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Economic Entity Model (eem)
How EEM justifies group financial reporting
Date : 03/11/2015
Author Information
Uploaded by : Abibu
Uploaded on : 03/11/2015
Subject : Accounting
Being equity participants transactions between the group and NCI where there is no loss of control are accounted for within equity. For example, gains or losses arising from increases or decreases of ownership involving NCI that do not result in loss of control by the parent are accounted for as "direct to equity": losses are charged to retained earnings and gains are treated as capital contribution. Thus they don`t impact profit or loss and are not taken into account in performance evaluation.
The economic entity model has superseded the parent entity model as the overriding concept underlying the production of consolidated financial statements. One presentational effect of this approach is that the profit or loss is allocated between i) the equity holders of the parent and ii) the NCI.
A derivative of the economic entity concept is the reporting entity. The reporting entity (Group) comprises 100% of the entities in the entire group of entities under the parent`s control. As a result, 100% of the subsidiaries results and constituent assets and liabilities are included in consolidation; it would otherwise be logical to only include the parent`s share of the subsidiary in the parent`s consolidated financial statements.
This resource was uploaded by: Abibu