Ias 27 KPMG

IAS 27
Consolidated and Separate Financial Statements

Basic Baseline
2009 KPMG Lebanon, a Lebanese Professional Civil Company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Lebanon.
IAS 27
Learning objectives
Upon completion you will y Know how to account for a subsidiary Understand the principles of consolidation Be familiar with the latest amendments to IAS 27
IAS 27
2008 KPMG IFRG Limited, a UK registered company, limited by guarantee, and a member firm of KPMG International, a Swiss cooperative. All rights reserved.
Agenda
Classification Accounting for subsidiaries Amendments to IAS 27 Disclosures Developments p
IAS 27
Methods of accounting for investments
Four scenarios
Control
Joint control
Significant influence
Other
Consolidate IFRS 3 IAS 27 SIC-12
Proportionate consolidation IAS 31 SIC-13
Equity accounting IAS 28
Fair value IAS 39
IAS 27
Levels of influence over an investment

100 %
Control Level of ownership 50 % Joint control Significant influence 20 % 0% Limited / no influence Level of influence
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Control
The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities Rebuttable presumption: more than half of voting power Control also exists if: Power over more than half of the voting rights by virtue of agreement with other investors Power to govern financial and operating policies under a statute or agreement Power to appoint / remove majority of directors Power to cast majority of votes at directors meetings or other governing body Potential voting rights included
IAS 27
Agenda
IAS 27
Accounting for subsidiaries IAS 27

In group financial statements: Consolidate all subsidiaries No exemption for:
Subsidiaries held for sale (IFRS 5) Subsidiaries with dissimilar activities
Also no exemption for: Venture capital organisations p g Mutual funds Unit trusts and similar entities
IAS 27
Exemption from consolidation

Must meet all the following conditions to be exempt from preparing consolidated FS:
Entity is a wholly-owned subsidiary, or a partially-owned subsidiary and no owners object No debt or equity instruments traded in a public market Not in process of filing its FS with a regulatory organisation to issue any class of instruments The ultimate or any intermediate parent of the parent produces consolidated FS that comply with IFRSs and are available for public use
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Typical eliminations
Income statement
y Inter-company purchases and sales Inter-company dividends Inter-company interest
Balance sheet
y Inter-company loans Inter-company receivables / payables Shares in subsidiaries
Unrealised gains/losses
Eliminations also necessary within the notes e.g., operating lease
IAS 27
Consolidation Example
Group consists of entity A and its subsidiaries B and C B has a loan with A of 100
A B C Total Eliminations Group
PPE Shares in subsidiaries Intercompany receivables Receivables R i bl Intercompany debt Debt Equity
100 500 100 -
50 400
30 300 -
180 500 100 700 -100 -280 500 -500 -100 100
180 700 -280 -600

IAS 27
- -100 -100
-50 -130
-600 -300 -200 -1,100
Consolidation Elimination of inter-company purchases and sales

Sale Sale Cost GM A Sale Cost GM 90 55 35 C Sale Cost GM 120 60 60 What happened? 100 60 40 B GM 120 20 3rd party
Cost 100
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Minority interest
Minority interest That portion of the p profit or loss and net assets of a p subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent Balance sheet Minority interest within equity, but separate from shareholders parent shareholders equity Income statement Profit / loss should be allocated to the parent and minority interest on the face of income statement do not deduct from profit and loss
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Separate financial statements

In parents separate financial statements investments in subsidiaries must be accounted for at: Cost; or In accordance with IAS 39 Must disclose: That the FS are separate FS List of significant investments in subsidiaries, proportion of g ,p p interest, country of incorporation. Accounting policy adopted
IAS 27
Agenda
IAS 27
IAS 27 Definition of Non-controlling Interest

IAS 27 (2008) q y y Equity in a subsidiary not attributable, directly or indirectly, to a parent IAS 27 (2003)
p Portion of profit or loss and net assets of subsidiary attributable to equity interests not owned, directly or indirectly through subsidiaries, by the parent
IAS 27
Non-controlling (Minority) Interest

IFRS 3 (2008) Measured at Proportionate interest in fair value of identifiable net assets; or Fair value IFRS 3 (2004) Measured at Proportionate interest in fair value of identifiable net assets
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Example Goodwill and Non-controlling Interest

On 31 December 20Y0 A acquires 60% of B for 1,000 , Fair value of identifiable net assets of B is 1,500 Carrying amount of Bs net assets is 1,200 Fair value of NCI is 650
What consolidation entry is required to recognise the net assets, NCI and goodwill under the two NCI measurement alternatives?
IAS 27
Solution Goodwill and Non-controlling Interest

NCI at fair value Dr Identifiable net assets of B Dr Goodwill Cr Non-controlling interest Cr Investment in B 1,500 150 650 1,000
NCI at proportionate interest in net assets recognised Dr Identifiable net assets of B Dr Goodwill Cr Non-controlling interest Cr Investment in B 1,500 , 100 600 1,000
IAS 27
IAS 27 Transactions with Non-controlling Interest while Retaining Control

IAS 27 (2008) Accounted for as transaction with equity holders in their capacity as equity holders No gain or loss recognised in profit or loss No change in carrying amounts of net assets (including goodwill) ( gg ) IAS 27 (2003) g No guidance KPMG accepts five different accounting policies
IAS 27
10
Example Transactions with Non-controlling Interest while Retaining Control

A owns 60% of B On 1 January 20Y0 A acquires an additional 20% of B for 400 Carrying amount of NCI in the consolidated financial statements of A on 1 January 20Y0 is 500
How is this transaction recognised?

