Chapter 9

Consolidated Financial Statement

(IFRS 10)

Business combination is achieved by acquisition of stock when an existing company acquires a

majority or all of the stock of another existing company. The acquirer records the acquisition by

debiting the Investment in Stock account for the consideration given (price paid), which includes

cash disbursed, the fair value of other assets given or securities issued. After the acquisition of

stock a relationship exist that of parent/subsidiary relationship. The acquirer is called the parent

and the acquiree is called the subsidiary.

Consolidated financial statements

These are the financial statements of a group in which the assets, liabilities, equity, income,

expenses and cash flows of the parent and its subsidiaries are presented as those of a single

economic entity. Consolidated financial statements are prepared when an entity controls one

or more other entities.

Consolidation Procedures – Basic Principles

When preparing consolidated financial statements, an entity first combines the financial

statements of the parent and the subsidiaries on a “line-by-line” basis by adding together like

items of assets, liabilities, equity, income, and expenses. So that the consolidated financial
statements present financial information about the group as that of a single economic entity,

the following adjustments are made:

(a) The carrying amount of the parent’s investment in each subsidiary and the parent’s

portion of equity in each subsidiary are eliminated. Goodwill or gain on a bargain

purchase if any is recognized.

(b) Non-controlling interests in the profit or loss of consolidated subsidiaries for the

reporting period are identified; and

(c) Non-controlling interests in the net assets of consolidated subsidiaries are identified

separately from the parent’s ownership interests in them. Non-controlling interests in

the net assets of the subsidiaries consists of:

I. The amount of those non-controlling interests at the date of the original

combination; and

II. The non-controlling interests’ share of changes in equity since the date of the

combination

Non-controlling interest is defined as the equity in a subsidiary not attributable directly or

indirectly, to a parent.

Problems involving stock investments usually involve the following:

1. Preparation of Consolidated statement of financial position at Date of Acquisition.

2. Preparation of Consolidated Financial Statements on date subsequent to acquisition.

3. Accounting for Intercompany Profits in: