7/25/2019 08. Complex Group
http://slidepdf.com/reader/full/08-complex-group 1/8
1.0 Complex group structure
1.1 When an entity owns more than one subsidiary, it can be said that the complex group exists.
1.2 The followings are the common complex group structure, with relevant explanations :-
1.2.1 Multiple direct subsidiaries
60% 75%
55%
1.2.2 Vertical Group with indirect subsidiary
40%
NCI 45%
30%
25%
NCI
Direct interest Effective ownership :- Subsidiary 1 Indirect Sub 1
Indirect interest Parent interest
- Direct 60% -
- Indirect - 45%
Non controlling interest
- Direct 40% 25%
- Indirect - 30%
100% 100%
60%
Parent
Subsidiary 1 Subsidiary 2 Subsidiary 3
This is a simple group where the consolidation technique is the same as the previous lesson, and each
results calculated will be combined to show a group result.
Parent
COMPLEX GROUP
75%
The effective date of acquisition of indirect subsidiary by parent is the date of parent gains control over the indirect subsidiary.
Note : effective interest is used to calculate the reserves allocation between parent and NCI, and not
used to determine control.
Subsidiary 1
Indirect subsidiary 1
114
7/25/2019 08. Complex Group
http://slidepdf.com/reader/full/08-complex-group 2/8
COMPLEX GROUP
1.2.3 Vertical Group with direct interests in the indirect subsidiary
75% 15%
Effective ownership :- Subsidiary Indirect Sub
Parent interest
- Direct 75% 15%
- Indirect - 45%
Non controlling interest
- Direct 25% 25%
- Indirect - 15%100% 100%
1.3 Examples 1 (based on examiner article "Business Combinations")
J plc B plc D plc
$m $m $m
Cost of investment in B (80% holding) 32.0 0.0 0.0
Cost of investment in D (60% holding) 0.0 22.0 0.0
Other net assets 26.0 13.2 30.0
58.0 35.2 30.0
Equity shares 40.0 24.0 20.0
Retained earnings 18.0 11.2 10.0
58.0 35.2 30.0
The retained earnings were:
B D
$m $m
1 January 2007 4.0 1.0
31 December 2007 13.0 3.2
J purchased its shareholding in B on 31 December 2007, and B purchased its shareholding in D on 1
January 2007. Control was achieved on these acquisition dates. The following financial statements
relate to the J Group as at 31 December 2008:
The effective date of acquisition of indirect subsidiary by parent is the date of parent gains control over
the indirect subsidiary.
Note : effective interest is used to calculate the reserves allocation between parent and NCI, and not
used to determine control.
Indirect subsidiarySubsidiary60%
Parent
115
7/25/2019 08. Complex Group
http://slidepdf.com/reader/full/08-complex-group 3/8
COMPLEX GROUP
The fair value of the NCI, based on effective shareholdings, was:
B D
$m $m
1 January 2007 8.0 18.9
31 December 2007 9.8 20.0
Required
For full methods, show the statement of financial position at 31 December 2008.
Solution
Effective ownership :- B D
Parent interest - Direct 80% - - Indirect - 48%
Non controlling interest - Dir 20% 40%
- Indirect - 12%
100% 100%
Date of control Pre acq RE ($m) FV of NCI ($m)
J in B 31 Dec 07 13.0 9.8
J in D 31 Dec 07 3.2 20.0
W1 Goodwill calculation
Full$
J in B
Consideration transferred 32.0
NCI 9.8
41.8
Share of identified net assets
Share capital (24.0)
Retained earnings (13.0)
4.8
Less : impairment (4.0)
0.8
B in D
Consideration transferred 22.0
Less : Direct NCI portion (20% x $22m) (4.4)
NCI 20.0
37.6
Share of identified net assets
Share capital (20.0)
Retained earnings (3.2)
14.4
Based on effective holding, the goodwill of B is impaired, as at 31 December 2008, by $4m following
poor trading results for the year. There was no impairment prior to this date.
J
B
D
80
60
116
7/25/2019 08. Complex Group
http://slidepdf.com/reader/full/08-complex-group 4/8
COMPLEX GROUP
W2 Group retained earning Full
$
J retained earnings 18.0
Share of post-acquisition B
80% x ($11.2m - $13m) (1.4)
Share of post-acquisition D
48% x ($10m - $3.2m) 3.3Less goodwill impaired (3.2)
16.7
W3 Non controlling interest
Full
B $
NCI at date of acq 9.8
Share of post acq profit
20% x ($11.2m - $13m) (0.4)
Less : impairment of goodwill (20% x $4m) (0.8)8.6
D
NCI at date of acq 20.0
Less : Direct NCI portion (20% x $22m) (4.4)
Share of post acq profit
52% x ($10m - $3.2m) 3.5
19.1
J Group: statement of financial position as at 31 December 2008
Full
$
Net assets ($26m + $13.2m + $30m) 69.2
Goodwill (working (1)) 15.2
Total net assets 84.4
Equity shares 40 40.0
Retained earnings (working (2)) 16.7
NCI (working (3)) 27.7
84.4
117
7/25/2019 08. Complex Group
http://slidepdf.com/reader/full/08-complex-group 5/8
COMPLEX GROUP
Practice : ACCA P2 June 2010 Q1
118
7/25/2019 08. Complex Group
http://slidepdf.com/reader/full/08-complex-group 6/8
COMPLEX GROUP
119
7/25/2019 08. Complex Group
http://slidepdf.com/reader/full/08-complex-group 7/8
COMPLEX GROUP
Practice : ACCA P2 June 2013 Q1
120
7/25/2019 08. Complex Group
http://slidepdf.com/reader/full/08-complex-group 8/8
COMPLEX GROUP
121