Slide 03

Certainly! Here’s an explanation of the key topics under IFRS 10, which deals with the
principles for the presentation and preparation of consolidated financial statements (FS):
1. Principles for Presentation and Preparation of Consolidated Financial Statements:
Consolidated Financial Statements (CFS): These are financial statements that present the
financial position and performance of a parent entity and its subsidiaries as a single economic
entity.
Purpose: The goal is to provide a clear view of the financial position of the entire group
(parent and subsidiaries) to users of financial statements, reflecting the economic realities of
control and ownership.
2. Requirement for Parent Entities to Present Consolidated Financial Statements:
Mandatory Requirement: IFRS 10 mandates that any entity that qualifies as a parent must
prepare consolidated financial statements, unless it meets specific criteria for exemption.
Exemptions: A parent may not be required to consolidate if it is a wholly-owned subsidiary
or is a subsidiary of another entity that prepares consolidated financial statements.
3. Definition of Control:
Control as a Basis for Consolidation: Control is central to determining which entities are
consolidated. According to IFRS 10, an investor controls an investee when it meets all the
following criteria:
Power: The investor has the current ability to direct the relevant activities of the investee.
This can be through voting rights or other means.
Returns: The investor has rights to variable returns from its involvement with the
investee, which may include dividends, profit sharing, or other financial benefits.
Ability to Use Power: The investor has the ability to use its power to affect the amount
of returns. This means that the investor can make decisions that significantly influence the
performance of the investee.
4. Assessing Control:
Continuous Assessment: Control is not a one-time assessment; it must be re-evaluated when
facts and circumstances change.
Potential Voting Rights: Consideration is given to potential voting rights that are currently
exercisable, as they might indicate control even if not exercised.

5. Consolidation Procedures:
Combining Financial Statements: The financial statements of a parent and its subsidiaries
are combined line by line by adding together like items of assets, liabilities, equity, income,
and expenses.
Elimination of Intra-group Transactions: All intra-group balances, transactions, income, and
expenses must be eliminated in full to prevent double counting.
Slide 04
Here's a concise elaboration based on your definition of consolidated financial statements,
including key components and concepts:
Definition of Consolidation

Consolidation is the process of combining the separate financial statements (FS) of a parent
company and its subsidiaries into a single set of financial statements. This process treats the
parent and its subsidiaries as one economic entity for external reporting purposes.
Key Concepts
1. Parent Company
Definition: A parent company is an entity that controls one or more subsidiaries. Control is
defined by the ability to direct the relevant activities of the subsidiaries and to benefit from
their returns.
Role: The parent is responsible for preparing consolidated financial statements that reflect
the overall financial position and performance of the entire group.

2. Subsidiary
Definition: A subsidiary is any entity that is controlled by another entity (the parent). This
control can arise through ownership of a majority of voting rights, contractual agreements, or
other means.
Characteristics: Subsidiaries maintain their separate legal status but are included in the
consolidated financial statements of the parent.

3. Consolidated Financial Statements

Combining Financial Statements: The consolidated financial statements present the
combined financial position and performance of the parent and its subsidiaries as if they were
a single entity.
Components: These statements include:
Consolidated Statement of Financial Position: Shows the assets, liabilities, and equity of
the entire group.
Consolidated Statement of Profit or Loss: Reflects the income and expenses of the group.
Consolidated Statement of Cash Flows: Displays the cash inflows and outflows for the
group.

