(a) Investments in participating interests – Group
The Group has an investment of £36.5m (2012: £34.7m) in an associate company, Thackeray Limited, a company undertaking general insurance business and incorporated in Great Britain. The Group holds 30% of the nominal value of the allotted ordinary shares of Thackeray Limited. None of these shares are held directly by Proforma-Gen Limited. The cost of this investment was £16.1m.
FRS 9, 55 Where there are any amounts owing or owed between an investor and its associates or joint ventures these
should be analysed between loans and trading balances.
FRS 9, 57, 58 Certain additional disclosures are required by FRS 9 when associates comprise more than 15% of any of the
gross assets, gross liabilities, turnover or operating results of the remainder of the group. The disclosures are further extended if any of the above exceed 25% of the balance of the group’s equivalent amount.
SSAP 25, 36 SSAP 25 requires certain segmental analysis in relation to associates where they comprise more than 20% of the
group’s total assets or result.
(b) Investments in Group undertakings – Company
Shares in Group undertakings Loans to Group undertakings Total £m £m £m At 1 January 2013 565.7 85.9 651.6 Acquisitions 79.9 – 79.9 Loan repaid – (25.8) (25.8) At 31 December 2013 645.6 60.1 705.7 Sch3, 28(3) Sch3, BS (4) Sch3, 70 Sch3, 79(4) Sch4, 19 FRS 9, 52 Sch3, 28
Set out below are the company’s subsidiaries, all of which undertake general insurance business, as at 31 December 2013, with details of the percentages of nominal value and voting rights held by the Company and the Group.
Subsidiaries Class of shares Held
Percentage of nominal value and voting rights held by Company
Percentage of nominal value and voting rights held by Group
Shakespeare Limited Ordinary 100 100
Dickens Limited Ordinary 100 100
Chaucer Limited Ordinary 75 75
All subsidiaries are included in the consolidation and are incorporated within Great Britain.
Corresponding amounts are not required to be disclosed in respect of details of shareholdings in subsidiary undertakings held by a company or, where group accounts are prepared, held by the parent company and by the group.
17
Acquisition
On 7 July 2013 the company acquired the whole of the issued share capital of Dickens Limited (a motor insurer) for a cash consideration of £79.9m. The Group has used acquisition accounting to account for the purchase. The profit on ordinary activities after taxation of Dickens Limited for the period from 1 January 2013 to 6 July 2013 was £3.1m. The profit on ordinary activities after taxation for the year ended 31 December 2012 was £5.2m.
Further disclosures are required where either the fair value of the consideration exceeds 15% of the acquirer’s net assets, or the net assets or operating profit of the acquired undertaking exceeds 15% of those of the acquirer. The additional disclosures comprise a summarised profit and loss account from the beginning of the acquired undertaking’s financial year up to the date of acquisition, together with a statement of total recognised gains and losses for the same period. This information should be based on the acquired undertaking’s pre-acquisition- accounting policies. Sch4, 1 & 11 FRS 28, 11 (d) FRS 6, 21, 24 FRS 6, 35 FRS 6, 36 & 37
Acquired assets and liabilities, fair value adjustments and goodwill Book value of net
assets on acquisition Alignment of accounting policies Revaluations Adjusted net assets £m £m £m £m Assets Investments
- land and buildings 2.3 - 3.2 5.5
- financial assets 110.2 - - 110.2
Technical provisions – reinsurers’ share
– unearned premiums 0.2 – – 0.2
– outstanding claims 3.0 – 0.4 3.4
Debtors 13.1 – – 13.1
Other assets 1.5 (0.4) – 1.1
Prepayments and accruals 3.8 – – 3.8
Liabilities
Technical provisions – gross
– unearned premiums (25.1) – – (25.1) – outstanding claims (48.2) – (8.4) (56.6) – equalisation (0.6) – – (0.6) Creditors (4.8) – – (4.8) Net assets/(liabilities) 55.4 (0.4) (4.8) 50.2 Cost of acquisition 79.9
Goodwill arising on acquisition 29.7
The alignment of accounting policies in respect of other assets represents the adjustment required to write off capitalised computer software costs.
The revaluation of investments represents a reassessment of the market value of land and buildings at the date of acquisition.
The revaluation adjustment in respect of outstanding claims represents a reassessment of the level of outstanding claims at the date of acquisition.
In accordance with the ABI SORP no fair value adjustment has been made in respect of the timing of payment of outstanding claims. Goodwill arising on acquisition includes an amount of £7.4 million representing the resulting goodwill on acquired claims provisions.
No adjustment has been made to the carrying value of equalisation provisions as their carrying value is determined by statute.
Claims provisions on acquisition
ABI, 114 Under the principles of fair value accounting set out in FRS 7, “Fair Values in Acquisition Accounting”, when
setting fair values consideration should be given to the amounts expected to be paid reflecting the uncertain quantum and timing of future payments.
However, under the Schedule 3, the discounting of claims provisions to reflect the timing of future payments is only permitted in certain limited circumstances.
ABI, 115 The treatment the ABI SORP prescribes is that the fair value of the claims provisions should be calculated in the
normal way per FRS 7 but rather than making a discounting adjustment to the fair value of acquired claims provisions, the difference between the discounted and undiscounted amount of the acquired claims provisions
Sch6, 13(3) FRS 6, 25
ABI, 115 This element of goodwill should be identified separately in the notes to the financial statements and amortised
over the run-off period of the claims.
PwC Equalisation provisions on acquisition
Where an acquired entity has established an equalisation provision it could be argued that, under FRS 7, the fair value of that provision is nil as it does not represent a liability at the date of acquisition.
However, such provisions must be carried both in the acquired entity’s financial statements and in the consolidated financial statements of the acquirer. As a result of thus including the equalisation provisions as part of the acquired liabilities, the goodwill arising on acquisition is increased. A potential treatment is to separately identify and amortise this additional goodwill in a similar fashion to the goodwill in the acquired provisions. However, in practice it is unlikely to be practical to develop an appropriate amortisation basis to match the amortisation with the release of the acquired equalisation provisions. Therefore in most cases such goodwill will not be separately identified.
PwC Any transactions with an acquired company prior to the date of acquisition should be disclosed to the extent
that they are material in accordance with FRS 8, Related Party Disclosures. There were no transactions between the Proforma-Gen Group and Dickens Limited prior to the date of acquisition.