Consolidating accounts group

The primary purpose of consolidated financial statements is to present the group financial statements as that of a single reporting entity.

It is for this reason, that: Goodwill Goodwill may arise on the acquisition of a subsidiary when the purchase price is more than the fair value of the subsidiary’s net assets.

Goodwill is accounted for under the provisions in FRS 10 .

The rebuttable presumption in FRS 10 (specifically paragraph 19) is that the useful economic life of purchased goodwill and intangible assets are limited to periods of twenty years or less.

Public Limited Companies and Public Unlimited Companies are not eligible for audit exemption.

Subsidiary undertakings A private company that is a subsidiary of another undertaking which is established in another EEA Member State is exempted from the requirement to annex financial statements and reports to the annual return if certain conditions are fulfilled.

where control is not obtained by share ownership, but by virtue of the fact that parent can influence the financial and operating policies of the investee).

A group can be exempted under the Audit Exemption (section 358(2)) where requirements are met.The average number of persons employed by the holding company and its subsidiaries does not exceed 50.Section 280B(11) states: For the purposes of this section, in relation to the aggregate figures for turnover and balance sheet total— ‘net’ means after set-offs and other adjustments made to eliminate group transactions— (i) in the case of Companies Act financial statements, in accordance with Schedule 4, and (ii) in the case of IFRS financial statements, in accordance with international financial reporting standards; ‘gross’ means without those set-offs and other adjustments Exemption from requirement to prepare group financial statements For years previous to financial years beginning 1 January 2017 : An exemption from this requirement is contained in section 297 Companies Act 2014 (now repealed by Companies Accounting Act 2017) which states that: A holding company shall, in respect of a particular financial year, be exempt from the requirement to prepare group financial statements if, at the financial year end date of the holding company— (a) for that financial year; and (b) for the financial year of that company immediately preceding that financial year, the holding company and all of its subsidiary undertakings taken as a whole satisfy at least 2 of the following 3 qualifying conditions.If a company is registered in the UK, those subsidiaries would need to be included within the consolidated financial statements.Thresholds CA06, which is effective for financial periods beginning on or after 6 April 2008, specifies benchmarks for groups to qualify as a ‘small’ group where 2 out of the following 3 conditions must be met: Exemptions CA06 at section 405 permits a subsidiary to be excluded from consolidation where its inclusion is not material for the purposes of giving a true and fair view. If you have 2 or more undertakings which, in isolation, are immaterial, but become material when taken together, they must be consolidated.When negative goodwill arises, it should be disclosed separately on the face of the balance sheet, immediately below goodwill and followed by a sub-total showing the net amount of positive or negative goodwill.Negative goodwill is written off to the profit and loss account in the periods in which the non-monetary assets in the acquisition are recovered, either through depreciation or sale.Holding undertakings In addition to preparing their own Financial statements, holding undertakings are required to prepare consolidated group financial statements and to lay them before the AGM at the same time as their own annual financial statements.The requirement to prepare group financial statements is contained in section 293 Companies Act 2014, and states that: "Where at the end of its financial year a company is a holding company, the directors of the company, as well as preparing entity financial statements for the financial year, shall prepare group financial statements for the holding company and all its subsidiary undertakings for that financial year." A Small Group may also be eligible for audit exemption under section 359 Companies Act 2014.There are also further exemptions from consolidation where: Recap of the fundamentals It is important to remember that ‘control’ for the purposes of establishing whether (or not) there is a parent/subsidiary relationship is determined by either share of ownership (i.e.where parent owns more than 50% of the shares in subsidiary) or the dominant influence approach (i.e.

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