4. Preparation of Consolidated Financial Statements

Preparation by Parent: The parent company prepares the consolidated financial statements,
which are referred to as the "third set of financial statements." This term distinguishes them
from the individual financial statements of the parent and each subsidiary.
Elimination of Intra-group Transactions: In preparing consolidated FS, all intra-group
transactions, balances, income, and expenses are eliminated to avoid double counting.
Slide 05
Certainly! Here’s a clear and structured explanation of the concepts related to consolidated
financial statements (FS) in the context of a stock acquisition.
Consolidated Financial Statements in Stock Acquisitions
1. Context of Stock Acquisition
Definition: In a stock acquisition, one company (Company A) acquires sufficient voting
shares of another company (Company B) to gain control. The equation can be summarized as:
A + B = A + B (where Company A's equity includes its own and that of Company B).
2. Nature of the Transaction
Transaction with Shareholders: The stock acquisition transaction occurs primarily between
the acquiring company and the shareholders of the acquired company. Company A negotiates
directly with the shareholders of Company B to purchase their shares.
Control Acquisition: By obtaining a controlling interest (typically more than 50% of the
voting shares), Company A establishes a parent-subsidiary relationship with Company B.
3. Parent-Subsidiary Relationship
Establishment of Control: Once Company A acquires enough shares, it can direct the
relevant activities of Company B and benefit from its economic returns. This control is the
basis for the parent-subsidiary relationship.
4. Separate Legal Entities
Continued Existence: Despite the acquisition, both Company A and Company B remain
separate legal entities. Each entity continues to maintain its own accounting records and
produce its own financial statements.
Legal and Regulatory Compliance: Each company remains responsible for its own legal
obligations and financial reporting requirements.

5. Operating as a Family of Companies

Economic Entity: Although they are legally distinct, the two companies operate as a unified
economic entity. This means that their financials will be presented together for external
reporting purposes.
Consolidated Financial Statements: Company A prepares consolidated financial statements
that combine the financial results of both itself and Company B. This provides a
comprehensive view of the financial position and performance of the entire group.
Slide 06
Certainly! Here’s a continuation of the discussion on consolidated financial statements,
emphasizing the benefits of viewing the companies as a unified economic entity and the
rationale behind IFRS requirements.
Consolidated Financial Statements: Continued
1. Operating as a Family of Companies
Unified Economic Entity: After a stock acquisition, the parent company and its subsidiaries
function together as a family of companies. This means they collaborate and integrate their
operations while maintaining separate legal identities.
 Synergies and Efficiency: The relationship allows for synergies in operations, cost
efficiencies, and streamlined decision-making processes across the group.

2. User Preferences for Financial Reporting

Single Financial Statement Preference: Users of the parent’s financial statements, such as
investors, creditors, and analysts, generally prefer a single set of consolidated financial
statements. This provides a holistic view of the financial health and performance of the entire
group.
Simplified Analysis: A consolidated statement simplifies financial analysis, allowing users
to assess the overall risks, returns, and resources of the group without having to reconcile
separate financial statements of each entity.

3. IFRS Requirements
Mandate for Consolidated FS: Given the preference for a unified financial view, IFRS
(International Financial Reporting Standards) mandates the preparation of consolidated
financial statements for the entire family of companies. This requirement is rooted in the
principle that consolidated financial statements best reflect the economic reality of the group.
Transparency and Accountability: By consolidating financial results, stakeholders receive a
clearer, more transparent representation of the group's financial position, performance, and
cash flows, enhancing accountability.

4. Implications for Reporting

Comprehensive Insight: Consolidated financial statements provide a comprehensive insight
into the operating results and financial position of the parent and its subsidiaries as a single
unit.
Elimination of Intra-group Transactions: The consolidation process also involves
eliminating intra-group transactions, which prevents double counting and presents a true
picture of the group's financial performance.

Slide 07
Certainly! Here’s a detailed explanation of the exemptions from preparing consolidated
financial statements under IFRS, based on the conditions you've outlined.

Exemption from Consolidated Financial Statements

Under IFRS, a parent company may be exempt from presenting consolidated financial
statements if it meets all of the following conditions:
1. Parent is a Subsidiary of Another Entity
Definition: The parent company is itself a subsidiary, meaning it is controlled by another
entity (the ultimate parent).
Implication: If the parent is part of a larger group, the consolidated financial statements of
the ultimate parent may provide sufficient information to stakeholders, reducing the need for
the parent to prepare its own consolidated statements.
2. Parent’s Debt or Equity Instruments Are Not Traded in a Public Market
Public Market Definition: If the parent’s shares or other financial instruments are not listed
or traded on any public exchange, it indicates limited public interest in separate financial
statements.
Rationale: This condition is in place to minimize the reporting burden on entities that do not
have significant public accountability, as they are not subject to the same level of scrutiny as
publicly traded companies.

