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  • 2.


    • (b)

      Basis of Consolidation (Contd.)

    • (i)

      Subsidiaries (Contd.)

Acquisitions of subsidiaries which meet the criteria for merger are accounted for using merger accounting principles. When the merger method is used, the cost of investment in the Company’s book is recorded at the nominal value of shares issued and the difference between the carrying value of the investment and the nominal value of shares acquired is treated as merger reserve or merger deficit. The results of the companies being merged are included as if the merger had been effected throughout the current and previous financial years.

Intragroup transactions, balances and resulting unrealised gains are eliminated on consolidation and the consolidated financial statements reflect external transactions only. Unrealised losses are eliminated on consolidation unless costs cannot be recovered.

The gain or loss on disposal of a subsidiary company is the difference between net disposal proceeds and the Group’s share of its net assets together with any unamortised balance of goodwill and exchange differences which were not previously recognised in the consolidated income statement.

Minority interest is measured at the minorities’ share of the post acquisition fair values of the identifiable assets and liabilities of the acquiree.

(ii) Associate Associate is an investee company in which the Group has a long term equity interest and where it exercises significant influence over the financial and operating policies.

Investment in associate is accounted for in the consolidated financial statements by the equity method of accounting based on the audited or management financial statements of the associate. Under the equity method of accounting, the Group’s share of profits less losses of associate during the year is included in the consolidated income statement. The Group’s interest in associate is carried in the consolidated balance sheet at cost plus the Group’s share of post- acquisition retained profits or accumulated losses and other reserves.

Unrealised gains on transactions between the Group and the associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are eliminated unless cost cannot be recovered.

(ii) Goodwill The difference between the acquisition cost and fair values of the attributable net assets in a subsidiary company acquired is reflected as goodwill or reserve on consolidation as appropriate.

Goodwill on acquisition of subsidiary companies occuring on or after 1 July 2002 is retained in the consolidated balance sheet when goodwill is considered to be capable of generating future economic benefits. The cost or carrying amount of any retained goodwill is subject to annual review by the Directors to determine whether there is any indication of impairment. Goodwill on acquisition that occured prior to 1 July 2002 was charged in full to the income statement in the year of acquisition. Such goodwill has not been retrospectively capitalised as it was impractical to reinstate.

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