consolidation controlled entities

ACCG 926 – Corporate
Accounting
Topic 1: Controlled entities – the th consolidation method lid ti th d

Applying the consolidation method
 AASB 10 requires the application of the consolidation

method th d
 Consolidation – process of preparing

statements for group of entities under entities of financial of one of those

 Involves combining financial statements of individual entities

to show financial position and performance of group
 Group – a parent and it’s subsidiaries
 Parent – an entity that controls one or more entities
 Subsidiary – an entity that is controlled by another entity

2

1

Applying the consolidation method
A Ltd

B Ltd

Parent
“control” must exist on this later)

(more

Subsidiary

3

Applying the consolidation method
Consolidated financial statements are prepared by p p y (i) Aggregating (combining), line by line, like items of assets, liabilities, equity, income and expenses (ii) Adjusting these combined figures for intergroup transactions between entities within the group (covered in following weeks)

4

2

Applying the consolidation method
Simple consolidation worksheet for the A Ltd group
A Ltd
Current assets

B Ltd

50 000

+

Non current assets

150 000

+

Total assets

200 000

Total liabilities

(80 000)

Net assets

120 000

Consolidation

20 000

=

120 000

=

140 000
+

(30 000)
110 000

70 000
270 000
340 000

=

(110 000)
230 000

5

Control


Criterion for identifying parent-subsidiary relationship is y gp y p control 

Significant judgement is often required in determining whether control exists



An investor controls an investee when the investor is exposed, exposed or has rights, to variable returns from its rights involvement with the investee and has the ability to affect those returns through its power over the investee 6

3

Control


The following three