3. No Filing for Public Market Instruments

Criteria: The parent has not filed financial statements, nor is in the process of filing, for the
purpose of issuing financial instruments in a public market.
Purpose: This condition ensures that the parent is not seeking to raise capital from the
public, which would typically require more comprehensive financial disclosures, including
consolidated financial statements.

4. Ultimate or Intermediate Parent Produces Consolidated Financial Statements Complying

with IFRS
Consolidated Statements Compliance: The ultimate parent, or any intermediate parent, must
prepare consolidated financial statements that comply with IFRS.
Transparency: This ensures that stakeholders still receive a complete and accurate view of
the financial position and performance of the entire group, including the parent and its
subsidiaries.
Slide 08
Certainly! Here’s a structured approach to assessing control over an investee, focusing on the
key steps involved in the evaluation process.
Assessing Control Over an Investee

When determining whether an investor has control over an investee, it is essential to follow a
systematic approach that includes identifying relevant activities, decision-making processes,
and the investor's rights. Here are the key steps:
1. Identify Relevant Activities
Definition: Relevant activities are those that significantly affect the investee's returns
(profits). These activities can include operating decisions, financial decisions, and other
activities that impact the performance of the investee.
Examples of Relevant Activities:
Sales and Marketing: Strategies that influence revenue generation.
Financing Activities: Decisions regarding debt and equity financing.
Operational Management: Management of day-to-day operations, including production
and service delivery.
Investment Decisions: Allocation of resources for capital expenditures.
2. Identify Decision-Making Processes
Understanding Governance: Assess how decisions regarding the relevant activities are
made. This involves examining the governance structure of the investee.
Decision-Making Bodies: Identify key decision-making bodies, such as the board of
directors, management teams, or committees, and their roles in influencing relevant activities.
Voting Rights: Consider how voting rights are distributed among shareholders, including the
impact of majority or minority voting rights on decision-making.

3. Determine Investor's Rights

Assessment of Rights: Evaluate whether the rights of the investor (parent) provide it with
the ability to direct the relevant activities of the investee.
Types of Rights:
Voting Rights: Ownership of a majority of voting shares typically signifies control.
However, control can also exist with less than majority ownership if special rights are granted.
Contractual Rights: Rights established through contracts that allow the investor to
influence decisions or direct activities (e.g., management agreements).
Protective Rights: Rights that allow the investor to block certain decisions, even if they
do not have direct management control.
Assessment of Power: Analyze whether the investor's rights enable it to make decisions that
significantly affect the investee’s returns.
Slide 09
Certainly! Here’s a continued explanation of control in the context of an investee, detailing
both scenarios: control with a majority of voting rights and control without a majority of
voting rights.
Assessing Control Over an Investee (Continued)
Control with a Majority of Voting Rights
Definition of Control: An investor is considered to control an investee when it holds a
majority of the voting rights. This typically means owning more than 50% of the voting
shares.
Implications of Majority Control:
Direct Influence: The investor can directly influence decisions on relevant activities that
significantly affect the investee’s returns.
Governance: The investor generally has the power to appoint the majority of the board of
directors, thereby guiding the strategic direction of the investee.

Control without a Majority of Voting Rights

Control can also be established without holding a majority of voting rights through various
means. This may occur in situations where:
Contractual Arrangements with Other Vote Holders:
 Joint Agreements: The investor may enter into contracts with other shareholders to
coordinate voting decisions, effectively consolidating their voting power.
Management Contracts: Arrangements that give the investor control over key operational
decisions, even if they do not hold a majority of shares.