IAS 27
Solution Transactions with Non-controlling Interest While Retaining Control

Acquisition of the 20% interest of NCI Dr Non-controlling interest Dr Other Eq it Equity Cr Cash Amounts are based on the following calculation Consideration transferred Less: Non-controlling interest acquired Other equity 250 150 400
400 250 (500 x 20/40) 150
IAS 27
11
IAS 27 Loss of Control

IAS 27 (2008)
Any retained interest is y remeasured to fair value Total gain or loss recognised in profit or loss comprises Realised gain or loss on portion of interest sold; and Gain or loss on remeasurement to fair value of retained interest
IAS 27 (2003)
Any retained interest is not y remeasured Total gain or loss recognised in profit or loss comprises Realised gain or loss on portion of interest sold
IAS 27
Example Loss of Control

A owns 60% of B On 1 January 20Y0 A disposes of 20% of B for 400 and loses control t l Carrying amount of NCI of B on 1 January 20Y0 is 700 Carrying amount of net assets of B on 1 January 20Y0 is 1,750 Fair value of remaining 40% is 800
How is this transaction recognised?

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12
Solution Loss of Control

Disposal of the 20% interest is recorded as follows Dr. Cash Dr. Non-controlling interest D N t lli i t t Dr. Investment in B Cr. Net assets of B (including goodwill) Cr. Gain on disposal 400 700 800 1,750 150
Gain is based on the following calculation Gain on 40% retained Gain on 20% disposed of Total gain 100 (800 - (40% x 1,750)) 50 (400 - (20% x 1,750)) 150
Assuming that the remaining 40% represents an associate, the fair value of 800 represents cost on initial recognition and IAS 28 applies going forward
IAS 27
Loss of Control
If a parent loses control of a subsidiary, the parent shall account for all amounts recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the parent had directly disposed of the related assets or liabilities. Example: If a subsidiary has available-for-sale financial assets and the parent loses control of the subsidiary, the parent shall reclassify to profit or loss the gain or loss previously recognized in other comprehensive income in relation to those assets.
IAS 27
13
Agenda
IAS 27
New Disclosures
New disclosure requirements have been introduced, including:
Amount of any gain or loss arising on the loss of control of a subsidiary A schedule that shows the effects of any changes in a parents ownership interest in a subsidiary that do not result in a loss of control on the equity attributable to owners of the parent. ie movements between controlling and non-controlling interest.
IAS 27
14
Effective date
Annual periods beginning on or after 1 July 2009 Early adoption permitted IAS 27 (2008) requires retrospective adoption except for Requirement to attribute total comprehensive income between controlling and non-controlling interest even if results in NCI having a negative balance Accounting for changes in ownership interests after control is obtained Remeasuring to fair value any retained non-controlling equity investment after a loss of control
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Agenda
IAS 27
15
Developments
Future developments p ED 10 Consolidated financial statements The proposal define control as the power of a reporting entity to direct the activities of another entity to generate returns for the reporting entity; Therefore there must be both power and return required. Additional disclosures are required The effective date is not yet decided The IASB has invited comments on this ED by 20 March 2009.
IAS 27
Contact details KPMG Lebanon +961 1 985501 www.kpmg.com.lb
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2009 KPMG Lebanon, a Lebanese Professional Civil Company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Lebanon.
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Ias 27 KPMG

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Ias 27 KPMG

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IAS 27

Consolidated and Separate Financial Statements

Classification Accounting for subsidiaries Amendments to IAS 27 Disclosures Developments p

Methods of accounting for investments

Consolidate IFRS 3 IAS 27 SIC-12

Proportionate consolidation IAS 31 SIC-13

Equity accounting IAS 28

Fair value IAS 39

Levels of influence over an investment

Classification Accounting for subsidiaries Amendments to IAS 27 Disclosures Developments p

Accounting for subsidiaries IAS 27

Exemption from consolidation

Eliminations also necessary within the notes e.g., operating lease

100 500 100 -

180 700 -280 -600

-600 -300 -200 -1,100

Consolidation Elimination of inter-company purchases and sales

Separate financial statements

Classification Accounting for subsidiaries Amendments to IAS 27 Disclosures Developments p

IAS 27 Definition of Non-controlling Interest

Non-controlling (Minority) Interest

Example Goodwill and Non-controlling Interest

Solution Goodwill and Non-controlling Interest

IAS 27 Transactions with Non-controlling Interest while Retaining Control

Example Transactions with Non-controlling Interest while Retaining Control

How is this transaction recognised?

Solution Transactions with Non-controlling Interest While Retaining Control

400 250 (500 x 20/40) 150

IAS 27 Loss of Control

Example Loss of Control

How is this transaction recognised?

Solution Loss of Control

Classification Accounting for subsidiaries Amendments to IAS 27 Disclosures Developments p

Classification Accounting for subsidiaries Amendments to IAS 27 Disclosures Developments p

Contact details KPMG Lebanon +961 1 985501 www.kpmg.com.lb

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