Samenvatting Consolidatie 3 ACF 2025 - 2026.pdf

# Introduction to consolidated financial statements A consolidated financial statement provides a comprehensive view of the financial performance and position of a group of interconnected companies as if they were a single economic entity [ ](#page=1) [1](#page=1). ### 1.1 Legal framework in Belgium In Belgium, the preparation of consolidated financial statements is governed by specific legal provisions: * **General accounting law:** Articles III.82-III.95 of the Belgian Economic Code (Wetboek van Economisch Recht - WER) [ ](#page=1) [1](#page=1). * **Implementing decree for the WER:** Royal Decree of 21 October 2018, concerning the implementation of the WER [ ](#page=1) [1](#page=1). * **Companies and Associations Code (Wetboek van vennootschappen en Verenigingen - WVV):** Articles 3:21-3:82 [ ](#page=1) [1](#page=1). * **Implementing decree for the WVV:** Royal Decree of 29 April 2019, concerning the implementation of the WVV, specifically Articles 3:96-3:158 [ ](#page=1) [1](#page=1). > **Tip:** For the exam, remember that consolidation in Belgium is legally regulated by the Wetboek van Economisch Recht and the Wetboek van vennootschappen en Verenigingen, outlining who must consolidate and how a consolidated financial statement is prepared [ ](#page=1) [1](#page=1). ### 1.2 Purpose and importance of consolidated reporting Consolidated financial statements offer a wealth of information, providing a superior insight into the solvency, liquidity, and profitability of a group of interconnected companies compared to what could be obtained from individual financial statements [ ](#page=1). Many companies build their operations through collaboration with other entities, entering into agreements and/or holding capital participation or contributions, which can lead to an affiliation relationship [ ](#page=1). An affiliation relationship is defined as the link between companies that are interconnected through ownership or control [ ](#page=1) [1](#page=1). ### 1.3 Role of IFRS standards Since 1 January 2015, publicly listed companies in the European Union are obligated to prepare their consolidated financial statements in accordance with the standards and interpretations approved by the IASB (International Accounting Standards Board) [ ](#page=1). Examples of such listed companies in Belgium include Colruyt, Barco, and Proximus, all of which are required to prepare consolidated financial statements [ ](#page=1). The primary goal of adopting these standards is the harmonization of external financial reporting within the EU [ ](#page=1) [1](#page=1). Key IFRS and IAS standards relevant to consolidation include: * IFRS 3: Business Combinations [ ](#page=1) [1](#page=1). * IFRS 11: Joint Arrangements [ ](#page=1) [1](#page=1). * IAS 28: Investments in Associates and Joint Ventures [ ](#page=1) [1](#page=1). * IAS 27: Separate Financial Statements [ ](#page=1) [1](#page=1). * IAS 36: Impairment of Assets [ ](#page=1) [1](#page=1). * IAS 38: Intangible Assets [ ](#page=1) [1](#page=1). > **Tip:** Understand the abbreviations: IAS stands for International Accounting Standards, IASB for International Accounting Standards Board, and IFRS for International Financial Reporting Standards [ ](#page=1) [1](#page=1). ### 1.4 Interested stakeholders A broad range of stakeholders are interested in the financial information presented in consolidated financial statements. These include, but are not limited to: * Customers [ ](#page=1) [1](#page=1). * Banks [ ](#page=1) [1](#page=1). * Suppliers [ ](#page=1) [1](#page=1). * Employees [ ](#page=1) [1](#page=1). * Government authorities [ ](#page=1) [1](#page=1). * Company management and directors [ ](#page=1) [1](#page=1). * All other stakeholders [ ](#page=1) [1](#page=1). --- # Reasons for and principles of consolidated financial statements Consolidated financial statements are prepared to present a group of companies as a single economic entity, providing a more accurate picture of the group's overall financial position and performance than individual company statements [2](#page=2). ### 2.1 Reasons for preparing consolidated financial statements The primary reason for preparing consolidated financial statements is to represent a group of companies as a single economic entity. This approach is necessary because the individual financial statements of parent and subsidiary companies do not accurately reflect the group's overall solvency, liquidity, and profitability. By treating the group as one entity, stakeholders gain a correct view of its financial health [2](#page=2). **Key objectives and concepts:** * **Economic entity concept:** The group is viewed as a single economic unit, not merely a collection of separate legal entities [2](#page=2). * **Informational tool:** Consolidated financial statements serve purely as an information tool to provide an economic overview of the group. They are not intended for legal or fiscal purposes, as taxation is calculated based on individual company financial statements [2](#page=2). * **Enhanced information:** Consolidated statements offer more comprehensive information than simply summing individual statements, leading to a more accurate economic representation [2](#page=2). * **Elimination of intercompany transactions:** All transactions between group companies must be eliminated to avoid double-counting and to reflect the group as a single entity. For example, a debt owed by one subsidiary to the parent company is removed from the consolidated balance sheet [3](#page=3) [4](#page=4). * **Replacement of investment in subsidiary:** The parent company's historical cost of investment in a subsidiary is replaced by the subsidiary's net assets and results, with necessary adjustments [2](#page=2) [3](#page=3). #### 2.1.1 Integral consolidation Integral consolidation is applied when a parent company owns 100% of a subsidiary. In this process [2](#page=2): * The parent company's investment in the subsidiary (historical cost) is eliminated [3](#page=3). * The subsidiary's assets and liabilities are fully included in the consolidated balance sheet as if they belonged to a single company [3](#page=3). * The subsidiary's equity (capital and results) is not presented separately but is incorporated into the group's total equity [3](#page=3). **Example of integral consolidation:** If Parent M owns 