Relative Size and Dispersion of Other Vote Holders (De Facto Control):
Influence through Structure: An investor can exert control if the other shareholders are
widely dispersed, meaning no single shareholder or group holds a significant stake. In this
case, the investor’s smaller shareholding can still confer control due to the lack of coordinated
opposition from other shareholders.
Practical Control: This situation may arise in smaller firms or startups where the
investor’s voice is more influential in decision-making due to the lack of organized voting
blocs.

Exercisable Potential Voting Rights:

Definition: These are rights that can be exercised to obtain control, such as options or
convertible instruments that could give the investor additional voting rights in the future.
Assessment: If the investor holds potential voting rights that are currently exercisable or
could be exercised in the near future, this could indicate control over the investee, even
without a majority of existing voting rights.

Slide 10
Here's an assessment of whether A controls Z in each of the scenarios you provided, based on
the principles of control under IFRS.
Control Assessment Scenarios

A owns 100% of Z:
Assessment: Yes, A controls Z.
Reasoning: Owning 100% of Z means A has full control over all decision-making
processes and relevant activities.

A owns 51% of Z:
Assessment: Yes, A controls Z.
Reasoning: Holding a majority (more than 50%) of the voting rights gives A the ability to
direct relevant activities and make decisions that affect Z’s returns.

A owns 50% of Z:
Assessment: Not necessarily. Control is not automatically established.
Reasoning: While A has significant influence, it does not hold a majority of voting rights.
Control would depend on the voting arrangements with other shareholders or any additional
rights A may have.
 A owns 50% of Z and holds currently exercisable ‘in the money’ options to acquire another
100 shares in Z:
Assessment: Yes, A likely controls Z.
Reasoning: The currently exercisable options can effectively increase A's voting rights to
above 50% if exercised. Thus, A would be able to direct relevant activities, establishing
control.

Slide 11
In this scenario, Entity A is assessing whether it has control over Entity B based on its 45%
ownership of the ordinary shares and other factors. Let's analyze the situation:
Assessment of Control

Ownership Percentage:
Entity A owns 45% of the ordinary shares of Entity B. This percentage does not constitute
a majority; however, it is significant, especially since A is the largest shareholder.

Appointment of Board Members:

Entity A has the right to appoint the majority of the members of the Board of Directors of
Entity B due to special rights granted in the founding document. This is a critical factor
because it allows Entity A to influence key decisions and direct the relevant activities of Entity
B.

Decision-Making Influence:
The ability to appoint the majority of the board implies that Entity A can control the
governance and strategic direction of Entity B. This includes decisions related to operations,
finance, and other activities that significantly affect Entity B's returns.

Conclusion

Entity A likely has control over Entity B, and thus, would need to consolidate the financial
statements of Entity B.
Reasons:

De Facto Control: Control can exist without a majority of voting rights if other factors
enable the investor to direct relevant activities. In this case, the ability to appoint the majority
of the Board of Directors gives Entity A the power to control decisions that significantly
impact Entity B.
Largest Shareholder: As the largest shareholder, Entity A has a greater influence over
decisions compared to other shareholders, which further supports the assessment of control.
 Special Rights: The special rights specified in the founding documents provide Entity A
with a unique position to exert control, reinforcing that it can direct the activities of Entity B
effectively.

Slide 13
Certainly! Here’s an overview of the accounting requirements and procedures for
consolidating financial statements under IFRS:
Accounting Requirements: Consolidation Procedures

When preparing consolidated financial statements, the following key procedures must be
followed:
1. Combine Financial Elements

Assets, Liabilities, and Equity: The consolidated financial statements should combine the
assets, liabilities, and equity of the parent and its subsidiaries as if they were a single entity.
This means adding together:
Assets: Total assets of the parent and subsidiaries.
Liabilities: Total liabilities of the parent and subsidiaries.
Equity: The equity of the parent and the equity attributable to the non-controlling
interests of the subsidiaries.

Income and Expenses: Similarly, all income and expenses from the parent and subsidiaries
are combined. This results in a consolidated statement of profit or loss that reflects the total
performance of the group.

Cash Flows: The consolidated statement of cash flows combines the cash inflows and
outflows from both the parent and its subsidiaries to present the overall cash position.

