THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA

Thilanka WarnakulasooriyaB.Com Special (Col), ACA,MBA-Fin

( Col)

POSTGRADUATE DIPLOMA IN BUSINESS AND FINANCE - 2015/2016

Principles of Financial and Cost Accounting

LKAS 27 – Consolidated and Separate Financial Statements

This standard shall be applied- In preparation of consolidated financial

statement for a group of a entities under the control of a parent.

In accounting for investment in subsidiaries jointly controlled entities and associates in separate financial statements.

Definitions

Consolidated financial statements Financial Statements of a group presented as

those of a single economic entity

ControlPower to govern financial and operating policies of an entity so that to obtain benefits from its activities

Group Parent and all its subsidiaries

Non‐controlling interest Equity in a subsidiary not attributable,

directly or indirectly, to a parent.

Parent An entity that has one or more subsidiaries

Subsidiary

An entity that is controlled by another entity (known as the parent) – includes unincorporated entities

Separate Financial StatementsPresented by

A parentAn investor in an associateA venturer in a Jointly Controlled Entity

Where investments are accounted on the basis ofdirect equity interest rather than on the basis of reported results and the net assets

Subsidiaries and ControlControl is presumed when >50% of the voting power is owned

Directly or Indirectly through subsidiaries Unless such ownership is clearly demonstrated not

to constitute control

Even when ≤50% of voting power is owned, control exists when

Power over more than half of the voting rights by virtue of an agreement with other investors

Power to govern financial and operating policies of the entity under a statute or an agreement Power to ‘appoint’ or‘ remove’ majority of the members of the board

Power to cast the majority of votes at meetings of the board

Control

Potential Voting Rights –The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by another entity.

Consolidation procedure

Combines the financial statements of the parent and its subsidiaries line by line by adding together like items of assets, liabilities, equity, income ad expenses.

The carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiaries are eliminated.

Non-controlling interests in the profit or loss of consolidated subsidiaries for the reporting period are identified.

Consolidation procedure

Non-controlling interests in the net assets of consolidated subsidiaries are identified

Intra-group balances, transactions, income and expenses shall be eliminated in full.

when potential voting rights exist, the proportions of profit or loss and changes in equity allocated to the parent and non-controlling interests are determined on the basis of present ownership interests

Uniform reporting date

The financial statements of the parent and its subsidiaries used I the preparation of the consolidated financial statements shall be prepared as of the same reporting date unless it is impracticable to do so.

Uniform accounting policies

CFS shall be prepared using uniform accounting policies for like transactions and

other events in similar circumstances.

Non-controlling interest

Non-controlling interest shall be presented in the consolidated statements of financial position within equity, separately from the equity of the owners of the parent.

DisclosureThe nature of the relationship between the parent and a subsidiary

The reasons why the ownership, directly or indirectly through subsidiaries of more than half of the voting or potential voting power of an investee does not constitute control.

Reasons for using a different date or period for consolidated the FS of subsidiary.

The nature and extent of any significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances.Any changes in a parent’s ownership, interest in a subsidiary that do not result in a loss of control

If control of a subsidiary is lost, the parent shall disclose the gain or loss.

Explanation for exemption from consolidation has been used.

A list of significant investments in subsidiaries, jointly controlled entities and associates, including the name, county of incorporation or residence

LKAS-28

Investments in Associates

AssociateEntity over which the investor has significant influence, but not a subsidiary or a jointly controlled entity

Equity MethodInvestment is initially recognized at cost. Thereafter adjusted for the post‐acquisition share of net assets of the investee P/L of the investor includes the investor’s share of the P/L of the investee

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Definitions

Significant InfluencePower to participate in the financial and operating policy decisions of the investee but not control or joint control

If an investor hold, directly or indirectly (e.g. through subsidiaries), 20% or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case.

Equity methodThe equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit

or loss of the investee.

Equity methodAn investment in an associate is accounted for using the equity method from the date on which it becomes an associate. On acquisition of the investment any difference between the cost of investment and the investor’ share of the net fair value of the associate’s identifiable assets and

liabilities is accounted for as – Goodwill relating to a associate is included in the carrying

amount of the investment. Amortization of that goodwill is not permitted.

Any excess of the investor’s share of net fair value of the associate’s identifiable assets and liabilities over the cost of the investment is included as income in the determination of the investor’s share of the associate’s profit or loss in the period in which the investment is acquired

Equity methodIf an investor’s share of losses of an associate equals or exceeds its interest in the associates, the investor discontinues recognizing its share of further losses.

Impairment testing is required

Disclosure

The fair value of investments in associates

Summarized financial information of associates

The reasons why the presumption that an investors does not have significant influence

The reasons why the presumption that an investor has significant influence is overcome

DisclosureThe end of reporting period of the financial statements of an associate.

The nature and extent of any significant restrictions

The un-recognised hare of losses of an associates, both for the period and cumulatively

The fact that an associate is not accounted for using the equity method

DisclosureInvestment in associates accounted for using the equity method shall be classified as non-current assets

Its share of the contingent liabilities of an associates incurred jointly with other investors