100% of Subsidiary D and purchased shares for 200,000.00, the consolidated balance sheet will eliminate M's investment in D and combine the assets and liabilities of both companies [2](#page=2). #### 2.1.2 Analysis of the difference between acquisition cost and intrinsic value During consolidation, the difference between the acquisition cost of a subsidiary's shares and the intrinsic value of the subsidiary's net assets at the acquisition date is analyzed. This difference may result in a consolidation difference [3](#page=3). **Example:** Parent M paid 7,000.00 for an 80% stake in Subsidiary D. D's net assets at acquisition were 65,500.00. The intrinsic value of M's share was 6,500.00 * 80% = 5,200.00. This results in a positive consolidation difference of 1,800.00 (7,000.00 - 5,200.00) [3](#page=3). #### 2.1.3 Reserve policy neutrality The reserve policy of a subsidiary does not affect the determination of the group's consolidated results. How a subsidiary distributes its profits internally has no impact on the overall group performance shown in the consolidated financial statements [3](#page=3). **Example:** If Parent M and Subsidiary D have profits, the distribution of these profits (e.g., to reserves or capital remuneration) within D does not alter the total consolidated reserves or capital [3](#page=3). #### 2.1.4 Elimination of intercompany transactions All transactions between companies within the group must be eliminated. This ensures that the group is presented as a single economic entity [3](#page=3) [4](#page=4). **Example:** If Subsidiary D owes Parent M 100,000.00 due to intercompany transactions, this debt and the corresponding receivable are eliminated from the consolidated financial statements [4](#page=4). > **Tip:** The purpose of eliminating intercompany transactions is to present the group's position and performance as if it were a single entity, free from internal dealings that do not involve external parties. #### 2.1.5 Disadvantages of consolidated financial statements While beneficial, consolidated financial statements have limitations: * **Limited scope:** Only financially quantifiable activities are recorded; budgets and non-financial information are excluded [4](#page=4). * **Comparability issues:** For diversified companies, summing dissimilar items can lead to a lack of comparability (e.g., consolidated revenue) [4](#page=4). * **Masking of negative results:** Negative results from certain subsidiaries within the group may become invisible after consolidation [4](#page=4). ### 2.2 Basic principles of consolidated financial statements Several fundamental accounting principles guide the preparation of consolidated financial statements: #### 2.2.1 Continuity The assumption is that the entity has an indefinite life. If there is significant uncertainty about the company's continued existence, this must be reported, and valuation rules may need to be adjusted. If solvency is threatened, assets like R20 should be fully depreciated, and provisions for closure costs should be made [4](#page=4). **Adjusting valuation rules under threat of continuity:** * Start-up costs must be fully depreciated [4](#page=4). * Assets are valued at their probable realizable value [4](#page=4). * Additional write-downs or accelerated depreciation are booked [4](#page=4). * Provisions are made for costs associated with ceasing operations, such as professional fees and social liabilities [4](#page=4). > **Tip:** When significant uncertainties exist regarding a company's future, disclosure and adjustment of valuation methods are mandatory. #### 2.2.2 Consistent valuation rules The group must apply consistent valuation rules across all its entities. Any deviations from these group valuation rules require thorough justification [4](#page=4). #### 2.2.3 Consistency There must be consistency in the list of companies included in the consolidation. Significant changes in the composition of the group require disclosures that enable meaningful comparison [5](#page=5). #### 2.2.4 Prohibition of offsetting Debts and credits, rights and obligations, and revenues and expenses must be presented separately, not netted against each other. This principle applies to consolidated financial statements as well [5](#page=5). **Exception:** Positive and negative consolidation differences for a single subsidiary are permitted to be offset [5](#page=5). > **Example:** In individual financial statements, you cannot offset receivables from customers against payables to those same customers. This applies similarly to consolidated statements. #### 2.2.5 Prudence principle This principle dictates that: * **Costs and losses:** Should be recognized as soon as there is a reasonable suspicion that they will arise, without waiting for certainty. For instance, a decrease in the market price of an asset below its carrying amount is sufficient reason to book a write-down [5](#page=5). * **Revenues and profits:** Should only be recognized when their realization is sufficiently certain; mere suspicion is not enough [5](#page=5). * **Intragroup transactions:** Profits from transactions between group companies are not considered realized until the asset is sold to a third party outside the group [5](#page=5). **Consequence in consolidation:** Intragroup profits are eliminated in the consolidated financial statements. A profit is only recognized when it is effectively realized with respect to third parties [5](#page=5). **Example:** If Company A sells goods to Company B (its subsidiary) for 200.00 with a cost price of 150.00: * If B sells all goods to an external party, the consolidated profit reflects the sale to the third party [5](#page=5). * If B sells only 50% of the goods to an external party, only 50% of the profit is recognized in the consolidated statements [5](#page=5). #### 2.2.6 Historical cost Assets are generally valued at their historical cost, less accumulated depreciation and impairment losses. In consolidated financial statements, this principle is interpreted as the historical cost for the group as a whole [6](#page=6). **Example:** If Parent M sells a machine to its subsidiary D, the machine is still presented at its original historical cost for the group in the consolidated financial statements, ignoring the intercompany sale [6](#page=6). #### 2.2.7 Fair presentation Individual financial statements aim to provide a true and