2. Offset Parent’s Investment

Elimination of Investment: The parent’s investment in each subsidiary must be offset

(eliminated) against the parent’s share of the equity of the subsidiary. This means that:
The carrying amount of the investment in the subsidiary recorded on the parent’s balance
sheet is eliminated against the corresponding portion of the subsidiary's equity.
This elimination ensures that the consolidated financial statements do not overstate the
group’s equity.

3. Elimination of Intra-group Transactions

Intra-group Transactions: All transactions and balances between the parent and its
subsidiaries (intra-group transactions) must be eliminated in full. This includes:
 Sales and Purchases: Revenue and expenses from sales or purchases between group
entities should not be included in consolidated revenues and expenses.
Inter-company Loans: Any loans or receivables between entities in the group are
eliminated from the consolidated balance sheet.
Dividends: Any dividends paid by a subsidiary to the parent should be eliminated from
the consolidated income statement.

4. Uniform Accounting Policies

Consistency in Policies: The parent and its subsidiaries must apply uniform accounting
policies. This ensures that the financial statements are comparable and the consolidated results
accurately reflect the financial position and performance of the entire group.
Adjustments for Conformity: If the parent and subsidiaries have different accounting
policies, appropriate adjustments must be made during the consolidation process to ensure
conformity. This might involve reclassifying or recalculating certain items to align them with
the parent’s accounting policies.
Slide 14
Accounting Requirements: Measurement and Reporting
1. Consolidation Timing

Control Acquisition: The consolidation of a subsidiary begins on the date the investor
(parent) gains control over the investee. This means that the financial results of the subsidiary
are included in the consolidated financial statements from this date forward.
Loss of Control: Consolidation ceases when the investor loses control of the investee. At
this point, the parent must discontinue including the subsidiary’s financial results in its
consolidated statements.

2. Reporting Date

Same Reporting Date Requirement: The parent and its subsidiaries must have the same
reporting date for their financial statements. This ensures consistency and comparability in the
consolidated results.
Preparation of Additional Information: If the parent and its subsidiaries do not share the
same reporting date, the parent must prepare additional financial information as of the same
date as the parent’s financial statements. This is essential for accurate consolidation.
Impracticality Consideration: If it is impracticable to prepare additional financial
information as of the same date, the parent should disclose this fact and the reasons for the
impracticality in the notes to the financial statements.
Reporting Date Difference: The difference between the reporting dates of the parent and its
subsidiaries should not exceed three months. This limit helps minimize discrepancies in
financial reporting and ensures that the consolidated financial statements reflect a timely and
accurate picture of the group's financial status.
Slide 17
Here’s a structured overview of the consolidation process for both wholly owned and partially
owned subsidiaries, detailing the treatment at the date of business combination and in
subsequent years.
Consolidation Cases
1. Consolidated Financial Statements for Wholly Owned Subsidiary
A. Consolidation on the Date of Business Combination

Control Established: When the parent acquires 100% of the subsidiary, control is
established from the acquisition date.
Initial Recognition: The subsidiary’s assets, liabilities, and equity are fully included in the
consolidated financial statements. This means:
All identifiable assets and liabilities are recognized at fair value.
Any goodwill arising from the acquisition is calculated as the difference between the
purchase price and the fair value of net identifiable assets acquired.

B. Consolidation in Subsequent Years

Ongoing Inclusion: The financial results of the wholly owned subsidiary are fully
consolidated in the parent’s financial statements in subsequent periods.
Eliminations: Any intra-group transactions, balances, revenues, and expenses must be
eliminated fully to avoid double counting.
Uniform Accounting Policies: The parent and subsidiary must apply the same accounting
policies. Adjustments are made if necessary to ensure consistency.
Goodwill Review: Goodwill is tested for impairment annually or when there are indications
of impairment.

