Refrigeración y congelación

1. IFRS 10: Consolidated Financial Statements If J Company controls K  Corporation, then J Company is called a parent company and K  Corporation

Always try to understand the forest before looking at the trees.

J COMPANY LTD. BALANCE SHEET

Miscellaneous assets $ XXX Liabilities $ XXX

Investment in shares of K Corporation XXX Shareholders’ equity

Common shares XXX

Retained earnings XXX

$ XXX $ XXX

Cautionary Note: At the time of writing this seventh edition, there were a number of exposure drafts outstanding on topics relevant to this course. This text has incorporated these exposure drafts on the basis that the latest proposals will be approved and required as of January 1, 2015, or earlier. We will use Connect ( www. mcgrawhillconnect.ca ) to keep you informed of any deviations from what is in the text and what finally ends up in the CICA Handbook. In addition, this text uses the requirements for IFRSs that have been approved even though they may not yet be effective because early adoption is typically allowed for IFRSs once they have been approved. Consolidated financial statements are prepared when one company controls another company.

is called a subsidiary, and GAAP require the preparation of consolidated finan- cial statements by J Company. This involves removing the investment in K  Corporation from J Company’s balance sheet and replacing it with the assets and liabilities from the balance sheet of K Corporation. This process is illus- trated in Chapters 3 through 9.

An investor controls an investee when it is exposed, or has rights, to vari- able returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In other words, J Company can determine the key operating and financing policies of K Company. Con- trol is generally presumed if J Company’s investment consists of a majority of the voting shares of K Corporation. But as we will see in later discussions, 1 control can exist with smaller holdings and does not necessarily exist with all majority holdings.

2. IAS 28: Investments in Associates and Joint Ventures This standard describes the financial reporting requirements for investments in associates, that is, investments where the investor has significant influence over the investee and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. Significant influence is defined as the power to participate in the financial and operating policy decisions of the investee, but it is not control or joint control of those policies. IAS 28 indicates that an invest- ment of 20% or more of the voting shares of K Corporation, without control or joint control being present, would be presumed to be a significant influence investment, unless there is evidence to the contrary.

If J Company’s investment is one of significant influence, it must be reported by the equity method. Thus, the investment is initially recorded at cost, and adjusted thereafter to include J Company’s pro rata share of the earnings or losses of K Corporation, adjusted for the acquisition differential 2 and the elimination and subsequent recognition of all unrealized intercompany profits and losses that occur as a result of transactions between the two companies. Dividends received from K Corporation are recorded as a reduction of the investment. The account- ing for significant influence investments will be illustrated in later sections of this chapter and in Chapters 5 through 8.

3. IFRS 11: Joint Arrangements If the investment is not one of the two just described, it may possibly be a joint arrangement, if the following general provi- sions of this standard are satisfied. For a joint arrangement to exist, the owners (the venturers) must have made a contractual arrangement that establishes joint control over the venture. Under such joint control, the venturers are exposed, or have the rights, to variable returns from their involvement with the investee and have the ability to affect those returns through their power over the investee. No single ven- turer is able to unilaterally control the venture.

Under this standard, J Company Ltd. (the venturer) reports its investment in K Corporation Ltd. (the venture) by using the equity method when K Corporation is a joint venture. Some other types of joint arrangements will be reported using propor- tionate consolidation. Accounting for joint arrangements is illustrated in Chapter 9. 4. IFRS 9: Financial Instruments—Classification and Measurement IFRS 9 requires that all nonstrategic equity investments be measured at fair value, with

Control is the power to direct the activities of another entity to generate variable returns.

The equity method is used when the investor has significant influence over the investee.

The equity method is required when the investor has joint control over a joint venture.

All nonstrategic investments must be measured at fair value at each reporting date.

the fair value changes reported in net income. However, an entity can elect on ini- tial recognition to present the fair value changes on an equity investment that is not held for short-term trading in OCI. The dividends on such investments must be recognized in net income. The gains or losses are cleared out of accumulated OCI and transferred directly to retained earnings. Accounting for fair value investments will be illustrated later in this chapter.

IFRS 9 also indicates when and how hedge accounting can be used to ensure that gains and losses on a hedged item are reported in income in the same period in which they occurred. In Chapters 10 and 11, we will illustrate fair value hedges, cash flow hedges, and hedges of net investments in foreign operations.

5. IFRS 12: Disclosure of Interests in Other Entities IFRS 12 contains the disclo- sure requirements related to investments in associates, joint arrangements, non- controlled structured entities, and subsidiaries. It establishes disclosure objectives that require an entity to disclose information that helps users

• understand the judgments and assumptions made by a reporting entity when deciding how to classify its involvement with another entity,

• understand the interest that non-controlling interests have in consolidated entities, and

• assess the nature of the risks associated with interests in other entities. Disclosure requirements related to the different types of investments will be described in each chapter of this text.