fair view of the company's assets, financial position, and results. In consolidated statements, the interests of third parties must also be clearly presented [6](#page=6). ### 2.3 Provisions for listed companies #### 2.3.1 Who prepares consolidated financial statements according to IFRS Listed companies are obligated to prepare consolidated financial statements. The management body may also voluntarily choose to do so, a decision that is irrevocable [6](#page=6). #### 2.3.2 Why prepare consolidated financial statements according to IFRS The objective of preparing consolidated financial statements according to IFRS is to harmonize external financial reporting, fostering an integrated and efficient European capital market [6](#page=6). --- # Definitions and scope of consolidation This section defines the core concepts and establishes the boundaries for preparing consolidated financial statements. ### 3.1 The consolidated financial statement and consolidation scope A consolidated financial statement (CFS) represents the financial position, performance, and cash flows of a group of entities as if they were a single economic entity. This involves eliminating intercompany transactions and balances to present a true and fair view, disregarding legal distinctions between group companies. The consolidation scope, also known as the consolidation perimeter, encompasses the consolidating entity and all its subsidiary companies [7](#page=7). #### 3.1.1 Definition of a consolidated financial statement The consolidated financial statement is a set of financial statements for all individual companies within a group, where all intercompany relationships are eliminated to depict the group as an economic unit. The primary goal is to provide a true and fair view of the consolidated group's assets, financial position, and results [7](#page=7). #### 3.1.2 The consolidation perimeter The consolidation perimeter includes the consolidating company and all its controlled subsidiaries, forming a group together. Control is the essential criterion for determining inclusion in the consolidation perimeter [16](#page=16) [7](#page=7). ### 3.2 Related companies, parent, and subsidiary companies The definitions of related companies, parent companies, and subsidiary companies are crucial for establishing the consolidation scope [8](#page=8). #### 3.2.1 Related companies Related companies include: * Entities over which a company exercises control [8](#page=8). * Entities that exercise control over a company [8](#page=8). * Entities with which a company forms a consortium [8](#page=8). * Other entities under the control of the previously described entities, to the knowledge of the management body [8](#page=8). #### 3.2.2 Parent company (consolidating company) A parent company is any entity that controls one or more other entities. The control is typically exercised through voting rights, giving the parent decisive influence over the subsidiary's policy [8](#page=8). #### 3.2.3 Subsidiary company A subsidiary company is an entity over which another entity (the parent) has control [10](#page=10). ### 3.3 Control Control is the fundamental concept that determines inclusion in the consolidation scope. It signifies the power to direct the relevant activities of an entity [10](#page=10). #### 3.3.1 Control according to Belgian regulations Under Belgian regulations, control can be exclusive or joint [8](#page=8). * **Exclusive control:** This is control exercised by an entity alone or together with one or more of its subsidiaries over another entity [8](#page=8). * **Example:** Company M owns 80% of the voting rights in Company D. M can independently appoint the majority of directors and decides alone on D's policy. M exercises exclusive control over D [8](#page=8). * **Example with subsidiary:** Company M owns 40% of the voting rights in X, and its subsidiary D owns 20%. Together, M and D hold 60%, granting M exclusive control over X [8](#page=8). * **Joint control:** This is control exercised jointly with one or more non-related entities [8](#page=8). * **Example:** Company A owns 50% of the voting rights in C, and Company B owns the other 50%. Decisions on C's policy require the consent of both A and B, meaning they exercise joint control [8](#page=8). * **Example with contractual joint control:** Company X holds 30% of voting rights in Y, and Company Z holds another 30%. A shareholders' agreement dictates that significant policy decisions require unanimous consent, leading to joint control by X and Z [8](#page=8). #### 3.3.2 Control under consolidation legislation Control under consolidation legislation considers both legal and de facto control (#page=8, 9) [8](#page=8) [9](#page=9). * **De jure control (Control in law):** This is irrevocably presumed if: * Control arises from holding the majority of voting rights attached to shares [9](#page=9). * A shareholder has the right to appoint or dismiss the majority of directors [9](#page=9). * A shareholder possesses control rights by virtue of the company's articles of association or agreements [9](#page=9). * A shareholder, based on an agreement with other shareholders, holds the majority of voting rights [9](#page=9). * In cases of joint control [9](#page=9). An **irrevocable presumption** exists when a company holds the majority of voting rights, it is conclusively presumed to exercise control. The calculation of voting rights considers direct and indirect control via subsidiaries. Shareholder agreements can also establish majority voting rights. The number of voting rights is adjusted for treasury shares and shares held by subsidiaries [9](#page=9). * **De facto control (Control in fact):** This is rebuttably presumed if it results from factual situations [9](#page=9). * **Example:** A shareholder has exercised voting rights representing the majority of total voting rights at the last two general meetings [9](#page=9). #### 3.3.3 Control according to IFRS 10 IFRS 10 defines control as having the following three elements: * **Power over the investee:** The investor has existing rights that give it the current ability to direct the relevant activities [10](#page=10). * **Exposure, or rights, to variable returns:** The investor is exposed to, or has rights to, variable returns from its involvement with the investee [10](#page=10). * **Ability to use power to affect returns:** The investor