ACCA SBR ^INT Syllabus D. Financial Statements of Groups entities - Business Combinations - Basics - Notes ^{5 / 37}

So first of all - what is a business combination?

• Well my little calf, it’s an event where the acquirer obtains control of another business.

• Let me explain, let’s say we are the Parent acquiring the subsidiary. 

  We must prepare our own accounts AND those of us and the sub put together (called “consolidated accounts”)

  This is to show our shareholders what we CONTROL.

The accounts show all that is controlled by the parent, this means:

1. All assets and liabilities of a subsidiary are included

2. All income and expenses of the subsidiary are included

Non controlling Interest (NCI)

However the parent does not always own all of the above.

So the % that is not owned by the parent is called the “non-controlling interest”.

• A line is included in equity called non-controlling interests. This accounts for their share of the assets and liabilities on the SFP.

• A line is also included on the income statement which accounts for the NCI’s share of the income and expenses.

One Thing you must understand before we go on

Forgive me if this is basic, but hey, sometimes it’s good to be sure.

Notice if you add the assets together and take away the liabilities for H - it comes to 400 (500+200+100-100-300)

There are 2 things to understand about this figure:

1. It is NOT the true/fair value of the company

2. It is equal to the equity section of the SFP

Equity

• This shows you how the net assets figure has come about. The share capital is the capital introduced from the owners (as is share premium).

• The reserves are all the accumulated profits/losses/gains less dividends since the business started. Here the figure is 400 for H.

  Notice it is equal to the net assets

Acquisition costs

• Where there’s an acquisition there’s probably some of the costs eg legal fees etc

  Costs directly attributable to the acquisition are expensed to the income statement.

• Be careful though, any costs which are just for the parent (acquirer)  issuing its own debt or shares are deducted from the debt or equity itself (often share premium).

Exceptions

A parent company is exempt from presenting consolidated financial statements under the following circumstances:

• The ultimate or an intermediate parent issues consolidated financial statements that comply with International Financial Reporting Standards and are publicly accessible.

• The parent company is either a wholly-owned subsidiary or a partially-owned subsidiary, with the agreement of all other shareholders.

• The parent company has not filed, nor is in the process of filing, its financial statements with any securities or regulatory authority to issue securities in a public market.

• The parent company’s equity or debt instruments are not listed or traded publicly.