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Group accounts Learning objectives

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Group accounts Learning objectives Know the criteria for a group in relation to financial statements - The basic criterion is decisive influence – PowerPoint PPT presentation

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Title: Group accounts Learning objectives


1
Group accountsLearning objectives
  • Know the criteria for a group in relation to
    financial statements - The basic criterion is
    decisive influence
  • Understand the purpose of the group account as an
    element in the financial statements
  • Understand and be able to use the consolidation
    schedule
  • Be able to consolidate the statements/accounts of
    the consolidating companies
  • Understand and be able to eliminate the double
    counting caused by internal share ownership by
    means of the past equity method
  • Understand the Equity method/internal value
    method for measurement of shares in D in the
    statements of the parent company

2
What is a group?
  • Basically a group can be defined as a financial
    combination of legally independent companies.
  • A group may be established under different
    corporate forms (partnerships, operating
    foundations, co-operative societies, public
    limited (liability) companies, private limited
    companies)
  • A group consists of a parent company and its
    subsidiary companies

3
DCAA Bil. B4 - definition of a group.
  • According to the DCAA parent companies
  • a) hold the majority of the voting rights in
    another company,
  • b) are company members and have a right to
    appoint and dismiss a majority of the members in
    the top management of the other company (board of
    directors and/or corporate management),
  • c) are company members and have a right to
    exercise a controlling influence over another
    company on the basis of the articles of
    association of or agreement with that company,
  • d) are company members and hold the majority of
    the voting rights in another company on the basis
    of agreement with other members or
  • e) own equity interests in another company and
    exercise a controlling influence on this company.

4
DCAA Bil. A5, A1 and B5 - definition of a group.
  • In this Act company members are
  • Stockholders, shareholders or others who have
    equity interests in a company
  • In this law equity interests are
  • Holdings in public limited companies
    (shares), in private limited companies (shares)
    and also in the share capital of other companies
  • Affiliated companies The subsidiary companies of
    a company, its parent companies and their
    subsidiary companies (the sisters, aunts, and
    cousins)

5
DCAA Bil. B2 - definition of a group.
  • In this Act subsidiary companies are
  • Companies with which a company directly or
    indirectly have the connections mentioned under
    the definition of a parent company

6
DCAA bil. B4 - definition of a group.
  • In practice a business is normally a parent
    because it owns the majority of the voting rights
    in the subsidiary
  • A company is very rarely a parent solely as a
    result of the other criteria alone

7
DCAA Bil. B6 and 7 - direct and indirect voting
rights etc.
  • In the calculation of voting rights and rights to
    appoint and dismiss members of management organs,
    both directly owned equity interests (by the
    parent on which the parent can thus exercise the
    voting right) and indirectly owned equity
    interests (on which the parent can exercise the
    voting right by controlling the subsidiary with
    the equity interests) must be included

8
Consolidated financial statements
  • Consolidated financial statements are an element
    of the financial statements of the parent
    company they are a supplement to the financial
    statements
  • Particular specification requirements concerning
    group relations in the parent and subsidiary
    financial statements. The following items are
    specified in the balance sheet (they are
    eliminated in the consolidated financial
    statements)
  • Financial fixed assets
  • Equity interests in/receivables from affiliated
    companies
  • Current assets - receivables
  • Receivables from affiliated companies
  • Current assets - securities and equity interests
  • Equity interests in affiliated companies
  • Debt
  • Debt owing to affiliated companies

9
Consolidated financial statements
  • The income statement Separate items for
  • Income from equity interests in affiliated
    companies,
  • other financial income from affiliated
    companies and
  • financial expenses resulting from affiliated
    companies
  • Note information requirements There are a series
    of requirements to the information in notes
    concerning the consolidated financial statements
    - DCAA 97 (category C/ guarantee commitments)
    and 72 (category B/ The name of the parent
    company/ address/information of the share
    owned/result of operations/owners equity)

10
Consolidated financial statements
  • Purpose of consolidated financial statements
  • Basis of law
  • Duty to prepare consolidated financial
    statements, including exemptions and leaving out
  • Form/substance
  • Consolidation

11
Purpose of consolidated financial statements
  • To provide an over-all picture of the financial
    position and the result of operations of the
    entire group.
  • To summarize information which is already stated
    in the individual financial statements (no new
    information).
  • E.g. the over-all debt/receivables to and
    from the external environment
  • To describe matters such as they are when the
    accounting group is the accounting unit (new
    information) -
  • E.g. the total sales of the group to the
    external environment (which has been eliminated
    for trade between the group companies)
  • To inform interest groups of the parent company
    and the subsidiary companies (and management of
    the group?)

