Group Account

Requirements for Consolidated Financial Statements to be Prepared Annually.

Group accounts refer to the annual reports of a related group of companies. These annual reports are usually in the form of consolidated financial statements. A company is required to prepare consolidated financial statements if the following circumstances occur:

1. It has acquired more than half of the voting power of a company that is it owns more than 50% of the share capital of the company.

2. It has a say on the financial and operating policies of the other firm.

3. It can remove a majority or some of the members of board of directors.

4. Lastly it can cast majority of the votes at meeting of directors.

A company having all or some of the above features is said to have a significant influence. Such a company must be included when preparing the group accounts.

The Consolidation Process

Consolidation of financial statements refers to the combination of the financial statements of holding company and its investee companies to form a completely new set of financial statements. As per IFRS 10 the following procedure is followed when consolidating the financial statements.

1. The assets, liabilities, cash flows, incomes and expenses of the holding company are added to those of its subsidiaries.

2. The investment cost of the subsidiary in the statement of financial position of parent company is offset against the share of equity in the subsidiary company.

3. Intra group transactions such as inter group sales of inventory and fixed assets; inter-company dividends and inter-company debtors and creditors must be eliminated from the group accounts in full.

4. Lastly the minority interest must be computed to determine the portion of the company that is owned by the minority share holders.

Hypothetical Example of Consolidated Worksheet

Newton Ltd acquired 80% shares of Gravity ltd on 1 September 2015 at $60,000 when the profit and loss account was $6,000.The statement of financial position of the two companies as at 1 September 2016 was as follows;