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0 - GS Chapter 7 - Complex Groups

This document provides an overview of preparing consolidated financial statements for complex corporate groups, including horizontal and vertical structures. Key points include: - Horizontal groups have a parent company that directly owns shares in two or more subsidiary companies. - Vertical groups have a parent company that indirectly owns shares in a subsidiary company through direct ownership of an intermediate subsidiary. - For horizontal groups, the consolidation process treats each subsidiary separately, combining parent and subsidiary amounts through pro forma consolidation journals. - For vertical groups, two sets of consolidated statements are prepared: one for the intermediate subsidiary and its direct subsidiaries, and another for the group as a whole.

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Justyne Webb
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147 views3 pages

0 - GS Chapter 7 - Complex Groups

This document provides an overview of preparing consolidated financial statements for complex corporate groups, including horizontal and vertical structures. Key points include: - Horizontal groups have a parent company that directly owns shares in two or more subsidiary companies. - Vertical groups have a parent company that indirectly owns shares in a subsidiary company through direct ownership of an intermediate subsidiary. - For horizontal groups, the consolidation process treats each subsidiary separately, combining parent and subsidiary amounts through pro forma consolidation journals. - For vertical groups, two sets of consolidated statements are prepared: one for the intermediate subsidiary and its direct subsidiaries, and another for the group as a whole.

Uploaded by

Justyne Webb
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

2/27/2023

LEARNING OUTCOMES

GROUP STATEMENTS Preparation of consolidated financial


statements of parent company and
subsidiaries in a horizontal group

Chapter 7 – Vol. 1 18th edition

Complex groups

Refer to the Planning document


1 2

1 2

STUDY MATERIAL Introduction


 Simple group – parent and 1 subsidiary
 Group statements Chapter 7 – 18th edition
(Volume 1)  Complex group – parent and >1 sub
All principles the  Horizontal group (single level structures) Fig 1
same! More than  Parent itself owns shares in 2 or more subs pg440

QUESTIONS one analysis (parent has direct ownership)


 Vertical group (multiple level structures) Fig 2&3
 Parent owns controlling interest in subsidiary and sub
owns controlling interest in sub-subsidiary (parent has
 GS Example 7.1 (adjusted) indirect ownership over sub-subsidiary)
 Class example 1  Mixed group
 Class example 2  Parent owns controlling interest in at least 1 sub and
parent + sub jointly owns controlling interest in other
 Class question company
 Structured tut: 26 September: Charles Ltd 3 4

3 4
2/27/2023

Consolidation of horizontal group Exam technique

 Consolidation process similar to process  Journals


applied to simple group where parent has  Is anything excluded?
only one subsidiary:  Do one sub at a time, one transaction
 Separately analyse interests of each at a time
subsidiary (doesn’t matter in which order)
 Pro-forma consolidation journals separately  Disclosure
for each subsidiary
 Do formats and headings for required
 Combine amounts of parent and each
 Start AOE for each sub (ord & pref)
subsidiary to prepare consolidated financial
statements Example 7.1  Work through add info methodically

5 6

5 6

Vertical groups: Only awareness level (Knowledge level 1)

Statements Consolidation of vertical group

 SFP  Where a partially-owned sub of parent also


 P + S1 + S2 +- Jnls owns its own subs, 2 sets of consolidated
statements shall be prepared:
 Statements for partially-owned sub with sub-
 SCI
subsidiaries
 P + S1 + S2 +- Jnls
 Statements for group as a whole (parent +
subsidiaries)
 SCE  2 sets of NCI
 {P +- Jnls} + {S1 AOE + S2 AOE}

7 8

7 8
2/27/2023

Vertical groups: Only awareness level (Knowledge level 1) Vertical groups: Only awareness level (Knowledge level 1)

Consolidation of vertical group Consolidation of vertical group


 Basic approach  In practice:
 1st consolidate subsidiary and sub-subsidiary and Dates on which parent acquires interests in
thereafter the fin statements of parent and subsidiaries subsidiaries are very important – 2 sets of
circumstances:
 1st analyse subsidiary’s interest in sub-subsidiary and
thereafter the parent’s interest in the subsidiary’s 1. the parent obtained the interest in the subsidiary before
consolidated equity interest the subsidiary obtained the interest in the sub-subsidiary

 Certain information from the sub-subsidiary’s analysis


are included in the subsidiary’s analysis
2. the subsidiary obtained the interest in the sub-
subsidiary before (or on the same date) the parent
 Briefly illustrate with GS Example 7.2 – please note - it is obtained the interest in the subsidiary
not necessary to work through example in detail as this
is awareness level 9 Example 7.2: only for illustration purposes 10

9 10

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