a (i) In accordance with IPSAS 35: Consolidated Financial Statements, an entity controls another entity when the entity is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature or amount of those benefits through its power over the other entity. An entity controls another entity if and only if the entity has all the following:

• Power over the other entity;
• Exposure, or rights, to variable benefits from its involvement with the other entity; and
• The ability to use its power over the other entity to affect the nature or amount of the benefits from its involvement with the other entity.

Does the government have the power of control over the Zamunda Transport Agency?
Control is the ability of an entity to exert power to direct the relevant activities of the other entity. The relevant activities are those activities Prolonged sentence that significantly affect the nature or amount of the benefits the entity receives from its involvement with the other entity. In this case, the government has the power to appoint or remove the board of directors. Further, the government can veto the operating and capital budgets of the Zamunda Transport Agency. This is indicative of the presence of power of the government to direct the relevant activities of the Zamunda Transport Agency.

Is the government exposed, or has rights to variable benefits from its involvement with the Zamunda Transport Agency?
An entity is exposed, or has rights, to variable benefits from its involvement with an entity being assessed for control when the benefits that it seeks from its involvement have the potential to vary as a result of the other entity’s performance. Entities become involved with other entities with the expectation of positive financial or non-financial benefits over time. These benefits may be financial, non-financial, or a mix of both positive and negative. In the current case, the Zamunda Transport Agency has assumed many responsibilities previously held by the government, and it sets the regional transportation vision. This is indicative that the government has significant benefits from the operation of the agency, which is to provide transport services to the metropolis.

Does the government have the ability to use its power over the Zamunda Transport Agency to affect the nature or amount of the benefits from its involvement with the agency?
Control exists when the government has the ability to use its power to affect the nature or amount of the benefits from its involvement with the entity being assessed for control. In this case, the government can exercise its controlling powers by appointing or removing the board of directors. In addition, the government can also withdraw its funding to the agency, which will have a significant effect on the operation of the agency. This is indicative of the ability of the government to make use of its powers over the agency.                                                                                                                                                                                                                                                                                                                                                                                                                                                 a(ii)

The procedures for consolidation are as follows:

Step 1: Combine assets, liabilities, net assets/equity, revenues, expenses, and cash flows.
Perform a line-by-line summation, by adding together like items of assets, liabilities, net assets/equity, revenue, and expenses on a uniform basis of accounting.

Step 2: Eliminate investments in controlled entities.
Eliminate the carrying amount of the controlling entity’s investment in each controlled entity and the controlling entity’s portion of net assets/equity of each controlled entity. This is done to present financial information about the economic entity as that of a single entity.

Step 3: Eliminate balances and transactions between entities of the economic entity.
Eliminate in full balances and transactions between entities within the economic entity to ensure that the consolidated financial statements are presented to reflect the effects of transactions of the economic reporting entity with organizations and individuals external to that entity.

Step 4: Adjust for accounting policies differences and Control Date.
Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If a member of the economic entity uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. Further adjustments are required when the financial statements of the controlling entity and its controlled entities used in the preparation of the consolidated financial statements are not prepared on the same reporting date.

Step 5: Identify minority interests in surplus or deficit and net assets/equity.                                                                     

Non-controlling interests are presented in the consolidated statement of financial position within net assets/equity, separately from the controlling entity’s net assets/equity.

(b) (i) Equity method of accounting:
Under the equity method of accounting:

• The investment in the associate or joint venture is initially recognized at cost.
• Subsequently, the carrying amount of the investment is increased or decreased to recognize the investor’s share of surplus or deficit of the investee after the date of acquisition.
• The investor’s share of the investee’s surplus or deficit is recognized in the investor’s surplus or deficit for the reporting period.
• Distributions received from the investee reduce the carrying amount of the investment.

(ii) Joint arrangement:
IPSAS 37 defines joint control as the agreed sharing of control of an arrangement by way of a binding arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. There are two types of joint arrangements: a joint operation or a joint venture.

(iii) Economic entity view of financial reporting:
An economic entity for financial reporting purposes consists of a group of entities that includes the controlling entity and the entities under its control, regardless of whether they are incorporated or unincorporated. Other terms used to describe an economic entity include administrative entity, financial entity, consolidated entity, and group.

(iv) Associate:
An associate is an entity over which the investor (controlling entity) has significant influence that does not amount to control or joint control. IPSAS 36 applies only to investments where the investment leads to the holding of a quantifiable ownership interest. This includes ownership interests arising from investments in the formal equity structure of another entity.