12
Basis of law
  • DCAA, especially section VI Consolidated
    financial statements and financial statements for
    mergers etc.
  • Guideline for consolidated financial statements -
    issued by the Danish Commerce and Companies
    Agency (DCCA)

13
Liability to prepare consolidated financial
statements - exemptions/leaving out
  • DCAA 2, quote
  • For every accounting year the companies
    mentioned in 3, paragraph 1, must prepare
    consolidated financial statements according to
    this Act. Unless otherwise stated in 18, 22,
    78, 102 or 109, the consolidated financial
    statements must be supplemented with
  • 1) financial statements for the group controlled
    by the company (consolidated financial
    statements)
  • 2) management report for the group controlled by
    the company
  • Exemptions
  • small groups, 110 - DKK20 million balance sheet
    total/DKK40 million net sales/50 employees
  • Parent companies that are themselves 100 owned
    by another company (or close to 100 owned) ,
    112 - a series of conditions

14
Liability to prepare consolidated financial
statements - exemptions/leaving out
  • Leaving out
  • In certain cases it is possible to leave out a
    subsidiary company from the consolidated
    financial statements, cf. DCAA 114, paragraph 2
  • if owing to special circumstances the parent
    company cannot exercise its owner influence on
    the subsidiary
  • if owing to special circumstances the parent
    company cannot get the necessary information
  • Ownership which is solely motivated as a
    temporary and short term arrangement
  • In certain cases subsidiary companies must be
    left out from the consolidated financial
    statements, cf. DCAA 114, paragraph 3
  • Especially in terms of subsidiary companies
    within financial business
  • The regulations do not leave much room for
    interpretation - it takes very good
    arguments/reasons for leaving out a subsidiary
    company

15
Form/substance
  • DCAA 115
  • Consolidated financial statements must show
    the assets and liabilities of the consolidated
    companies, their financial position and result of
    operations, as if they combined were one single
    company.
  • As if legal fiction, but financial
    reality

16
Form/substance
  • DCAA 117, paragraph 1
  • By consolidation uniform items in the
    financial statements are added item by item so
    that uniform revenue and expenses as well as
    assets and liabilities are totaled for all group
    companies. Adjustments must be made, though,
    which are necessary on the basis of the special
    circumstances which apply to consolidated
    financial statements and are different from
    ordinary financial statements.
  • DCAA 122, paragraph 2
  • The equity interests of one consolidated
    company in another consolidated company, measured
    at their cost price, are set off from the
    consolidated statements and against the owned
    companies net assets, measured at their current
    accounting value of the consolidated companies,
    cf. paragraph 1. The goodwill resulting from this
    setoff is determined at the time of group
    establishment.

17
Form/substance
  • DCAA 120 eliminations
  • 1) Receivables and liabilities between the
    consolidated companies
  • 2) income and expenses resulting from
    transactions between the consolidated companies
    and
  • 3) profit and loss resulting from transactions
    between the consolidated companies, which is
    included in the items booked value

18
Form/substance
  • Consolidated financial statements are prepared
    according to the same rules as the parent company
  • The applied accounting principles in the group
    must be the same. The valuation principles of the
    parent company are usually used for the group.
    DCAA 119
  • The same accounting year as the parent company.
    If more than 3 months ahead of the balance sheet
    day of the parent company then special financial
    statements need to be prepared as of the balance
    sheet day of the parent company. DCAA 116

19
Consolidated financial statements
  • The consolidated financial statements are the
    result of a additions and a number of
    eliminations
  • Consolidation a summation of information in the
    individual companies financial statements in
    consolidated financial statements
  • Eliminations gt summarize the information so that
    the group is the accounting unit (as if there
    were only one company), i.e. only include those
    transactions which have been made with external
    parties
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