Group accounting

Why group accounting matters in SBR

Section A Question 1 is usually built around a group. You may need to prepare or correct consolidated figures and explain the accounting. Most of the techniques come from FR, but SBR adds complex structures and asks you to justify every treatment.

Control

IFRS 10 says an investor controls an investee when it has power over it, exposure to variable returns from it, and the ability to use its power to affect those returns. Control, not the shareholding percentage, decides whether an entity is a subsidiary.

Goodwill and non-controlling interest

Goodwill = consideration + non-controlling interest (NCI) + fair value of any previously held interest − fair value of identifiable net assets.

NCI can be measured at fair value (full goodwill) or at its share of net assets (partial goodwill).

Example: a parent pays $800 million for 80% of a subsidiary. NCI at fair value is $200 million and the subsidiary's identifiable net assets have a fair value of $750 million. Goodwill = $800m + $200m − $750m = $250 million.

Changes in group structure

• Step acquisition (gaining control): remeasure the previously held interest to fair value, with the gain or loss in profit or loss, then calculate goodwill.
• Buying more shares while already in control: an equity transaction. No new goodwill.
• Selling shares and keeping control: an equity transaction. Adjust NCI and record the difference in equity.
• Losing control: derecognise the subsidiary, remeasure any retained interest to fair value, and recognise the gain or loss in profit or loss.

Associates and joint ventures

Where the investor has significant influence (often 20–50% of voting rights), it uses the equity method under IAS 28: cost plus its share of post-acquisition profits, less impairment.

Foreign subsidiaries

Under IAS 21, a foreign subsidiary's statement of financial position is translated at the closing rate and its profit or loss at the average rate. Exchange differences go to other comprehensive income. Goodwill is treated as an asset of the subsidiary and retranslated each year.

Common mistakes

• Putting a gain on a disposal without loss of control into profit or loss.
• Forgetting to remeasure the old interest in a step acquisition.
• Translating goodwill at the historical rate.