a) Effective date of consolidation
The consolidated balance sheet date is 31 December, which corresponds to the effective date of the annual financial statements of the parent company and the subsidiaries.
b) Consolidated subsidiaries
The financial statements of the entity and of the companies controlled by the entity including the structured entities (its subsidiaries) are included in the consolidated financial statements as at 31 December of each year.
The entity obtains control when:
– It can exercise control over the investee; – Variable returns result from the investment; and
– The power over the investee means that the entity can affect returns.
The entity will re-estimate whether it controls an investee or not in the event that facts or circumstances indicate that one or more of the above three control criteria have changed.
In the event that the entity does not hold the majority of voting rights, it will still control the investee if the entity’s voting rights enable it to practically unilaterally determine the investee’s relevant activities. When determining whether the entity’s voting rights suffice to control the investee, the entity must take into account all facts and circumstances, including:
– The scope of the voting rights held by the entity compared to the scope and distribution of the voting rights held by other shareholders; – The possible voting rights of the entity, other shareholders and other parties;
– Rights from other contractual agreements; and
– Other facts and circumstances that indicate that the entity currently has or does not have the means to determine the relevant activities at the time at which decisions need to be made, taking into account voting decisions at previous annual general and shareholder meetings. A subsidiary will be included in the consolidated financial statements from the time the entity obtains control over the subsidiary until the time the entity no longer has control. The financial results of the subsidiaries acquired or sold in the course of the year are recognized in the consolidated income statement in other comprehensive income from the date of acquisition until the date of disposal.
The profit or loss of each component of other comprehensive income are attributed to the shareholders of the parent company and the minority shareholders, even if this results in the minority shareholders having a deficit balance.
If necessary, the annual financial statements of the subsidiaries are adjusted so that their accounting and valuation methods match those applied to the Group.
The capital consolidation principles applied within CGM Group are described below:
(i) Changes in the Group’s ownership interests in existing subsidiaries
Changes in ownership interests in subsidiaries within CGM Group, which do not trigger a loss of control over the respective subsidiaries, are accounted for as equity transactions. The carrying values of interests and non-controlling interests held by CGM Group are adjusted in a way so as to reflect the changes in interests in the subsidiaries. Any differences between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and allocated to shareholders of the parent company.
If the Company loses control of a subsidiary, the deconsolidation gains or losses are recognized in the income statement and are calculated as follows:
– The total amount of the fair value of the consideration received and the fair value of the retained interest and
– The carrying amount of the asset (including goodwill), the liabilities of the subsidiary and any non-controlling interests. As in a sale of assets, all amounts recognized as other comprehensive income in connection with this subsidiary are accounted for accordingly, resulting in a reclassification to the income statement, or a direct transfer to retained earnings.
All shares in the former subsidiary held by the Company are recognized at the fair value determinable at the time of loss of control. This value represents the cost of the shares which are to be evaluated in the context of a subsequent assessment relative to the degree of control in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”, or according to the requirements for associates or joint ventures.
(ii) Acquisition of subsidiaries
CGM Group accounts for the acquisition of businesses using the acquisition method. Consideration transferred in a business acquisition is measured at fair value. This is determined from the sum of the fair values of the assets and liabilities assumed on the date of acquisition as well as equity instruments issued by the Group in exchange for control of the acquired company. Transaction costs associated with business combination are recognized in the income statement.
The identifiable assets acquired and liabilities assumed are measured at fair value with the following exceptions:
– Deferred tax assets or deferred tax liabilities as well as assets or liabilities for employee benefits are recognized and measured in accordance with IAS 12 “Income Taxes” and IAS 19 “Employee Benefits”
– Liabilities or equity instruments based on share-based payment or replacement of share-based payments by CGM Group are measured on the acquisition date in accordance with IFRS 2 “Share-based Payment” and
– Assets (or disposal groups) classified as held for sale are measured in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”.
Goodwill is the residual of the sum of the consideration transferred, the amount of any non-controlling interests in the acquired company and, if available, the fair value of equity interest previously held by the acquirer in the acquired company, less the fair value of acquired identifiable assets and liabilities at the date of acquisition. To the extent that the assessment of an acquisition of a subsidiary results in negative goodwill, it will be recognized immediately as income in the income statement.