2. Consolidated Financial Statements for Partially Owned Subsidiary

A. Consolidation on the Date of Business Combination

Control Assessment: When the parent acquires a controlling interest (more than 50%) but
not full ownership of the subsidiary, consolidation begins on the acquisition date.
Initial Recognition: The parent consolidates all of the subsidiary’s identifiable assets,
liabilities, and equity:
The fair value of net assets acquired is recognized.
Non-controlling interest (NCI) is measured at fair value or at the proportionate share of
the identifiable net assets of the subsidiary. This choice affects the amount of goodwill
recognized.

B. Consolidation in Subsequent Years

 Ongoing Inclusion: The financial results of the partially owned subsidiary are included in
the consolidated financial statements, reflecting the parent’s share of the subsidiary’s profits or
losses.
NCI Accounting: The parent must also account for the non-controlling interest in the
subsidiary. This involves:
Presenting NCI in the equity section of the consolidated balance sheet.
Allocating a portion of the subsidiary’s net income to the non-controlling interest in the
consolidated income statement.
Eliminations and Uniform Policies: Similar to wholly owned subsidiaries, intra-group
transactions and balances are eliminated, and uniform accounting policies are applied.

Summary

Wholly Owned Subsidiary: 100% of the subsidiary’s financials are consolidated from the
date of acquisition onward, with full elimination of intra-group transactions.
Partially Owned Subsidiary: The parent consolidates all of the subsidiary's financials but
must also account for and present the non-controlling interest. The consolidation process starts
on the acquisition date and continues in subsequent years, requiring careful management of
intra-group transactions and uniform accounting policies.
Slide 18
Here’s a detailed overview of the consolidation process for consolidated financial statements
on the date of the business combination, focusing specifically on the balance sheet.
Consolidated Financial Statements on the Date of Business Combination
Overview

On the date of the business combination, the consolidated balance sheet is prepared by the
parent company. This involves several key steps to ensure that the financial position of the
parent and subsidiary is accurately represented.
Key Steps in Consolidation

Preparation by the Parent:

The parent company is responsible for preparing the consolidated balance sheet, which
reflects the combined financial position of both the parent and its newly acquired subsidiary as
of the acquisition date.

Elimination of Equity Accounts:

Investment in Subsidiary: The equity accounts of the subsidiary are eliminated against the
parent’s investment in the subsidiary. This means:
The carrying amount of the investment recorded by the parent in the subsidiary’s
equity is removed from the consolidated balance sheet.
This elimination reflects that the parent does not have an "investment" in the
subsidiary from the perspective of the consolidated entity, as it fully owns the subsidiary.
 Adjustment of Assets and Liabilities:
Fair Value Adjustments: The identifiable assets and liabilities of the subsidiary must be
adjusted to their fair values at the date of the business combination. This includes:
Assets: Recognizing any identifiable assets at their fair value (e.g., fixed assets,
inventory).
Liabilities: Recognizing any identifiable liabilities at their fair value (e.g., accounts
payable, loans).
These adjustments ensure that the consolidated balance sheet reflects the true economic
value of the subsidiary's assets and liabilities as of the acquisition date.

Goodwill or Gain on Bargain Purchase:

Goodwill Calculation: If the purchase price exceeds the fair value of the net identifiable
assets acquired, the excess is recorded as goodwill.
Gain on Bargain Purchase: Conversely, if the fair value of the net identifiable assets
exceeds the purchase price, this results in a gain on bargain purchase, which is recognized in
the consolidated income statement.
Goodwill or gain on bargain purchase is reported in the consolidated balance sheet,
affecting the overall equity of the consolidated entity.

Summary

On the date of the business combination, the consolidated balance sheet reflects the financial
position of the parent and subsidiary as a single economic entity. Key actions include
eliminating the subsidiary's equity accounts against the parent’s investment, adjusting the
subsidiary's assets and liabilities to fair value, and including any goodwill or gain on bargain
purchase. This process ensures that the consolidated financial statements accurately represent
the economic reality of the combined entity.
Slide 19-20
To prepare the consolidated balance sheet on the date of the business combination for the
wholly owned subsidiary, we need to follow these steps:

Eliminate the investment account of the parent (P Company) against the equity accounts of
the subsidiary (S Company).
Adjust the assets and liabilities of the subsidiary to their fair values on the date of the
business combination.
Recognize any goodwill or gain on bargain purchase arising from the business combination.

