Groups

In this lesson

1. 0:00 Consolidated statement of financial position
2. 0:35 Understanding parent and subsidiary relationships
3. 1:06 The three conditions for control
4. 2:42 Control without majority ownership
5. 3:33 Noncontrolling interests explained
6. 5:02 Types of investments and accounting methods
7. 6:32 Trade investments overview
8. 7:06 Consolidated financial statements defined
9. 8:25 Parent company separate statements
10. 9:19 Control indicators practice question

About this lesson

You'll discover the three-part control test that determines whether one company controls another, explore how this works even when ownership is below 50%, and understand why establishing control is the foundation for preparing consolidated financial statements. This is essential knowledge for the FA syllabus and forms the basis for everything that follows in group accounting. The session covers the key distinction between different types of investments. A subsidiary exists when an investor has control over an investee—typically through owning more than 50% of equity or voting shares, though control can arise through other means like the power to appoint directors. You'll also encounter the concept of noncontrolling interest, which recognises that other shareholders may own the remaining portion of a subsidiary. The video contrasts this with associates (where you have significant influence but not control) and trade investments (where you have no influence), so you understand which accounting treatment applies in each scenario. The session establishes why the parent company's role is critical: it's responsible for preparing consolidated financial statements that combine parent and subsidiary figures as a single economic entity. You'll learn that while the parent prepares consolidated statements for the group, it also prepares separate financial statements where the investment in the subsidiary is recorded at cost. Understanding this distinction between consolidated and separate reporting, and the control test that triggers consolidation, gives you the framework you need before moving into the mechanics of actually preparing a consolidated statement of financial position.

Duration: 11m