This IFRS was issued in May 2011. It applied to all periods beginning on or after 1 Jan 2013.

IFRS 10 outlines the requirements of for preparation and presentation of consolidated financial statements, generally requiring entities to consolidate investees that it controls. Establishment of control is prime requirement before proceeding with application for the provisions under this IFRS and consolidating the investees under its umbrella.

Control

An investor controls an investee when the investor “is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.” IFRS 10:6 & Appendix A

Existence of control over the investee has been set forth an essential milestone ahead of beginning consolidation and elimination of intragroup transactions to prepare and present the consolidated financial statements of the parent entity.

Specifically, an investor controls an investee if and only if the investor has all of the following elements:

a) Power over the investee;

b) exposure, or rights, to variable returns from its involvement with the investee; and

c) the ability to use its power over the investee to affect the amount of the investor’s return.

Power is defined as “existing rights that gives the current ability to direct the relevant activities”.

Presence of the all above-mentioned elements is paramount to establish control over investee entity. An absence of any elements does not substantiate the controls vested with the parent company. e.g. existence of power granted by MOA/AOA is not worthwhile unless and until investor is not exposed to variable the returns of the investee entity and so is true with ability to use its power. Nonetheless, power and exposure turns useless until parent does not possess requisite ability to utilise its powers.

Exemptions

All entities, complying IFRS, are mandatorily required to adhere to provisions of IFRS 10, except under below scenarios:

a) a parent that is itself a subsidiary of another IFRS reporter need not to prepare consolidated financial statements if its meets specified conditions;

b) post-employment benefits plans or other long-term employee benefit plans to which IAS 19 Employee benefits applies; and

c) an investment entity need not to present consolidated financials statements if it is required under IFRS 10.31 to measure all of its subsidiaries at fair value through profit of loss.

Consolidation Procedure

Post establishment of control over investee entity and checking for availability of exemptions eligibility, a parent need to set forth towards preparation and presentation of consolidation financial statements as below:

a) combine its alike assets, liabilities, equity, income, expenses and cash flows with individual investees;

b) offset (eliminates) the carrying value of parent’s investment in subsidiaries with those of parent’s share in subsidiaries equity ( IFRS 3 Business Combinations provide information with respect to calculation of Goodwill and Bargain Profit)

c) offset (eliminate) intragroup assets, liabilities, income, expenses, equity, and cash flow with respect to transactions within the group i.e. between parent and subsidiaries or among one subsidiary with another.

A reporting entity to include all incomes and expenses from the date of its acquisition of control in subsidiary to reporting date. Incomes or expenses prior to establishment of control over investee need to be dealt in lines with IFRS 3. Parent and subsidiary need to have same reporting period in order to accomplish consolidation using subsidiaries audited financial statements. Parent may utilise additional financial information presented by subsidiary in case it is impracticable to maintain common reporting period.

Non Controlling Interest (NCI)

Interest in the subsidiaries not controlled by parent or reporting entity is terms as non controlling interest (NCI). NCI includes minority holders proportionate interest in share capital and reserves (pre or post acquisition by parent). NCI does not include loans granted by minority shareholders to the entity. It is worth understanding that NCI appears in the consolidated financials statements of reporting entity and no to be shown in standalone financials statements of reporting entity or subsidiary. NCI represents minority shareholders interest in net assets of the subsidiary.

Profit and loss and each element of other comprehensive income will be attributed to NCI based on % shareholding of parent and minority shareholders irrespective of deficit balance in the total comprehensive income.

Change in ownership interest

Needful to emphasis here with regards to change of ownership interest without eventual loss of control of parent company. Unlike acquisition of acquisition of control, in case subsidiaries undergoes any change of % holding between parent and minority shareholder without change of control, no Goodwill or bargain profit will be computed. Parent will be adjust the carrying values of its equity components and NCI. Excess or deficit of consideration paid or received by parent toward change of shareholding will be directly recognised in the equity and attributed to owners of parent.

Loss of Control

In case of loss of control during the year, parent will:

a) derecognise assets, liabilities of the former subsidiary from the consolidated financial statements;

b) recognise the investment held by parent in the former subsidiary, amount owned or owed by parent to former subsidiary in accordance with relevant IFRS i.e. at cost or fair value as per provisions of applicable IFRS.

c) recognise gain or loss in its profit and loss account during the period with respect to loss of controlling interest in former subsidiary.

Disclosure

There are no disclosures specified by IFRS 10. However, IFRS 12 Disclosure of interest in Other entities outlines the disclosures required.