DEFINING DESIGN
QUALITY
48
2.
Summary of significant accounting policies (cont’d)
Associates (cont’d)
In the consolidated financial statements, investment in an associate is accounted for using the equity method. Under
the equity method, the investment is initially recognised at cost and adjusted thereafter for the post-acquisition
change in the Group’s share of the associate’s net assets. Goodwill relating to an associate is included in the carrying
amount of the investment and is neither amortised nor tested individually for impairment. Any excess of the Group’s
share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost
of investment is deducted from the carrying amount of the investment and is recognised as income as part of the
Group’s share of results of the associate in the period in which the investment is acquired. The Group’s profit or loss
includes its share of the associate’s profit or loss and the Group’s other comprehensive income includes its share of
the associate’s other comprehensive income. Distributions received from an associate reduce the carrying amount
of the investment. Losses of an associate in excess of the Group’s interest in the associate are not recognised except
to the extent that the Group has an obligation. Profits and losses resulting from transactions between the Group
and an associate are recognised in the financial statements only to the extent of the Group’s unrelated interests in
the associate. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of
the asset transferred. The financial statements of the associates are prepared as of the same reporting date as the
Company. Accounting policies of associates are changed where necessary to ensure consistency with the policies
adopted by the Group. The Group discontinues the use of the equity method of accounting from the date when its
investment ceases to be an associate and accounts for the investment as a financial asset in accordance with FRS 39
Financial Instruments: Recognition and Measurement from that date. Any gain or loss is recognised in profit or loss.
Any investment retained in the former associate is measured at fair value at the date that it ceases to be an associate.
In the Company’s separate financial statements, an investment in an associate is accounted for at cost less any
allowance for impairment in value. Impairment loss recognised in profit or loss for an associate is reversed only if
there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment
loss was recognised. The carrying value and the net book value of the investment in an associate are not necessarily
indicative of the amount that would be realised in a current market exchange.
Business combinations
A business combination is a transaction or other event which requires that the assets acquired and liabilities assumed
constitute a business. It is accounted for by applying the acquisition method of accounting.
The cost of a business combination includes the fair values, at the date of exchange, of assets given, liabilities
incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree. The
acquisition-related costs are expensed in the periods in which the costs are incurred and the services are received.
At acquisition date, the acquirer recognises, separately from goodwill, the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree measured at acquisition date fair values as defined in and
that meet the conditions for recognition under FRS 103 Business Combinations. If the acquirer has made a gain
from a bargain purchase, that gain is recognised in profit or loss. For gain on bargain purchase, a reassessment is
made of the identification and measurement of the acquiree’s identifiable assets, liabilities and contingent liabilities
and the measurement of the cost of the business combination and any excess remaining after this reassessment is
recognised immediately in profit or loss.
For business combinations achieved in stages, any equity interest held in the acquiree is remeasured immediately
before achieving control at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.
Where the fair values are measured on a provisional basis, they are finalised within one year from the acquisition date
with consequent retrospective changes to the amounts recognised at the acquisition date to reflect new information
obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected
the measurement of the amounts recognised as of that date.
Goodwill and fair value adjustments resulting from the application of acquisition method of accounting at the date
of acquisition are treated as assets and liabilities of the acquired entity and are recorded at the exchange rates
prevailing at the acquisition date and are subsequently translated at the exchange rates ruling at the end of the
reporting period.
In comparison to the abovementioned requirements, the following differences were applied to business combinations
prior to 1 January 2010:
Business combinations are accounted for by applying the purchase method. Transaction costs directly attributable
to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority
interest) was measured at the proportionate share of the acquiree’s identifiable net assets.
Business combinations achieved in stages were accounted for as separate steps. Adjustments to those fair values
relating to previously held interests are treated as a revaluation and recognised in equity. Any additional acquired
share of interest did not affect previously recognised goodwill.
Notes to the Financial Statements
31 December 2014
