Agenda 1.Explain the meaning of consolidated financial statements (Chapter 18)2.Discuss the meaning and application of the criterion of control (Chapter 18)3.Discuss which entities should prepare consolidated financial statements (Chapter 18)4.Prepare an acquisition analysis for the parent’s acquisition in a subsidiary (Chapter 19)5.Prepare the worksheet entries at the acquisition date, being the business combination valuation entries and the pre-acquisition entries (Chapter 19)6.Prepare the worksheet entries in periods subsequent to the acquisition date, including the effects of asset disposals, depreciation or liability settlement and transfers from pre-acquisition equity (Chapter 19)
Consolidated Financial Statements Topic 1
Introduction • Consolidation means aggregation – Involves the preparation of a single set of financial statements – Involves combining the financial statements of the individual entities in a group – So that they show the financial position and financial performance of the group of entities – Presented as if they were a single economic entity • Questions: – Which entities do we include in the group? – What are the accounting procedures to prepare consolidated accounts? – What is the purpose of consolidated financial statements? • Relevant standards: – AASB 10 Consolidated Financial Statements – AASB 3 Business Combinations
Consolidated financial statements • Consolidated financial statements 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’ Group – a parent and its subsidiaries Parent – an entity that controls one or more entities Subsidiaries – an entity that is controlled by another entity
A Ltd B Ltd Parent Subsidiary “control” must exist (more on this later) The group is referred to as the “A Ltd Group” Consolidated financial statements
Consolidated financial statements • Consolidation involves combining financial statements of individual entities to show financial position and performance of group as if it were single entity • Consolidated financial statements are prepared by (i) Aggregating (combining), line by line, like items of assets, liabilities, equity, income and expenses (ii) Adjusting these combined figures for inter-group transactions between entities within the group (covered in following chapters)
Consolidated financial statements • Reasons for consolidation: – Supply of relevant information – Comparable information – Accountability – Reporting of risks and benefits
Control Criterion Topic 2
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