2.1 Subsidiaries (Including foreign subsidiaries, piecemeal acquisitions, reduction in shareholding and disposals as well as statement of cash flows)

Subsidiaries are entities controlled by another entity, referred to as the parent company. Controlling interest is typically achieved through ownership of more than 50% of the voting rights or through the ability to exercise control over the subsidiary’s operations. Accounting for subsidiaries involves various aspects, including foreign subsidiaries, piecemeal acquisitions, reduction in shareholding, disposals, and their impact on the statement of cash flows. Here’s an overview:

1.Foreign Subsidiaries: Foreign subsidiaries are subsidiaries located in countries different from the parent company. When accounting for foreign subsidiaries, the parent company needs to consider the appropriate accounting standards and any currency translation issues. The financial statements of foreign subsidiaries are typically translated into the reporting currency of the parent using either the current rate method or the temporal method.

2.Piecemeal Acquisitions: Piecemeal acquisitions occur when a parent company acquires additional shares in its subsidiary over time, resulting in an increase in ownership percentage. The accounting treatment depends on the level of control obtained. If control is achieved, the parent consolidates the subsidiary’s financial statements. If control is not achieved, the additional shares acquired are accounted for as equity transactions.

3.Reduction in Shareholding: When a parent company reduces its shareholding in a subsidiary, resulting in a loss of control, the subsidiary is deconsolidated. The parent recognizes a gain or loss on the transaction based on the difference between the consideration received and the carrying amount of the net assets sold. Any remaining investment is accounted for as an equity investment.

4.Disposals: When a parent company sells its subsidiary, it recognizes a gain or loss on the disposal. The gain or loss is calculated as the difference between the consideration received and the carrying amount of the net assets sold. The subsidiary’s financial statements are deconsolidated, and any remaining investment is derecognized.

5.Statement of Cash Flows: The statement of cash flows includes cash flows from subsidiary operations, acquisitions, disposals, and changes in ownership interest. Cash flows from subsidiary operations are presented separately in the operating activities section. Cash flows from acquisitions or disposals of subsidiaries are typically presented as investing activities. Changes in ownership interest, such as acquiring or disposing of shares in subsidiaries, may be classified as investing or financing activities, depending on the nature of the transaction.