08. Complex Group

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1.0 Complex group structure

1.1 When an entity owns more than one subsidiary, it can be said that the complex group exists.

1.2 The followings are the common complex group structure, with relevant explanations :-

1.2.1 Multiple direct subsidiaries

60% 75%

55%

1.2.2 Vertical Group with indirect subsidiary

40%

NCI 45%

30%

25%

NCI

Direct interest Effective ownership :- Subsidiary 1 Indirect Sub 1

Indirect interest Parent interest

- Direct 60% -

- Indirect - 45%

Non controlling interest

- Direct 40% 25%

- Indirect - 30%

100% 100%

60%

Parent

Subsidiary 1 Subsidiary 2 Subsidiary 3

This is a simple group where the consolidation technique is the same as the previous lesson, and each

results calculated will be combined to show a group result.

Parent

COMPLEX GROUP

75%

The effective date of acquisition of indirect subsidiary by parent is the date of parent gains control over the indirect subsidiary.

Note : effective interest is used to calculate the reserves allocation between parent and NCI, and not

used to determine control.

Subsidiary 1

Indirect subsidiary 1

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COMPLEX GROUP

1.2.3 Vertical Group with direct interests in the indirect subsidiary

75% 15%

Effective ownership :- Subsidiary Indirect Sub

Parent interest

- Direct 75% 15%

- Indirect - 45%

Non controlling interest

- Direct 25% 25%

- Indirect - 15%100% 100%

1.3 Examples 1 (based on examiner article "Business Combinations")

J plc B plc D plc

$m $m $m

Cost of investment in B (80% holding) 32.0 0.0 0.0

Cost of investment in D (60% holding) 0.0 22.0 0.0

Other net assets 26.0 13.2 30.0

58.0 35.2 30.0

Equity shares 40.0 24.0 20.0

Retained earnings 18.0 11.2 10.0

58.0 35.2 30.0

The retained earnings were:

B D

$m $m

1 January 2007 4.0 1.0

31 December 2007 13.0 3.2

J purchased its shareholding in B on 31 December 2007, and B purchased its shareholding in D on 1

January 2007. Control was achieved on these acquisition dates. The following financial statements

relate to the J Group as at 31 December 2008:

The effective date of acquisition of indirect subsidiary by parent is the date of parent gains control over

the indirect subsidiary.

Note : effective interest is used to calculate the reserves allocation between parent and NCI, and not

used to determine control.

Indirect subsidiarySubsidiary60%

Parent

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COMPLEX GROUP

The fair value of the NCI, based on effective shareholdings, was:

B D

$m $m

1 January 2007 8.0 18.9

31 December 2007 9.8 20.0

Required

For full methods, show the statement of financial position at 31 December 2008.

Solution

Effective ownership :- B D

Parent interest - Direct 80% - - Indirect - 48%

Non controlling interest - Dir 20% 40%

- Indirect - 12%

100% 100%

Date of control Pre acq RE ($m) FV of NCI ($m)

J in B 31 Dec 07 13.0 9.8

J in D 31 Dec 07 3.2 20.0

W1 Goodwill calculation

Full$

J in B

Consideration transferred 32.0

NCI 9.8

41.8

Share of identified net assets

Share capital (24.0)

Retained earnings (13.0)

4.8

Less : impairment (4.0)

0.8

B in D

Consideration transferred 22.0

Less : Direct NCI portion (20% x $22m) (4.4)

NCI 20.0

37.6

Share of identified net assets

Share capital (20.0)

Retained earnings (3.2)

14.4

Based on effective holding, the goodwill of B is impaired, as at 31 December 2008, by $4m following

poor trading results for the year. There was no impairment prior to this date.

J

B

D

80

60

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COMPLEX GROUP

W2 Group retained earning Full

$

J retained earnings 18.0

Share of post-acquisition B

80% x ($11.2m - $13m) (1.4)

Share of post-acquisition D

48% x ($10m - $3.2m) 3.3Less goodwill impaired (3.2)

16.7

W3 Non controlling interest

Full

B $

NCI at date of acq 9.8

Share of post acq profit

20% x ($11.2m - $13m) (0.4)

Less : impairment of goodwill (20% x $4m) (0.8)8.6

D

NCI at date of acq 20.0

Less : Direct NCI portion (20% x $22m) (4.4)

Share of post acq profit

52% x ($10m - $3.2m) 3.5

19.1

J Group: statement of financial position as at 31 December 2008

Full

$

Net assets ($26m + $13.2m + $30m) 69.2

Goodwill (working (1)) 15.2

Total net assets 84.4

Equity shares 40 40.0

Retained earnings (working (2)) 16.7

NCI (working (3)) 27.7

84.4

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COMPLEX GROUP

Practice : ACCA P2 June 2010 Q1

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COMPLEX GROUP

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COMPLEX GROUP

Practice : ACCA P2 June 2013 Q1

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COMPLEX GROUP

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08. Complex Group