offset the share capital and pre-acquisition reserves of subsidiaries against the investments in those subsidiaries, with the appropriate slice being allocated to the minority interests if the subsidiaries are not wholly owned;
consider the need for any impairment of the goodwill on consolidation which appears from the above adjustments;
reverse any provisions for impairment made in respect of investments in subsidiaries as held by any of the holding companies in a group;
adjust the investments in joint ventures and associates from cost to the group’s shares of the profits and losses as retained in those entities.
4.7 Financial statements intended to give a true and fair view are prepared on the basis of substance over form. This manifests itself in various ways: as an example, the legal form of a hire purchase agreement is that ownership does not transfer until a final payment is made. However, the substance of this transaction is seen as being a financing agreement: the asset is recognised on the balance sheet at the point that the agreement is entered into and not at the point when the final payment is made. With a finance lease the legal ownership never passes to the entity. However, the substance of such a lease is considered to be that the lessee has substantially all of the risks and rewards of ownership from the point that the lease is entered into. Therefore a truck on a finance lease would be shown as a fixed asset of the lessee when the lease was signed, despite the fact that the leasing agreement precluded the company from having legal ownership of the asset. 4.8 The above is consistent with the concept of an asset, which is defined by the Statement of principles for financial reporting as “rights or other access to future economic benefits controlled by an entity as a result of past transactions or events.” This definition can be tested by reference to VAT recoverable: an entity has suffered VAT in the past, and is able to make recovery of that VAT in cash under the Value Added Tax Act 1994 due to the nature of its activities. The VAT that can be recovered on the transactions up to the balance sheet date is therefore shown as an asset on the balance sheet.
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