In the event of the existence of non-controlling interests that convey property rights and ensure the shareholder’s right to receive a proportionate share in the entity’s net assets in case of liquidation, these interests are initially measured at either fair value or at the
Consolidated Notes
proportionate share of the identifiable net assets. This option can be exercised anew for each business combination. If there are other components of interests held by non-controlling shareholders, they are measured at fair value or by assessment criteria arising from other applicable standards. Liabilities from put options on non-controlling interests are measured at initial recognition at their fair value. Since the initial recognition of these liabilities has not been clearly defined in equity, the equity share of non-controlling interests are reduced or written off regardless of the transfer of risks and rewards of ownership of the shares concerned.
If contingent consideration is a component of the consideration transferred for the acquisition of the subsidiary, it will be measured at fair value at the date of acquisition. Resulting changes in the fair value of the contingent consideration are adjusted retrospectively within the valuation period and offset accordingly against goodwill. Adjustments carried out within the valuation period of business combinations reflect additional information about facts and circumstances that existed at the acquisition date, but could not yet be conclusively considered. As a rule, the valuation period expires one year after the acquisition date.
The accounting of changes in the fair value of contingent consideration, which should not be interpreted as adjustments in the course of the valuation period, is carried out in close dependence on how contingent consideration is classified. If contingent consideration consists of equity, no subsequent measurement is to be conducted on future reporting dates. The fulfillment of contingent consideration is accounted for within equity. If contingent consideration constitutes an asset or a liability, provisions, contingent liabilities and contingent assets are to be measured in accordance with IAS 39 or IAS 37 on future financial reporting dates, if applicable. Any resulting gains or losses are recognized in the income statement.
In the event of a gradual merger, the equity share previously held by the entity in the acquired entity is to be measured at the fair value prevailing at the acquisition date. The resulting gains or losses are recognized in the income statement.
Changes in the value of the acquirer’s equity interests held prior to the acquisition date, which are to be recognized in other comprehensive income, are reclassified to the income statement when the entity obtains control of the acquired entity.
If the first-time accounting of a business combination has not yet been completed by the end of a financial year, the preliminary valuations are provided by CGM. If new information illuminating the circumstances of the acquisition date comes to light within the valuation period, the provisionally recognized amounts will be corrected, or if necessary, additional assets and liabilities will be recognized.
The financial results of the subsidiaries acquired or sold in the course of the year are included in the consolidated income statement beginning on the date of acquisition or on the date of loss of control.
(iii) Goodwill
Goodwill resulting from a business combination is stated at cost, and to the extent necessary, less any impairment losses, and is presented separately in the consolidated balance sheet.
For the purpose of impairment testing, goodwill is to be allocated to each of the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination.
Cash-generating units, to whom a part of the goodwill has been allocated, shall be tested for impairment at least annually. If there is concrete evidence indicating a unit has been impaired, it will be subject to more frequent impairment checks. If the recoverable amount of a cash-generating unit is less than the unit’s carrying amount, the resulting impairment loss is initially allocated to the carrying amount of each goodwill associated with the unit, and then pro rata to the other assets on the basis of the carrying amount of each asset within the unit. Any impairment loss of goodwill is recognized directly in the income statement. The amount recognized as impairment loss of goodwill may not be reversed in future periods.
In the case of disposal of a cash-generating unit, the attributable amount of goodwill is taken into account when determining gains or losses on disposal.
c) Associates and joint ventures
CGM Group accounts for associates using the equity method. An associate is an entity over which the Group is in a position to exercise significant influence, but not control, through participation in its financial and operating policies. Significant influence is presumed when the Group holds a voting interest of 20 percent in such an entity and bases the entity’s status as company on this relationship.
Joint ventures are a joint arrangement whereby the parties that have joint control have rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The results, assets and liabilities of joint ventures are included in these financial statements using the equity method.
In the event that investments in associates or joint ventures are classified as held for sale, these are to be accounted for pursuant to the provisions of IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”.
An investment in an associate or a joint venture is accounted for using the equity method from the date on which the requirements for an associate or a joint venture are fulfilled. Any excess of the cost of the acquisition of shares over the acquired portion of the fair value of the identifiable assets, liabilities and contingent liabilities is recognized as goodwill. Goodwill arising from the acquisition of an associate or a jointly controlled entity is included in the amortized carrying amounts of the interest in the associates or jointly controlled entities and is not subject to a separate impairment test.
To determine whether indicators exist that make an impairment of investments in associates or joint ventures necessary, the provisions of IAS 39 are applied accordingly. If an impairment test is to be carried out, the carrying amount of the interest (including goodwill) is tested according to the requirements of IAS 36 for impairment. To this end, the recoverable amount of the investment is compared with the carrying amount of the interest. Any resulting impairment loss is offset against the carrying value. Impairment losses are not allocated to assets, including goodwill, contained in the interest’s carrying amount. If the recoverable amount rises again in subsequent years, an impairment loss is reversed in accordance with IAS 36.
