ACCA SBR ^UK Syllabus D. Financial Statements of Groups entities - Parent Reorganises The Structure Of The Group - Notes ^{4 / 4}

Internal Group Re-Organisations

Typically:

1) The ultimate shareholders remain the same

2) No cash leaves the group

3) There is no change in NCI

Therefore, ultimately, the group remains the same - so no effect on group accounts. 

However, individual accounts within the group will be affected.

Questions on group reorganisations are more likely to focus on the principles behind the numbers
rather than the numbers themselves.

• Eg. Sub-subsidiary becomes a subsidiary 

  How?
  P buys S2 for cash (or other assets) or
  S1 could pay a dividend to P in the form of the shares in S2

  Effect
  Just means that S2 now reports directly to P rather then through S1

  This means S2 can be sold off without selling off S1. 

  Also means S1 and S2 report independently to P (Divisionalisation)

• The opposite to pont 1. 

  This time we make a direct sub a sub-subsidiary

  How?

  S1 could buy S2 for cash (or olher assets) (DR INV IN S2 CR CASH) or
  S1 could issue additional shares to P to pay for S2. (Dr INV IN S2 CR SHARES)

  Effect

  So S2 reports to S1

  A gain or loss may be made in the separate financial statements of S1. This needs to be eliminated in the group accounts

Group reorganisations lend themselves well to ethics questions

For example, pressure from the CEO to overstate profits on disposal (on loss of control) or putting a partial disposal profit to P/L instead of reserves