The consolidation worksheet

Control (IFRS 10). An investor controls an investee when it has all three of: power over the investee (existing rights giving the current ability to direct the relevant activities); exposure, or rights, to variable returns; and the ability to use its power to affect those returns. A majority of voting rights usually gives control, but not always (for example if another party directs the activities by contract, or the investee is controlled by a court-appointed administrator). Control can exist with less than half the votes — for example a large holding when the other holders are widely dispersed (de facto control), or with substantive potential voting rights. A parent consolidates all its subsidiaries; investment entities measure most subsidiaries at FVTPL instead.

Consolidation procedures 1. Align accounting policies and reporting dates (a subsidiary's statements may be up to three months different, adjusted for significant transactions). 2. Add the parent's and subsidiary's assets, liabilities, income and expenses line by line — 100% of each, even if the parent owns less than 100%. 3. Eliminate the parent's investment against its share of the subsidiary's equity at acquisition, recognising fair value adjustments, goodwill and the NCI at acquisition. 4. Allocate post-acquisition changes in the subsidiary's equity between the parent and the NCI. 5. Eliminate intragroup balances, transactions and unrealised profits (next lesson).

At the reporting date: - NCI = NCI at acquisition + NCI's share of post-acquisition retained earnings (and other reserves), less its share of any impairment of goodwill if NCI is at fair value. - Group retained earnings = parent's retained earnings + parent's share of the subsidiary's post-acquisition retained earnings − goodwill impairment attributable to the parent (± other consolidation adjustments). - The subsidiary's pre-acquisition equity never appears in group equity: it's what the parent paid for.

NCI is presented within equity, separately from equity attributable to owners of the parent, and profit and comprehensive income are split between the two. Changes in a parent's ownership that don't lose control are equity transactions; losing control means derecognising the subsidiary, remeasuring any retained interest to fair value and recognising a gain or loss in profit or loss. US GAAP (ASC 810) has two models — voting interests and variable interest entities — where IFRS 10 has one control model.