ACCA Strategic Professional · Strategic Business Reporting (International) · Group accounting including statements of cash flows
Alpha owns 80% of Beta, and Beta owns 60% of Gamma. Alpha has no direct holding in Gamma. Under IFRS 10, how should Gamma be treated in Alpha's consolidated financial statements?
Gamma is consolidated in full as an indirect subsidiary. IFRS 10 uses control, and Alpha controls Beta, which controls Gamma. The 48% effective interest only determines the split of profits and net assets between owners of the parent and non-controlling interests, not whether Gamma is consolidated.
- AGamma is consolidated in full as a subsidiary because Alpha controls Beta, which controls GammaCorrect
- BGamma is equity accounted as an associate because Alpha's effective interest is 48%
- CGamma is consolidated only for the 48% effective interest, using proportionate consolidation
- DGamma is not consolidated because Alpha has no direct shareholding
Explanation
IFRS 10 is based on control, not effective ownership. Alpha controls Beta and Beta controls Gamma, so Gamma is a subsidiary and is consolidated 100% line by line. The effective interest of 48% (80% x 60%) is used only to split profit and net assets between the parent and the non-controlling interest. Equity accounting and proportionate consolidation are wrong.
Did you get it right without looking?
One question tells you little. A timed set on Group accounting including statements of cash flows shows your real accuracy, how long you take and where you lose marks.
More Group accounting including statements of cash flows questions
- Parent P sold inventory to its 75% subsidiary S at a cost of $80,000 for $100,000. At the year end, half of the inventory remains in S's inv…
- Alpha plc acquired 70% of Beta Ltd several years ago. Alpha's directors propose to exclude Beta from the consolidated financial statements b…
- Omega sells 20% of its 80% subsidiary Sigma for $5m and keeps control. Sigma's net assets in the consolidated statements at the date of sale…
- Castor Group's consolidated profit before tax includes a $2m share of profit of an associate, and the group received a dividend of $0.5m fro…
- Omega, a listed parent, is negotiating a bank covenant that requires group gearing below 50%. The finance director instructs the group accou…
- Parent R sold a machine with a carrying amount of $60,000 to its 90% subsidiary T for $80,000 during the year. The machine has a remaining l…