Consolidation Procedures

1. In preparing consolidated financial statements, the financial statements of the parent and its subsidiaries are combined on a line-by-line basis by adding together like items of assets, liabilities, equity, income and expenses. In order that the consolidated financial statements present financial information about the group as that of a single enterprise, the following steps are then taken:

   1. the carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each subsidiary are eliminated (see FRS 122₂₀₀₄, Business Combinations)

   2. minority interests in the net income of consolidated subsidiaries for the reporting period are identified and adjusted against the income of the group in order to arrive at the net income attributable to the owners of the parent; and

   3. minority interests in the net assets of consolidated subsidiaries are identified and presented in the consolidated balance sheet separately from liabilities and the parent shareholders equity. Minority interests in the net assets consist of:

      1. the amount at the date of the original combination calculated in accordance with FRS 122₂₀₀₄, Business Combinations; and

      2. the minority's share of movements in equity since the date of the combination.

1. Taxes payable by either the parent or its subsidiaries on distribution to the parent of the profits retained in subsidiaries are accounted for in accordance with FRS 112₂₀₀₄, Income Taxes.

2. Intragroup balances and intragroup transactions, and resulting unrealised profits should be eliminated in full. Unrealised losses resulting from intragroup transactions should also be eliminated unless cost cannot be recovered.

3. Intragroup balances and intragroup transactions, including sales, expenses and dividends, are eliminated in full. Unrealised profits resulting from intragroup transactions that are included in the carrying amount of assets, such as inventory and fixed assets, are eliminated in full. Unrealised losses resulting from intragroup transactions that are deducted in arriving at the carrying amount of assets are also eliminated unless cost cannot be recovered. Hence, unrealised losses should not be eliminated to the extent that the transaction provides evidence of an impairment of the asset transferred. Temporary differences that arise from the elimination of unrealised profits and losses resulting from intragroup transactions are dealt with in accordance with FRS 112₂₀₀₄, Income Taxes.

4. The eliminations of intragroup transactions and the resulting unrealised profits or losses in paragraph 21 apply, regardless of the directions of the transactions. However, in allocating the group's profits and net assets to minority interests in accordance with paragraphs 19(b) and 19(c) respectively, the resulting unrealised profits or losses should be allocated to minority interests based on their respective interests in the subsidiaries which have recorded the unrealised profits or losses.

5. The financial statements used in the consolidation should be drawn up to the same reporting date. When the financial statements used in the consolidation are drawn up to different reporting dates, that fact should be disclosed for each consolidated subsidiary together with the disclosure requirements of paragraph 47(a). In addition, adjustments should be made for the effects of significant transactions or other events that occur between those dates and the date of the parent's financial statements. In any case, the difference between reporting dates should be no more than three months.

6. The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements are usually drawn up to the same date. Section 168 of the Companies Act 1965 requires that the financial years of subsidiary companies must coincide with the financial year of the parent company and this requirement should be complied with within two years after any corporation becomes a subsidiary of the parent, unless approval has been obtained from the Registrar of Companies authorising any subsidiary to continue to have, or to adopt, a financial year which does not coincide with that of the parent company. When the reporting dates are different, the subsidiary often prepares, for consolidation purposes statements as at the same date as the group. When it is impracticable to do this, financial statements drawn up to different reporting dates may be used provided the difference is no greater than three months. The consistency principle dictates that the length of the reporting periods and any difference in the reporting dates should be the same from period to period.

7. Consolidated financial statements should be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If it is not practicable to use uniform accounting policies in preparing the consolidated financial statements, that fact should be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied.

1. In many cases, if a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements when they are used in preparing the consolidated financial statements.

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