has the ability to use its power over the investee to affect the amount of its returns [10](#page=10). This is a broader concept than decisive influence. The emphasis is on the ability to significantly influence the investee's returns [11](#page=11). ### 3.4 Associated company An associated company is any entity other than a subsidiary or a joint venture in which an investor holds an interest and exercises significant influence over the orientation of its policy [9](#page=9). #### 3.4.1 Significant influence Significant influence is presumed from holding 20% or more of the voting rights. This indicates influence but not the ability to determine policy, representing a limited, non-dominant influence. Associated companies are accounted for using the equity method (also referred to as the equity method or proportionate method) and are not included in the consolidation perimeter [9](#page=9). > **Tip:** The relationship can be summarized as: < 20% = Influence, 20% - 50% = Significant Influence (Associated Company), > 50% = Control (Subsidiary, included in consolidation) [9](#page=9). ### 3.5 Consortium and the presumption of central management A consortium is formed when one or more Belgian companies, which are not subsidiaries of each other or of the same entity, are under central management [10](#page=10). #### 3.5.1 Central management Central management is irrevocably presumed if it arises from agreements between entities or from statutory provisions. It is also presumed if the management bodies consist of the same individuals [10](#page=10). * **Example:** A family business is split into smaller companies, with family members remaining as directors in each and having agreements on certain matters, suggesting central management [10](#page=10). * **Example:** In Alfa and Beta companies, if a majority of Alfa's directors also sit on Beta's board, central management is presumed, forming a consortium. However, if the majority of directors are not the same, central management cannot be concluded based on this argument [21](#page=21) [22](#page=22). #### 3.5.2 The consolidation technique for a consortium The primary consolidation technique for a consortium is the equity method (or proportionate method). Eliminations of participations against the corresponding share in equity, or third-party interests in results or equity, do not occur if there is no affiliation between the consortium companies [12](#page=12). ### 3.6 Scope of consolidation The scope of consolidation defines which entities must be included in the consolidated financial statements. #### 3.6.1 Consolidation obligation in vertical structures Every parent company controlling one or more subsidiaries (alone or jointly) MUST prepare consolidated financial statements and an annual report. Control of even a single subsidiary triggers the consolidation obligation. Holding minority stakes without control, even with significant influence, does not create a consolidation obligation [12](#page=12). #### 3.6.2 Consolidation obligation in horizontal structures (Consortium) Every entity belonging to a consortium must prepare consolidated financial statements. The members of the consortium decide collectively who is best suited to prepare them. The same principles and rules as for vertical groups apply, including uniform valuation rules [12](#page=12). #### 3.6.3 Determining the consolidation perimeter The consolidation perimeter consists of the consolidating company and all its controlled subsidiaries, regardless of their legal domicile, or all companies under central management forming a consortium [16](#page=16). **Steps to determine the consolidation perimeter:** 1. **Examine the percentage of participation:** This includes direct and indirect holdings. Indirect control through a subsidiary is added to direct control (#page=9, 16) [16](#page=16) [9](#page=9). 2. **Determine if the participation percentage leads to control:** Control percentage is vital for deciding which companies are included and which consolidation method is used [16](#page=16). 3. **Assess the interest percentage:** This is important for the technical execution of consolidation once control is established [16](#page=16). **Control Percentage and Consolidation Method:** * **Control % $\ge$ 50%:** Full consolidation (integral method). The subsidiary is included in the consolidation perimeter [17](#page=17). * **Joint Control (Joint Venture):** Proportionate or proportional consolidation is used for the common subsidiary. Common subsidiaries are part of the consolidation perimeter [17](#page=17). * **Control % $\ge$ 20% and < 50% (Significant Influence):** The investee is included using the equity method (vermogensmutatiemethode) if significant influence is exercised by an entity within the consolidation perimeter. However, the associated company itself does not belong to the consolidation perimeter [17](#page=17). * **Example:** M owns 80% of A, and A owns 35% of B. The consolidation perimeter includes M and A because M controls A. B is an associated company of A and will be accounted for using the equity method, not included in the perimeter [17](#page=17). * **Example:** D owns 25% of X. X is an associated company of D, but since D is not part of a consolidation perimeter, no action is required [17](#page=17). #### 3.6.4 Interest percentage The interest percentage represents the direct and indirect stake in the net assets and results of the involved entity. It is used for consolidation calculations and indicates the relative importance within the group [19](#page=19). * **Integral Consolidation:** Used to determine the group's interest and third-party interest [19](#page=19). * **Proportionate Consolidation:** Applied to common subsidiaries based on the interest percentage [19](#page=19). * **Equity Method (Vermogensmutatiemethode):** Equity of the associated company is recognized at the interest percentage as a financial fixed asset [19](#page=19). **Calculation of Interest Percentage:** * **Direct Participation:** Interest percentage equals control percentage [19](#page=19). * **Indirect Participation:** Calculated by multiplying successive control percentages [19](#page=19). * **Example:** M owns 70% of A. The initial equity of A was 320,000.00. M's share of the equity is 70% of 320,000.00 = 224,000.00. If M paid 200,000.00, this results in a negative consolidation difference of 