P2 Chapter 1 Basic Groups

Chapter Diagram

Paper | P2 |

Chapter | 1 GROUP ACCOUNTING - BASIC GROUPS |

Upon completion of this chapter you will be able to:

* Apply the method of accounting for business combinations

* Apply the principles relating to the cost of a business combination

* Apply the recognition and measurement criteria for identifiable acquired assets and liabilities and goodwill

* Apply and discuss the criteria used to identify a subsidiary and an associate

* Determine appropriate procedures to be used in preparing group financial statements

* Account for and apply the equity method of accounting for associates

* Outline and apply the key definitions and accounting methods which relate to interests in joint ventures

Background to group accounts

Goodwill and fair value adjustments

Consolidation techniques

Associates and Joint ventures

Impairment of goodwill

Chapter | 1 GROUP ACCOUNTING - BASIC GROUPS |

Content Objective | Apply and discuss the criteria used to identify a subsidiary and an associate |

1. Background to group accounts

This chapter revises the basic principles of group accounting before moving onto more complex areas in later chapters. You should be familiar with the content from your previous studies.

1.1 Definitions

A parent is an entity that has one or more subsidiaries.

A subsidiary is an entity that is controlled by another entity (known as the parent).

Control is the power to govern the financial and operating policies of an entity so as to benefit from its activities.

1.2 Key points

* As the parent and its subsidiaries are acting as a single unit (the group), the users of the accounts will only be able to make informed economic decisions if they have access to a set of financial statements that combine the results, assets and liabilities of all companies in the group.

* Consolidated accounts must exclude transactions between group companies as their inclusion could inflate the...