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on 1 october 2013 entity a restructures the group by transferring its investment in 611768

Pooling of interests method carrying amounts of assets and liabilities

Entity A currently has two businesses operated through two wholly-owned subsidiaries, Entity B and Entity C. The group structure (ignoring other entities within the group) is as follows:

Both entities have been owned by Entity A for a number of years.

On 1 October 2013, Entity A restructures the group by transferring its investment in Entity C to Entity B, such that Entity C becomes a subsidiary of Entity B. The policy adopted for business combinations involving entities under common control is to apply the pooling of interests method.

In Entity B “s consolidated financial statements for the year ended 31 December 2013, what values should be reflected in respect of Entity C?

Entity B should generally use the carrying values reported in Entity A “s consolidated financial statements, rather than the carrying values reported in Entity C “s own financial statements.

Accordingly, they will be based on the fair value as at the date Entity C became part of the Entity A group and adjusted for subsequent transactions. Any goodwill relating to Entity C that was recognised in Entity A “s consolidated financial statements will also be recognised. Any remaining difference between the equity of Entity C and those carrying values are adjusted against equity. The carrying values of the assets of Entity B will remain as before.

The rationale for applying this approach is that the transaction is essentially a transfer of the assets and liabilities of Entity C from the consolidated financial statements of Entity A to the financial statements of Entity B. From a group perspective of Entity B “s shareholder, nothing has changed except the location of those assets and liabilities. Entity B has effectively taken on the group “s ownership. Therefore the values used in the consolidated financial statements are the appropriate and most relevant values to apply to the assets and liabilities of Entity C, as they represent the carrying values to the Entity A group.

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