24,000.00 (paid less than book value) [19](#page=19). * **Example:** If A makes a profit of 10,000.00, M's share is 7,000.00 (70%) added to group reserves, and 3,000.00 (30%) to third-party interests [19](#page=19). #### 3.6.5 Exclusions from the consolidation perimeter Entities can be excluded from consolidation under specific circumstances. * **Optional Exclusions:** A subsidiary can be excluded if: * It is of negligible significance, and its inclusion would not impact consolidated results [20](#page=20). * Significant and permanent restrictions materially hinder effective control or asset utilization [20](#page=20). * Inclusion involves disproportionate costs or undue delays [20](#page=20). * The shares are held solely for subsequent disposal [20](#page=20). The de-consolidation date is determined similarly to the consolidation date [20](#page=20). * **Factual Exclusions:** Such entities are neither consolidated nor accounted for using the equity method; their inclusion is made in the consolidated balance sheet under "other companies" [20](#page=20). * **Mandatory Exclusions:** Exclusion is mandatory if including a subsidiary over which de facto control exists would contravene the principle of a true and fair view. Subsidiaries in liquidation, those ceasing operations, or unable to continue their business are not included in the consolidation perimeter [20](#page=20). #### 3.6.6 Changes in the composition of the consolidation perimeter If the composition of the consolidated group undergoes a significant change during the financial year, the notes must provide information allowing for a meaningful comparison of consecutive financial statements [20](#page=20). ### 3.7 Exemptions from consolidation Exemptions from consolidation exist under certain conditions, particularly in Belgian law and IFRS. #### 3.7.1 Exemption from sub-consolidation An exemption from sub-consolidation may apply to a parent company if it is itself a subsidiary of another parent company that prepares, audits, and publishes consolidated financial statements [14](#page=14). * **Conditions for exemption:** * Approval by the general meeting of shareholders with a majority of 90% (for NV) or 80% (for other companies), valid for two years and renewable [15](#page=15). * The exempted entity and its subsidiaries are included in the higher-level parent's consolidated financial statements [15](#page=15). * The higher-level parent prepares, audits, and publishes consolidated statements according to EU directives or equivalent regulations [15](#page=15). * The management of the exempted entity files the higher-level parent's consolidated statements within specified timeframes [15](#page=15). * Notes in the exempted entity's separate financial statements must disclose the exemption, identify the parent, and provide details on filing and compliance [15](#page=15). * **Exemption does not apply if:** * Any entity to be consolidated is listed on a stock exchange [15](#page=15). * Consolidation is requested by the works council, government, or a court [15](#page=15). This exemption also extends to consortia [15](#page=15). #### 3.7.2 Exemption for small groups (limited scope) An undertaking is exempt from preparing consolidated financial statements if it belongs to a group of limited size, not exceeding more than one of the following criteria: * Balance sheet total: 17,000,000.00 [15](#page=15). * Revenue (excluding VAT): 34,000,000.00 [15](#page=15). * Average number of employees: 250 [15](#page=15). These criteria are tested at the closing date of the consolidating financial statement based on the last prepared financial statements of the entities to be consolidated. If more than one criterion is exceeded for two consecutive years, consolidation becomes mandatory. The calculation can also be based on simple aggregation, increasing the criteria by 20%. This exemption also applies to consortia [15](#page=15). > **Note:** IFRS does not address exemptions for small groups (#page=15, 21) [15](#page=15) [21](#page=21). #### 3.7.3 IFRS specific provisions for listed companies IFRS does not mandate consolidation for horizontal groups. Exemptions for sub-parent companies are more strictly defined for listed companies [21](#page=21). * **Conditions for listed companies:** * Must be a 100% subsidiary of another entity, with minority shareholders informed and no objections raised [21](#page=21). * Its debt instruments or shares are not listed [21](#page=21). * No plans for a stock exchange listing [21](#page=21). * Its ultimate or intermediate parent prepares and publishes consolidated financial statements [21](#page=21). The exclusion of subsidiaries held for disposal is not permitted under IFRS [21](#page=21). ### 3.8 Voluntary consolidation An entity without a consolidation obligation, or an exempted entity, may voluntarily prepare consolidated financial statements on its own initiative. All legal consolidation and financial statement requirements must be met in such cases [21](#page=21). --- # Consolidation techniques and differences This section outlines the various methods used for consolidating financial statements, focusing on integral, proportional, and equity methods, alongside specific adjustments for goodwill/badwill, intragroup transactions, dividends, and pre/post-acquisition profits. ### 4.1 The integral consolidation method The integral consolidation method is applied when a parent company has exclusive control over other entities [26](#page=26). #### 4.1.1 Working method This method involves combining all assets, liabilities, revenues, and expenses from the individual financial statements of the parent and its subsidiaries to create the consolidated financial statements, as if they were a single entity. Key steps include [26](#page=26): * **Combining financial statements:** Summing up all assets, liabilities, revenues, and expenses from the individual financial statements [26](#page=26). * **Eliminations:** Adjustments are made to remove the effects of intragroup transactions and balances. This includes: * Eliminating the carrying amount of the investment in the subsidiary against the parent's share of the subsidiary's equity [26](#page=26). * Determining the minority interest's share of the net profit [26](#page=26). * Determining the minority interest's share of the net assets of the consolidated subsidiaries [26](#page=26). **Basis rules