The consolidated balance sheet on the date of the business combination would appear as
follows:

ASSETS
Cash Br.550,000 + Br.10,000 = Br.560,000
Accounts Receivable (net) Br.700,000 + Br.60,000 = Br.760,000
Inventories Br.1,400,000 + Br.140,000 = Br.1,540,000
Plant assets (net) Br.2,850,000 + Br.690,000 = Br.3,540,000
Goodwill Br.110,000
Total Assets Br.6,510,000

LIABILITIES & STOCKHOLDER'S EQUITY

Current liabilities Br.500,000 + Br.80,000 = Br.580,000
Long-term debt Br.1,000,000 + Br.440,000 = Br.1,440,000
Common Stock Br.1,500,000 + Br.100,000 = Br.1,600,000
Additional Paid-in Capital Br.1,200,000 + Br.40,000 = Br.1,240,000
Retained Earnings Br.1,300,000 + Br.180,000 = Br.1,480,000
Stockholder's Equity Br.4,320,000
Total Liabilities & Stockholder's Equity Br.6,510,000

The key adjustments are:

Elimination of the parent's investment account against the subsidiary's equity accounts.
Adjustment of the subsidiary's assets and liabilities to their fair values on the date of the
business combination.
Recognition of goodwill of Br.110,000 as the excess of the purchase price over the fair
value of the subsidiary's net assets.
Slide 21
Certainly, let's go through the steps to record the business combination, compute the goodwill
or gain on bargain purchase, and prepare the consolidated balance sheet on May 31, 2010.

Record the business combination on May 31, 2010:

Investment in S Company Br. 350,000

Cash Br. 350,000
(To record the acquisition of 100% of S Company's outstanding shares for Br. 300,000 cash,
plus Br. 50,000 in finder's and legal fees)

Compute Goodwill or Gain on Bargain Purchase:

Purchase Price Br. 350,000

Fair Value of Net Assets Acquired:
Cash Br. 10,000
Accounts Receivable (net) Br. 60,000
Inventories Br. 140,000
Plant Assets (net) Br. 690,000
 Current Liabilities Br. (80,000)
Long-term Debt Br. (440,000)
Total Fair Value of Net Assets Br. 380,000

Goodwill = Purchase Price - Fair Value of Net Assets

Goodwill = Br. 350,000 - Br. 380,000 = Br. 0

Since the fair value of the net assets acquired (Br. 380,000) exceeds the purchase price (Br.
350,000), there is no goodwill. Instead, there is a gain on bargain purchase of Br. 30,000 (Br.
380,000 - Br. 350,000) that would be recognized in the consolidated income statement.

Record possible elimination entries that would appear in the elimination column of the work
sheet:
Investment in S Company Br. 350,000
Common Stock - S Company Br. 100,000
Additional Paid-in Capital - S Company Br. 40,000
Retained Earnings - S Company Br. 180,000
Gain on Bargain Purchase Br. 30,000
(To eliminate the parent's investment account against the subsidiary's equity accounts and
recognize the gain on bargain purchase)

Prepare the Consolidated Balance Sheet of P Company and Subsidiary on May 31, 2010:

ASSETS
Cash Br. 560,000
Accounts Receivable (net) Br. 760,000
Inventories Br. 1,540,000
Plant Assets (net) Br. 3,540,000
Goodwill Br. 0
Total Assets Br. 6,400,000
LIABILITIES & STOCKHOLDER'S EQUITY
Current Liabilities Br. 580,000
Long-term Debt Br. 1,440,000
Common Stock Br. 1,600,000
Additional Paid-in Capital Br. 1,240,000
Retained Earnings Br. 1,510,000
Gain on Bargain Purchase Br. 30,000
Total Liabilities & Stockholder's Equity Br. 6,400,000

Slide 29
Certainly, let's go through the consolidation process when the parent acquires a partially
owned subsidiary (less than 100% ownership).
Consolidated Financial Statements on the Date of Business Combination (Partially Owned
Subsidiary)

Recognition of Non-Controlling Interest (NCI):

When the parent acquires less than 100% of the subsidiary's shares, the portion of the
subsidiary not owned by the parent is known as the non-controlling interest (NCI).
The NCI represents the equity in the subsidiary that is not attributable to the parent
company.
The parent must recognize and present the NCI in the consolidated statement of financial
position (balance sheet) within the equity section, separately from the equity of the owners of
the parent.

