Consolidated financial statements

1

• Consolidated financial statements

2
Plan

• Business Combinations (IFRS 22)
• Consolidated Financial Statements and Accounting
  for Investments in Subsidiaries (IFRS 27)
• Accounting for investments in subsidiaries in
  separate financial statements of the parent
  company
• Examples of consolidation
• Complex example of consolidation
• Accounting for Investments in Associates (IFRS
  28)
• Financial Reporting of Interest in Joint Ventures
  (IFRS 31)

3
Business Combination
IFRS 22

• Business Combination is the combination of
  independent companies into the unique economic
  organization when one company acquires another
  one or begins to control net assets or operations
  of that company

4
Consolidated Financial Statements
IFRS 27

• Subsidiary is a company controlled by another
  (parent) company
• Control is a chance to manage financial and
  administrative policy of the company in order to
  get benefits from its business

5
Consolidated Financial Statements
IFRS 27
Consolidated Financial Statements is the
financial statements of group of companies
represented as the financial statements of the
single company Group of companies is the parent
company plus its subsidiaries
6
Consolidated Financial Statements
IFRS 27
Parent company should consolidate all the
subsidiaries excluding - subsidiaries that
were acquired and are being hold for sale in
future - subsidiaries acting within the bounds
of long-term limitations that considerably
decrease subsidiaries capability to transfer
assets Such subsidiaries are accounted for as
investments
7
Consolidation procedure
IFRS 27

• When preparing consolidated financial statements,
  financial statements of the parent company as
  well as those of subsidiaries should be collected
  together line by line by summarizing same
  articles

• Profit and expense
• Retained profit
• Assets, borrowed assets and equity

It is necessary to exclude all inter-corporation
operations
8
Information Disclosure
IFRS 27

• List of major subsidiaries including name,
  country, owners percent, vote share
• Reasons basing on which subsidiary has not been
  included to consolidated statements
• Essence of relationship between parent company
  and subsidiary if the former has got not more
  than 50 of votes
• Name of the company where more than 50 of votes
  belong to the company, but that is not subsidiary
  due to the lack of control

9
Accounting for Investments in Subsidiaries in
Statements of Parent Company
IFRS 27

• In separate financial statements of parent
  company, investments in subsidiaries included
  into consolidated financial statements can be
  accounted for by the following
• Cost Method
• Equity Method according to IFRS 28
• As financial assets available for sale according
  to IFRS 39

10
Consolidation after acquisition
Consolidation procedure

• Exclude parent company account ltInvestments in
  subsidiarygt as well as equitys accounts of
  subsidiary
• Exclude inter-corporation receivables and
  payables
• Define non-control shares packages and present
  separately in the balance sheet as a part of
  consolidation

11
Consolidation at the end of reporting period

• Adjustments should be made in three statements
• Profit and loss
• Retained profit
• Balance sheet

12
FINAL STAGES OF CONSOLIDATION PROCESS
Summarize all the profit and loss statement both
horizontally and vertically taking into account
corrections and minority interests have the
amount of net profit Transfer the whole line of
net profit to the retained profit statement Sum
up retained profit
1 2
13
FINAL STAGES OF CONSOLIDATION PROCESS
Transfer the line of retained profit to the
balance sheet Find the result of Minority
Interest column and transfer this result to the
column of consolidated balance Sum up all the
balance sheets accounts and find the accounts of
consolidated balance sheet Check whether the
sums of assets and liabilities of the
consolidated balance sheet are equal
3
14
Investments in Associates
IFRS 28

• Associated (dependant) company is the company
  considerably influenced by investor. Associated
  company is neither a subsidiary nor a joint
  company
• Considerable influence is an opportunity to take
  part in taking decisions regarding both financial
  and operational policy of the company, but not
  controlling such policies

15
Investments in Associates
IFRS 28

• Considerable influence can appear only in case of
  the following
• - Ownership of more than 20 of voting
  shares
• Membership in Board of Directors of investment
  object
• Participation in policy working out
• Large scale operations between investor and
  investment object
• Interchange of management personnel
• Submission of important technical information

16
Interest in Joint Ventures
IFRS 31

• Jointly controlled company is the company that is
  controlled by two or several investors
• Joint control is based on the agreement concluded
  between the parties where the following should be
  defined
• Type of business, accounting duration and
  liability
• Appointment of the executive board and voting
  rights of its participants
• Contributions of its participants
• Distribution of the jointly achieved results

17
Financial Reporting of Interest in Joint Ventures
IFRS 31
Types of joint activity - jointly
controlled operations - jointly controlled
assets - jointly controlled companies