for integral consolidation:** * **Uniform valuation rules:** All assets and liabilities, as well as rights and obligations, of the entities within the group must be valued uniformly. If this is not the case, valuation rules must be adjusted for consolidation purposes to ensure a consistent basis across the group [26](#page=26). * **Interest percentage:** The first consolidation is performed based on the ownership percentage. The parent's share of the net assets of the subsidiary is determined based on this percentage at the date of first consolidation [26](#page=26). * **Net assets of the subsidiary to be eliminated:** This is calculated as the carrying amount of the subsidiary's assets minus its provisions and liabilities. Adjustments for uniform valuation rules may impact equity. If shares are acquired during the financial year, the equity to be eliminated includes the result of the financial year up to the acquisition date. If an interim dividend was paid, this result should be reduced by the interim dividend [26](#page=26) [27](#page=27). * **Third-party interests (minority interests):** When the ownership is less than 100%, the share of third parties in the net assets is recognized in the consolidated balance sheet under "Third-party interests" (#page=26, 27) [26](#page=26) [27](#page=27). > **Tip:** The carrying amount of the investment in a subsidiary at the parent company level may not always equal the parent's share of the subsidiary's equity. This difference gives rise to consolidation differences (#page=27, 28) [27](#page=27) [28](#page=28). #### 4.1.2 Consolidation differences Consolidation differences arise when the acquisition cost of a participation is not equal to the group's share in the equity of the subsidiary on the acquisition date. These differences are allocated as much as possible to assets and liabilities whose fair value differs from their book value, assessed at the acquisition date or the beginning of the financial year for first-time consolidation (#page=30, 34) [30](#page=30) [34](#page=34). * **Positive consolidation difference (Goodwill):** Arises when the acquisition cost of the participation is greater than the group's share in the equity of the subsidiary. This can be due to [30](#page=30): * Undervaluation of certain assets in the subsidiary's balance sheet [30](#page=30). * Overvaluation of liabilities, such as provisions created for fiscal reasons [30](#page=30). * Paying a higher price for the participation due to favorable profitability prospects compared to the corresponding share in equity [30](#page=30). * Positive consolidation differences are treated as an intangible fixed asset (IVA) in account R214 and are amortized over 5 years [30](#page=30). * **Negative consolidation difference (Badwill):** Arises when the acquisition cost of the participation is less than the group's share in the equity of the subsidiary. This can be due to [30](#page=30): * Overvaluation of assets in the subsidiary's balance sheet [30](#page=30). * Understatement of liabilities [30](#page=30). * Purchasing the participation at a lower price than its corresponding intrinsic value [30](#page=30). * Negative consolidation differences are recognized as part of equity in account R1401, associated with expected unfavorable developments or future costs of the subsidiary that materialize [30](#page=30). > **Example:** > Company M acquires 100% of the shares of Company D for 280,000.00 dollars. The equity of Company D on that date is valued at 250,000.00 dollars. The difference of 30,000.00 dollars is a positive consolidation difference (goodwill). If, for instance, the land of Company D was undervalued by 20,000.00 dollars, a positive consolidation difference of 10,000.00 dollars would remain, to be recorded and amortized (#page=27, 30) [27](#page=27) [30](#page=30). > **Example:** > Company M acquires 100% of the shares of Company D for 200,000.00 dollars. The equity of Company D on that date is valued at 225,000.00 dollars. The difference of 25,000.00 dollars is a negative consolidation difference (badwill). If, for instance, the machinery of Company D was overvalued by 20,000.00 dollars, a negative consolidation difference of 5,000.00 dollars would remain, to be recorded as per account R1401 (#page=28, 30) [28](#page=28) [30](#page=30). #### 4.1.3 The consolidated income statement The consolidated income statement includes all revenues and expenses of the consolidated companies. Specific adjustments include [34](#page=34): * **Elimination of intragroup costs and revenues:** Transactions between group companies are removed [28](#page=28). * **Elimination of profits and losses:** Profits or losses included in the value of an asset acquired from another group company are eliminated [28](#page=28). * **Elimination of realized gains or losses:** Gains or losses on participations in companies that are consolidated are eliminated [28](#page=28). * **Elimination of dividends:** Dividends paid by consolidated companies to other consolidated companies are eliminated [28](#page=28). * **Elimination of value adjustments:** Value adjustments on participations in consolidated companies are eliminated [28](#page=28). * **Third-party share of profit:** The portion of the profit of wholly-owned consolidated subsidiaries attributable to shares held by parties other than the consolidated companies is recognized separately [28](#page=28). ### 4.2 Proportional consolidation *(Note: The provided document content does not detail the proportional consolidation method. It is only mentioned as a basic consolidation method alongside the integral method.)* [25](#page=25). ### 4.3 Equity method *(Note: The provided document content does not detail the equity method. It is only mentioned in relation to associated companies.)