(4a) Subsidiaries (full consolidation)
A subsidiary is an entity over which the Group has direct or indirect control.
Control exists if and only if the Group:
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has power over relevant operations of the entity;
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is exposed or has rights to variable returns because of its involvement with the entity; and
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can use its power over the entity to affect the size of these returns.
Each of these three criteria has to be satisfied to establish that the Group has control over an entity in which it owns an interest. Subsidiaries are fully consolidated from the date on which control is first obtained until the date on which control ceases.
Business combinations
In the event of an acquisition, the Group determines whether control has been obtained over a ‘company’ and if so, the purchase is recognised as a business combination. Business combinations are recognised according to the acquisition method, as from the date on which control is transferred to the Group. The consideration transferred for the acquisition is generally measured at fair value, as are the net identifiable assets acquired. Any resulting goodwill is tested for impairment every year. Any gain from a favourable purchase is recognised directly in profit or loss. Transaction costs are recognised in profit or loss when these are incurred, unless they relate to the issue of debt or equity instruments. The transfer sum includes no amount for settling existing account balances. Such amounts are generally recognised in the statement of profit or loss. The fair value of a contingent payment is recognised on the date of acquisition. If this conditional payment is classified as equity, it is not subsequently remeasured. Instead, the settlement figure is recognised in equity. In other cases, adjustments after initial recognition are recognised in profit or loss. In the case of a step acquisition of an interest that does not qualify as a business, the existing interest is not remeasured at fair value.
Where the acquisition does not result in obtaining control over a business, the purchase is recognised as the acquisition of individual assets (or a group of assets).
(4b) Joint ventures and associates (equity method)
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A joint venture is a joint arrangement in which the Group has joint control together with other parties, and has a right to the net assets of the joint venture. The parties involved have agreed contractually that control is shared and that decisions concerning relevant activities require unanimous approval from the parties having joint control over the joint venture. A joint venture is recognised from the date on which the Group shares control until the date on which this ceases.
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An associate is an entity over which the Group has significant influence over the business and financial strategy, but cannot exercise control. Significant influence is presumed to exist when the Group holds 20% or more of the voting rights. An associate is recognised from the date on which the Group has significant influence until the date it ceases.
Joint ventures and associates (together also: investments) are accounted for using the equity method and are initially measured at cost (including any goodwill determined).
The consolidated financial statements include the Group’s share of total comprehensive income in accordance with the Group’s accounting policies. If the Group’s share of any losses exceeds the carrying amount of its interest in the investee, the investment is written down to nil.
If a residual loss remains, other non-current interests in the investee that, in substance, form part of the net investment are impaired. Any further losses are not recognised, except through a 'Provision for negative investments' to the extent that the Group has incurred an obligation or intends to make good the losses.
(4c) Joint operations (proportionate recognition)
Joint operations are arrangements in which the Group exercises joint control with one or more parties and has rights to its share of the assets and obligations for the joint operation, as well as its share of the related income and expenses. In practice, this means that the Group recognises its share of the underlying assets, liabilities, revenue and costs as if these were held or incurred directly by the Group (proportionate recognition).
(4d) Elimination of transactions upon consolidation
Balances and any results on transactions within the Group are fully eliminated in preparing the consolidated financial statements. Unrealised results on transactions with associates, joint ventures and joint operations are eliminated in proportion to the interest the Group holds in the entity.