Measurement of NCI:
The NCI can be measured in one of two ways:
a. Fair Value Method: The NCI is measured at its fair value on the acquisition date.
b. Proportionate Share Method: The NCI is measured at the proportionate share of the
subsidiary's identifiable net assets.
The choice of measurement method affects the amount of goodwill recognized in the
consolidation.

Calculation of Goodwill:
Goodwill is calculated as the difference between the purchase price and the fair value of
the parent's share of the subsidiary's identifiable net assets.
If the fair value of the net assets acquired exceeds the purchase price, a gain on bargain
purchase is recognized instead of goodwill.

Presentation in the Consolidated Balance Sheet:

The consolidated balance sheet will include the following elements:
Assets and liabilities of the parent and subsidiary, recognized at their fair values.
The parent's share of the subsidiary's equity.
The non-controlling interest's share of the subsidiary's equity, presented separately
within the equity section.
Any goodwill (or gain on bargain purchase) arising from the business combination.

Subsequent Accounting for NCI:

In subsequent periods, the parent must allocate a portion of the subsidiary's net income or
loss to the non-controlling interest in the consolidated income statement.
Dividends paid by the subsidiary to the non-controlling interest shareholders are
recognized as a reduction in the non-controlling interest's equity in the consolidated balance
sheet.
By recognizing and presenting the non-controlling interest separately within the equity section
of the consolidated balance sheet, the financial statements accurately reflect the parent's
ownership interest and the external shareholders' ownership interest in the subsidiary's net
assets.

This approach ensures that the consolidated financial statements provide a faithful
representation of the group's financial position and performance, including the interests of
both the parent and the non-controlling shareholders.
Slide 30
You're absolutely right. Let me provide more details on the accounting for non-controlling
interests (NCI) in the consolidated financial statements:

Presentation of NCI in Equity Section:

The non-controlling interests in the subsidiary's equity must be presented separately from
the equity attributable to the owners of the parent company.
This separate presentation in the equity section of the consolidated balance sheet reflects
the fact that the NCI represents a distinct ownership interest in the subsidiary, separate from
the parent's ownership.

Measurement of NCI at Acquisition:

IFRS allows two methods for the initial measurement of the non-controlling interests at
the acquisition date:

a. Proportionate Method (Partial Goodwill):

Under this method, the NCI is measured at the proportionate share of the fair value of the
subsidiary's identifiable net assets.
This results in the recognition of partial goodwill, as the goodwill calculation only
includes the parent's share of the subsidiary's net assets.

b. Fair Value Method (Full Goodwill):

Under this method, the NCI is measured at its fair value on the acquisition date.
This results in the recognition of full goodwill, as the goodwill calculation includes both
the parent's share and the NCI's share of the subsidiary's net assets.

Subsequent Accounting for NCI:

In the consolidated income statement, the parent must allocate a portion of the
subsidiary's net income or loss to the non-controlling interest.
In the consolidated statement of changes in equity, dividends paid by the subsidiary to the
non-controlling shareholders are recognized as a reduction in the NCI's equity.

The separate presentation of NCI in the equity section and the choice of measurement method
(proportionate or fair value) has important implications for the recognition of goodwill and the
overall representation of the group's financial position and performance in the consolidated
financial statements.

By accounting for NCI in this way, the consolidated financial statements provide a more
accurate and transparent view of the parent's ownership interests and the external shareholders'
interests in the subsidiary's net assets and results.