* [25](#page=25). ### 4.4 Pre- and post-acquisition profits When consolidating the income statement, pre- and post-acquisition profits must be accounted for to avoid a distorted result [61](#page=61). * **Pre-acquisition profit:** This is the profit of a subsidiary earned *before* the acquisition date [61](#page=61). * It is not considered group profit [61](#page=61). * It is deducted when allocating the profit [61](#page=61). * It reduces consolidated reserves and potentially third-party interests [61](#page=61). * **Post-acquisition profit:** This is the profit earned *after* the acquisition date [61](#page=61). * It forms part of the consolidated profit [61](#page=61). **Profit allocation by type of company:** * **Parent company:** Distributed profit becomes a liability in the consolidated statements; reserved profit increases consolidated reserves; losses decrease consolidated reserves [61](#page=61). * **100% subsidiary:** The entire profit affects consolidated equity, irrespective of whether it's distributed as a dividend or reserved. Profits allocated other than as dividends are recognized as expenses in the consolidated income statement [61](#page=61). * **Minority interest (< 100%):** Profit is split between the group's share (consolidated reserves) and the third parties' share (third-party interests). Losses lead to a corresponding decrease in these items. Profits other than dividends are treated as expenses in the consolidated income statement [61](#page=61). > **Special Provision:** Profits awarded as tantièmes or to other entitled parties (not as dividends) are first booked as an expense in the consolidated income statement and then influence the profit to be allocated [62](#page=62). ### 4.5 Intragroup transactions Intragroup transactions, such as mutual sales and purchases, must be eliminated from the consolidated financial statements to represent the group as a single economic entity [68](#page=68). * **General principle:** All intercompany receivables and payables must be eliminated [68](#page=68). * **Materiality principle:** Eliminations of negligible significance may be omitted [68](#page=68). * **Types of eliminations:** * **Balance sheet eliminations:** Eliminating intercompany receivables and payables. If debit and credit balances do not match, an "Adjustment Differences" account is used [68](#page=68). * **Income statement eliminations:** Eliminating intragroup revenues and expenses. * **Combined balance sheet and income statement eliminations:** Adjustments for profits/losses on fixed assets and inventory sold within the group (#page=68, 71, 74) [68](#page=68) [71](#page=71) [74](#page=74). #### 4.5.1 Gains and losses on intragroup sales of fixed assets No profit should be recognized within the group on the sale of fixed assets. The asset remains valued at its original acquisition cost for the group, with depreciation calculated as if the intragroup sale had not occurred. Both the profit and the effect on depreciation are corrected. The elimination of the gain or loss reduces or increases the consolidated result, which is either fully borne by the group or split between the group and third-party interests [71](#page=71). #### 4.5.2 Intragroup profit included in inventories When a group company sells goods to another group company and these goods are not yet resold to third parties, unrealized group profit is embedded in the inventory. This profit should not be recognized in the consolidated result until the goods leave the group. Consolidation requires eliminating intercompany sales and purchases, adjusting inventory to group cost price, and adjusting the consolidated result and equity. If the profit is held by the parent company, there is no impact on third-party interests [74](#page=74). ### 4.6 Intragroup dividends Dividends paid between companies within the consolidation perimeter must not appear twice in the consolidated result. This requires elimination entries due to the timing of profit allocation and payment [76](#page=76). * **Problem occurrence:** Annual accounts are often prepared before profit allocation, and dividends based on prior-year results are paid in the current year. The receiving company books this as financial income, leading to double recognition of profit at the group level [76](#page=76). **Situations:** 1. **Dividend from prior year's profit, paid in the current year:** The prior year's profit is already in consolidated reserves. The dividend increases the consolidated result again, causing double recognition. The solution is to eliminate the financial income at the profit allocation level, neutralizing it and booking the contra-entry against consolidated reserves, thus not affecting the current year's consolidated result but reducing consolidated reserves [77](#page=77). 2. **Dividend from prior year, not yet paid at balance sheet date:** This results in an intercompany receivable and payable, which must be eliminated at the balance sheet level. There is no impact on the consolidated result [77](#page=77). 3. **Dividend from current year's profit:** This is treated as ordinary profit allocation and handled within profit processing, requiring no separate dividend elimination [77](#page=77). 4. **Interim dividend:** A dividend decided and paid during the financial year before year-end closure. The subsidiary accounts for it in its profit allocation, while the parent books it as financial income. This risks double recognition. The solution involves reversing the individual profit allocation, eliminating the interim dividend as financial income, with only the portion attributable to third-party interests remaining visible. The part of the dividend belonging to minority shareholders is not eliminated and remains a real outgoing outside the group. Account 471 is often adjusted to reflect exactly the share of third-party interests (#page=77, 78) [77](#page=77) [78](#page=78). #### 4.6.1 Shares purchased with coupons When a parent company purchases shares with coupons relating to the previous financial year: * **Hypothesis 1 (Dividend not eliminated):** The dividend is treated as income, leading to a higher result and a larger consolidation difference. * **Hypothesis 2 (Dividend eliminated - economically correct):** The dividend is considered part of the acquisition cost, reducing the participation value and the consolidation difference, leading to lower annual amortization. In Belgium, Hypothesis 2 is considered economically correct [78](#page=78). --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Consolidated financial statement | A financial statement that combines the assets, liabilities, equity, income, and cash flows of a parent company and its subsidiaries as if they were a single economic entity. | | Belgian Companies and Associations Code (WVV) | The Belgian Companies and Associations Code, which contains specific rules regarding the preparation and content of consolidated financial statements. | | Belgian Companies Code (WER) | The Belgian Companies Code, which includes general accounting provisions applicable to consolidated financial statements. | | International Financial Reporting Standards (IFRS) | A set of accounting standards developed by the International Accounting Standards Board (IASB) that are used for financial reporting by many companies worldwide, especially publicly listed ones in the EU. | | IASB (International Accounting Standards Board) | The independent standard-setting body of the IFRS Foundation, responsible for developing and issuing International Financial Reporting Standards. | | IAS (International Accounting Standards) | Earlier accounting standards issued by the predecessor to the IASB, some of which are still in effect. | | Parent company | A company that controls one or more other companies, which are then referred to as subsidiaries. | | Subsidiary company | A company that is controlled by a parent company. | | Control | The power to direct the relevant activities of another entity. This is typically achieved through voting rights but can also be established by other means. | | Exclusive control | Control of an entity that is held by one parent company alone or together with one or more of its subsidiaries. | | Joint control | Control of an entity that is shared by two or more parties who have coordinated their decision-making. | | Common control | A situation where multiple entities are under the control of the same ultimate parent, often through a consortium structure. | | Associated company | An entity in which an investor has significant influence over the operating and financial policies of the investee, but not control or joint control. This influence is typically presumed from a holding of 20% or more of the voting rights. | | Significant influence | The power to participate in the financial and operating policy decisions of an investee but not to exercise control or joint control over those policies. | | Consortium | An arrangement where two or more entities that are not subsidiaries of each other, nor subsidiaries of the same parent, operate under central management. | | Central management | A situation where entities are managed centrally, often through overlapping board memberships or contractual agreements, indicating they form a consortium. | | Consolidation scope (Consolidationkring) | The group of entities that are included in the consolidated financial statements, typically comprising the parent company and all its controlled subsidiaries. | | Integral consolidation method | A method where the assets, liabilities, revenues, and expenses of subsidiaries are fully consolidated with those of the parent company. | | Proportional consolidation method | A method where the assets, liabilities, revenues, and expenses of joint ventures are consolidated on a line-by-line basis in proportion to the parent’s ownership percentage. | | Equity method (Vermogensmutatiemethode) | A method of accounting for investments where the investment is initially recorded at cost and adjusted thereafter to reflect the investor's share of the investee's net income or loss and other comprehensive income. This method is used for associated companies. | | Consolidation difference (Consolidatieverschil) | The difference between the cost of an investment in a subsidiary and the fair value of the subsidiary's net identifiable assets acquired. This can result in goodwill (positive difference) or badwill (negative difference). | | Goodwill | An intangible asset that arises when a company acquires another company for a price greater than the fair value of its identifiable net assets. It represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. | | Badwill | Also known as negative goodwill, it arises when a company acquires another company for a price less than the fair value of its identifiable net assets. | | Minority interest (Belangen van derden) | The portion of a subsidiary's equity and net income that is not owned by the parent company. | | Intragroup transactions | Transactions that occur between entities within the same group of companies (e.g., sales, loans, services between parent and subsidiary). These must be eliminated in consolidation. | | Elimination | The process of removing the effects of intragroup transactions from the consolidated financial statements to present the group as a single economic entity. | | Pre-acquisition profit | The profit earned by a subsidiary before the date of acquisition by the parent company. This profit is not included in the consolidated profit but affects the consolidation calculation. | | Post-acquisition profit | The profit earned by a subsidiary after the date of acquisition by the parent company. This profit is included in the consolidated profit. | | Interim dividend | A dividend declared and paid by a company during its fiscal year, before the year-end results are finalized. | | Continuity principle | The assumption that a business will continue to operate indefinitely. In consolidation, this means that assets and liabilities are valued assuming the entity will continue its operations. | | Consistent valuation rules | The principle that similar assets and liabilities within a group should be valued using the same accounting policies and methods. | | Consistency | The principle that accounting policies and methods should be applied consistently from one period to the next within a consolidated financial statement. | | Prohibition of offsetting | The principle that assets and liabilities, or revenues and expenses, should not be offset against each other unless specifically permitted by accounting standards. This applies to consolidated financial statements as well. | | Prudence principle (Voorzichtigheidsbeginsel) | The principle of exercising caution when making judgments under conditions of uncertainty. Losses and expenses are recognized as soon as they are probable, while revenues and gains are recognized only when they are reasonably certain to be realized. | | Historical cost | The original cost of an asset at the time of acquisition. In consolidation, this is often the basis for valuing assets, with adjustments for depreciation or impairments. | | True and fair view | The overriding objective of financial reporting, ensuring that financial statements present a fair and accurate picture of the financial position, performance, and cash flows of an entity. |