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ACCA Strategic Professional · Strategic Business Reporting (International) · Group accounting including statements of cash flows

Alpha plc acquired 70% of Beta Ltd several years ago. Alpha's directors propose to exclude Beta from the consolidated financial statements because Beta operates in a highly regulated sector and its results would 'confuse readers'. Alpha controls Beta under IFRS 10 and Beta is not held for sale. What is the correct treatment?

Beta must be consolidated in full because Alpha controls it under IFRS 10. Dissimilar or regulated activities are not an exemption, and the 30% held by others appears as non-controlling interest rather than being excluded or proportionately consolidated.

  1. AExclude Beta and disclose it as an investment at fair value
  2. BConsolidate Beta, because control exists and the sector or dissimilar activities is not an exemption from consolidationCorrect
  3. CEquity account Beta because its activities are dissimilar to the rest of the group
  4. DConsolidate Beta only for the proportion of 70%

Explanation

IFRS 10 requires a parent to consolidate all subsidiaries it controls. Dissimilar activities or regulatory sector are not grounds for exclusion. Proportionate consolidation is not permitted for subsidiaries; the 30% is shown as non-controlling interest.

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