CGM Group discontinues the use of the equity method from the time at which its investment no longer represents an associate or a joint venture, or the investment is to be classified as held for sale pursuant to IFRS 5. In the event that CGM Group retains an interest in a former associate and this interest is a financial asset within the meaning of IAS 39, this interest is to be measured at fair value upon initial recognition. The difference between the previous carrying amount of the associate or the joint venture at the time of the discontinuation of the equity method and the fair value of a retain portion, include revenue from the disposal of a portion of the interest in an associate or a joint company is to be taken into account when determining capital gains/losses.
Furthermore, CGM Group accounts for all amounts related to these associates or joint ventures in other comprehensive income in the manner that would be required if the associate or joint venture had directly sold the assets or liabilities. This means that CGM Group reclassifies gains or losses, which the associate or joint venture has to date recognized in other comprehensive income and then
reclassified in the income statement when the assets or liabilities are sold, from equity to the income statement following the discontinuation of the equity method. In the event of the disposal of an associate or jointly controlled entity, the attributable amount of goodwill is taken into account in determining the deconsolidation.
If an investment changes from being in an associate to being in a joint venture, or vice versa, the Group will continue to apply the equity method and will not remeasure fair value on account of the change in investment.
In the event that the Group’s investment in an associate or a joint venture changes but the Group continues to apply the equity method, the portion of the profits or losses attributable to the reduction in the investment, which was previously recognized in other comprehensive income, will be reclassified to profit or loss in the event that the profits or losses of the associated assets and liabilities had to be reclassified to profit or loss when they were sold.
In the case of transactions between a CGM Group company and an associate or a joint venture of CGM Group, gains and losses are eliminated to the extent to the Group’s portion to the corresponding associate or joint venture.
In CGM Group, three associates are measured using the equity method. The accounting and measurement methods for associates were changed as necessary to guarantee uniform accounting principles throughout the Group.
d) Joint operations
Joint operations are joint arrangements whereby the parties that exercise joint control have rights to the assets and obligations for the liabilities of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
If a CGM Group company carried out activities within the scope of a joint operation, CGM Group, as joint operator, will recognize the following items relating to its share of the joint operation:
– Its assets, including its share of the jointly incurred assets; – Its liabilities, including its share of the jointly incurred liabilities;
– Its revenue from the sale of its share of the products or services of the joint operation; and – Its expenses, including its share of the jointly incurred expenses.
CGM Group accounts for the assets, liabilities, income and expenses relating to its share of the joint operation in accordance with the IFRS accounting standards applicable to assets, liabilities, revenue and expenses.
If a CGM Group company engages in transactions with a joint operation whereby another CGM Group company is the joint operator, CGM Group will treat the corresponding transaction as though it were a joint operation conducted with the other parties. This means that possible gains and losses from such transactions are only recognized to the extent of the share in the joint operation of the other parties. If these transactions relate to the sale of assets by a CGM Group company, then the gains and losses are recognized at that time to the extent of the Group share in the joint operation provided that these assets are then sold to a third party.
Consolidated Notes
e) Consolidation group
All included financial statements of CGM Group are prepared according to uniform accounting and measurement methods. The consolidated financial statements are prepared at the level of CompuGroup Medical SE, Koblenz (parent company).
(i) Change in consolidation group
The following changes have occurred within the consolidation group, as compared with the previous year:
Changes in Scope of Consolidation Germany countriesForeign Total CompuGroup Medical SE and consolidated subsidiaries
As at 1. January 2015 28 55 83
Additions 5 7 12
Departures/Merger 5 6 11
As at 31. December 2015 28 56 84
The disposals result mainly from internal mergers.
In the current fiscal year, the CG Lab Solutions France SAS has been merged into the CGM LAB France SAS.
Furthermore, the Microbais Werkmaatschappij B.V., the CompuGroup Medical Nederland Technical Services B.V., and the Medipharm Online B.V., have been merged into the CompuGroup Medical Nederland B.V. In March 2015, BS Concept Realization B.V. was acquired and merged into CompuGroup Medical Nederland B.V in Oktober 2015.
Moreover, the Corent Praxiscomputer GmbH, Hamburg, the Corent Praxiscomputer GmbH, Schwerin, the Turbomed Kiel Vertriebs- und Service GmbH, the Turbomed-Center GmbH & Co. KG, as well as the BDH Büro + Datentechnik Hühne GmbH have been merged into the Turbomed Vertriebs- und Service GmbH in Germany in the current fiscal year.