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Group Structures ParentEntity(an entity that controls another entity. This is the Holding Company), Control(the capacity to dominate decision-making) & the Ultimate Parent(the entity that is not controlled by another)
A subsidiary company is controlled by a parent company.
A subsidiary that is directly or indirectly controlled by the ultimate parent is part of the consolidated group
Consolidated financial statements are compiled by combining financial statements of an entity (parent and subsidiaries).
The parent company produces a: consolidated financial statement (income statement, statement of financial position, statement of cash flows, notes)
Control is indicated by: Ownership of voting shares 50% or greater (although ownership does not necessarily equate to control);Ability to control the decision making of the company;Majority representation on the board of directors.
When one company acquires all the shares of the Subsidiary we say that the Parent Company has 100% ownership interest in the Subsidiary. In this situation all inter-company transactions are fully eliminated.
Cost of investment above fair value When a company acquires another company and pays more than the fair value for the net assets, goodwill arises.
Cost of Investment Below Fair Value When a company pays less for a company than the fair values of that other company’s assets, a gain or excess over cost arises.This gain must be immediately taken to the profit and loss under AASB 3 Business Combinations.
Inter-Company Dividends AASB 127 states: An entity shall recognise a dividend from a subsidiary in profit or loss in its separate financial statements when its right to receive the dividend is established.
Interim Dividends If the company pays an interim dividend, an entry is necessary to eliminate the dividend paid and declared by the subsidiary company.
Sales and purchases of inventory within the group must be recorded as a Sales entry and Purchase entry respectivley.
Inter-company Unrealised Profit (Closing inventory) An adjustment is made for any profit in inventory (resulting from inter-company sales and purchases) which remains unsold by the group at the end of the financial year.
Inter-company Unrealised Profit (Opening Balance) Any unrealised profits from inter-company transactions in the opening inventory are eliminated.
Inter-Company Loans These are inter-company transactions that must be eliminated as there is no external obligation. The loan would be an asset of the lender and liability of the borrower.
Inter-Company Service/Management Fees Companies within a group will often provide services to each other. Profit and expense are recorded as a result. The transaction, however, must be eliminated.
Profit on Sale of Non-Current Asset If an asset is transferred from one group company to another the asset is still within the group. Therefore any unrealised profit or loss on transfer must be eliminated.
Under/Excess Depreciation of Non-Current Asset If the asset transferred is depreciable, the depreciation needs to be adjusted too.
Created by: oliverawesome