Question

a) Explain the rationale for the elimination of intragroup transactions in the preparation of consolidated financial statements? List five different types of intragroup transactions within the group structure which need to be eliminated for consolidation purpose.

b) Briefly explain how goodwill arising on a business combination is initially recognised and subsequently measured.

c) There are two broad types of joint arrangements referred in AASB 11 Joint Arrangements. How do you differentiate these two types of joint arrangement?

Answer 1

a. consolidation is the process of combining two companies which share ownership and intra transaction means, these two companies have shared their trading and both companies will show the adjustments for the same in their books as per accounting satndards. when we come into the process of consolidation, now these 2 companies are treated as one and this intra transaction will manipulate the financial statements as they have the nature of duplication. Thus it is complusory to adjust intra transaction in consoludation.

Intragroup transactions:

• purchase of the goods
• sale of the goods
• receivables
• payables
• transfer of an asset

b. initial recognisation of goodwill be shown in statement of financail position and it will be calculated by:

• purchase consideration
• + fair value of non contriolling interest
• - net assets of subisiidiary at date of aquisition

subsequent measuremnt:

it will be done accorrding with IAS 36 impairment of assets:

impairment loss / gain is adjusted with the goodwill amount in SOFP and the same will be adjusted in SOPL also.

c.

Joint arrangements are either joint operations or joint ventures:

• A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. [IFRS 11:15]
• A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers. [IFRS 11:16]