Carve outs

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. The European Federation of Accountants (FEE) has recently published a paper entitled 'Combined and Carve-out Financial Statements Analysis of Common Practices'. The paper summarises the most common practices as well as the main issues and challenges related to the preparation of combined and carve-out financial statements in compliance with IFRS. What is the key difference between consolidated and combined financial statements?

  2. A group is demerging a significant part of its economic activities and wishes to present the historical financial information for its remaining economic activities to investors independently of the financial information of the whole group. Which of the following best describes the financial statements prepared for the remaining economic activities?

  3. An economic activity is divested from a group into a separate entity in order to present the historical financial information for such economic activity independently of the financial information of the whole group. Which of the following best describes the financial statements prepared for the economic activity?

  4. Both consolidated and combined financial statements present historical financial information. Why is it not possible to present consolidated financial statements for combined financial statements?

  5. A fundamental condition for preparing combined financial statements is that there must be an element, which could be said to have 'bound' the constituent elements together throughout the accounting period. Which of the following categories does not constitute a binding element

  6. No accounting definition of combined and carve out transactions exists, and there is limited accounting guidance. Under IFRS, there are a number of definitions, which may help in developing a definition of the Area of Economic Activities in the context of combined financial statements. Which of the following definitions would not help in accounting for these transactions?

  7. Based upon that key principle of applying all requirements under IFRS,which principles would be applied when preparing combined financial statements.

  8. Complexity can arise when considering how to allocate the cost and value of a defined benefit pension plan in a carve out transaction. If a contractual agreement or adequate allocation policy exists that allocates this element then this should be followed. Which of the following accounting practices regarding the defined pension benefit, is unlikely to occur in a carve out transaction?

  9. The allocation of tax charges in preparing combined financial statements depends on whether the entities carrying out the economic activities for which the combined financial statements are to be prepared, have filed separate tax returns ,or whether their tax affairs have been dealt with as part of a larger tax entity. If separate tax returns do not exist,how will the entity determine the tax provision?

  10. What information is fundamental to the understanding of combined and carve out financial statements?