Objective
Establishes control as the basis for consolidation and sets out how to prepare consolidated financial statements.
Scope
- A parent that controls one or more subsidiaries must present consolidated statements, with limited exemptions (e.g. certain intermediate parents whose parent publishes IFRS consolidated statements).
- Investment entities generally measure subsidiaries at fair value through profit or loss rather than consolidating them.
Key definitions
- Control
- An investor controls an investee when it has power over it, exposure or rights to variable returns from it, and the ability to use its power to affect those returns. All three must be present.
- Power
- Existing rights that give the current ability to direct the relevant activities (those that significantly affect returns).
- Non-controlling interest
- Equity in a subsidiary not attributable, directly or indirectly, to the parent.
Recognition & measurement
Assessing control
- Voting rights usually indicate power, but a holder of less than 50% can have control (e.g. a dominant holding with dispersed other holders, or contractual arrangements).
- Substantive potential voting rights are considered.
- Decide whether a decision-maker acts as principal or as an agent for others.
- Reassess control when facts and circumstances change.
Consolidation procedures
- Combine like items of assets, liabilities, income, expenses and cash flows line by line.
- Eliminate the parent's investment against its share of the subsidiary's equity (recognising goodwill under IFRS 3).
- Eliminate intragroup balances, transactions, and unrealised profits in full.
- Use uniform accounting policies; reporting dates may differ by no more than three months, with adjustments for significant transactions.
- Attribute profit and OCI to the parent and NCI, even if NCI goes into deficit.
- Changes in ownership that do not lose control are equity transactions — no gain or loss and no change to goodwill.
- On loss of control: derecognise the subsidiary's assets, liabilities and NCI, measure any retained interest at fair value, and recognise the gain or loss in profit or loss.
Key disclosures
- Disclosure requirements are in IFRS 12.
Common exam traps
- Unrealised profit in closing inventory is eliminated in full, even with NCI; when the subsidiary is the seller, NCI shares in the adjustment.
- Buying more shares in an existing subsidiary does not create new goodwill.
- Control can exist with less than 50% of votes.
Worked example: Unrealised profit in inventory
Scenario. Parent sells goods costing $40,000 to its subsidiary for $50,000. At the year end half of the goods remain in the subsidiary's inventory.
- Total profit on the sale = 50,000 − 40,000 = $10,000.
- Unrealised portion = 50% × 10,000 = $5,000.
- Eliminate intragroup revenue and cost of sales of $50,000; reduce closing inventory and group profit by $5,000.
Answer: Provision for unrealised profit = $5,000 (parent is the seller, so all against group retained earnings).
Practise MCQs on this standard
Test your understanding of IFRS 10 with free chapter-wise MCQs and explanations in these question banks.
CAF-6 Corporate ReportingICAP CAFACCA FR Financial ReportingACCACA Inter P1 Advanced AccountingICAI CA Intermediate
ICAI CA Intermediate examines Indian Accounting Standards, which are based on but can differ from IFRS. Check your syllabus.