AF2203: L3 (Preparing Consolidated SOCI, SOCE, SCF)

CS: Sanyo Special Steel

Sanyo Special Steel forced subsidiaries to buy products at high prices and recorded these sales on their income statement resulting in earnings inflated by 13bn yen

5 key issues when consolidated P&L

1. combine all group income/expenses

2. cancel all intra-group transactions

3. add any GW impairment

4. account for FV adjustments at acquisition

5. consolidate only from when control was obtain

how to adjust when FV > BV at acquisition

add additional depreciation charge annually to the consolidated P&L to represent depreciation on the difference between FV/BV

CS: Olympus

• Instead of recognizing, Olympus hid a $1.7bn investment loss using offshore entities

• offshare companies bought their bad investments w/ loans

• Olympus turned this loss into gradual GW impairment/amortization

presenting consolidated SOCE under IFRS10

IFRS10 requires the consolidated SOCE to show the whole subsidiary w/ equity split between parent and NCI

consolidated SOCE format

opening equity balance + comprehensive income - divs = closing equity balance

comprehensive income on SOCE

from consolidated P&L…

parent: ‘profit attributable to parent’

NCI: ‘profit attributable to NCI’

group: ‘total profit’

how is the consolidated SCF formed

from the consolidated P&L and the consolidated SOFP, not individual SCFs

• no intra-group adjustments are needed

• non-cash movement adjustments needed