IFRS 10: Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate other entities it controls. The control principle in IFRS 10 sets out the following three elements of control: power over the investee; exposure, or rights, to variable returns from involvement with the investee; and. the ability to use power over the investee to affect the amount of those returns.
Required:
i) What are Consolidated Financial Statements? (1 mark)
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According to IFRS 10: Consolidated Financial Statements are the financial statements of a parent and its subsidiaries presented as if they are the financial statements of a single economic entity.
ii) Identify FOUR (4) circumstances under which a company may gain control over another company but will not be allowed to prepare consolidated financial statements. (4 marks)
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Exemption from preparing consolidated financial statements
A parent need not prepare consolidated financial statements providing:
- It is itself a wholly-owned subsidiary, or is partially-owned with the consent of the non-controlling interest (Non -Controlling interest); and
- It debt or equity instruments are not publicly traded; and
- It did not or is not in the process of filing its financial statements with a regulatory organization for the purpose of publicly issuing financial instruments; and
- The ultimate or any intermediate parent produces consolidated finical statements available for public use that comply with IFRS.
( 1 mark for each exemption up to maximum of 4 marks)