DAIF Chapter 15 Group accounts: basic principles

Question 1

How would a parent company recognise buying shares of another company in their accounts?

Answer 1

Dr Investment
Cr Cash

Question 2

How much does a parent company need to own in order for a company to take “control” of a subsidiary company?

Answer 2

50%+

Question 3

What does IFRS 10 involve?

Answer 3

Parent and subsidiary companies

Question 4

What is a parent company as defined by IFRS 10?

Answer 4

An entity that controls one or more entities

Question 5

What is a subsidiary company as defined by IFRS 10?

Answer 5

An entity that is controlled by another entity

Question 6

Which group accounts need to be prepared?

Answer 6

• Consolidated statement of financial position
• Consolidated statement of profit or loss
• Consolidated statement of changes in equity
• Consolidated statement of cash flows
• Notes to the consolidated accounts

Question 7

What is the purpose of consolidated accounts?

Answer 7

• To present financial information about a parent undertaking and its subsidiary undertakings as a single economic unit
• To show the economic resources controlled by the group
• To show the obligations of the group
• To show the results the group achieves with its resources

Question 8

Are a parent company and a subsidiary company a single legal entity or individual legal entitys?

Answer 8

Individual

Question 9

A parent company controls a subsidiary company and they therefore form what?

Answer 9

A single economic entity (The group)

Question 10

What is the objective of the consolidated financial statements of a group?

Answer 10

To show the position of the group as if it was a single economic entity

Question 11

How much of the parents and subsidiary companies assets, liabilities, income and expenses are shown within the group consolidated statement of financial position and statement of profit or loss?

Answer 11

100% of both

Question 12

What elements are required to demonstrate the exercise of control over a subsidiary?

Answer 12

• Power over the investee (subsidiary)
• Exposure or rights to receive variable returns
• The ability to use power to influence variable returns

Question 13

How is control of a subsidiary usually shown?

Answer 13

Typically owning more than 50% of the equity share capital of the subsidiary