IFRS for SMEs) IFRS for SMEs Consolidation and Groups — Questions and Answers
Question 1: When is a parent entity required to present consolidated financial statements under IFRS for SMEs?
- When it controls one or more subsidiaries, unless specific exemptions apply (Correct answer)
- Only when the parent has more than 100 employees
- Only when required by local tax authorities
- Never — consolidation is optional under IFRS for SMEs
Correct answer: When it controls one or more subsidiaries, unless specific exemptions apply
Section 9 requires a parent entity to present consolidated financial statements when it controls one or more entities, with limited exemptions available such as when the parent is itself a subsidiary.
Question 2: How should goodwill arising from a business combination be measured under IFRS for SMEs?
- As the excess of acquisition cost over the acquirer's share of net identifiable assets, amortized over its useful life (Correct answer)
- At fair value with annual impairment testing only
- Not recognized — expensed immediately
- Capitalized indefinitely without amortization
Correct answer: As the excess of acquisition cost over the acquirer's share of net identifiable assets, amortized over its useful life
Under Section 19, goodwill is measured as the excess of acquisition cost over the fair value of identifiable net assets acquired, then amortized over its estimated useful life (maximum 10 years if life cannot be reliably estimated).
Question 3: What method should be used to account for investments in associates under IFRS for SMEs?
- Cost model, equity method, or fair value model — the entity chooses one policy for all associates (Correct answer)
- Only the equity method is permitted
- Associates must always be consolidated
- Only the fair value method is permitted
Correct answer: Cost model, equity method, or fair value model — the entity chooses one policy for all associates
Section 14 allows entities to choose between the cost model, equity method, or fair value through profit or loss for associates, but the chosen method must be applied consistently to all investments in associates.
Question 4: How are intragroup transactions eliminated in consolidated financial statements under IFRS for SMEs?
- All intragroup balances, transactions, income, and expenses are eliminated in full (Correct answer)
- Only transactions exceeding a materiality threshold are eliminated
- Intragroup transactions are disclosed but not eliminated
- Only intragroup loans are eliminated
Correct answer: All intragroup balances, transactions, income, and expenses are eliminated in full
Section 9 requires full elimination of intragroup balances, transactions, income, and expenses when preparing consolidated statements to present the group as a single economic entity.
Question 5: What are the criteria for determining control of a subsidiary under IFRS for SMEs?
- Power to govern the financial and operating policies of an entity to obtain benefits from its activities (Correct answer)
- Owning exactly 50% of voting rights
- Having a management contract only
- Being the largest customer of the entity
Correct answer: Power to govern the financial and operating policies of an entity to obtain benefits from its activities
Control exists when the parent has power to govern the financial and operating policies of an entity to obtain benefits, which is presumed when the parent owns more than half the voting power but can exist through other means.
Question 6: How should a non-controlling interest be presented in consolidated financial statements?
- Within equity, separately from the parent's equity (Correct answer)
- As a liability on the balance sheet
- As an expense in the income statement
- It does not need to be presented separately
Correct answer: Within equity, separately from the parent's equity
Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from the equity of the parent, showing the portion of net assets attributable to minority shareholders.
IFRS for SMEs) IFRS for SMEs Consolidation and Groups
When is a parent entity required to present consolidated financial statements under IFRS for SMEs?