTICIPANTS
In terms of IFRS 13.22:
An entity shall measure the fair value of an asset or a liability using the assumptions that market participants would use when pricing
The basis of the measurement of fair value is market-based rather than dependent on the specific entity’s intentions. Thus, entity-
THE PRICE
In terms of IFRS 13.24:
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or
An exit price is the price that would be received to sell an asset or paid to transfer a liability (IFRS13, Appendix A).
According to IFRS 13.26: The price in the principal (or most advantageous) market used to measure the fair value of the asset or
It is important to note, in terms of IFRS 13.25, that transaction costs do not include transport costs. If location is a characteristic of
To conclude: transport costs (and not transaction costs) are taken into account in determining fair value; however both transport and
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