Annual - Johnson Electric

2. Principal accounting policies (Cont’d)
2.2 SUBSIDIARIES
NOTES TO THE ACCOUNTS
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern
the financial and operating policies generally accompanying a shareholding of more than one half of the
voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible
are considered when assessing whether the Group controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The
cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The
excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired
is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in the profit and loss account.
All significant intercompany transactions and balances within the Group are eliminated on consolidation.
In the Company’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment
losses. The results of subsidiaries are accounted by the Company on the basis of dividend received and receivable.
Minority interests represent the interests of outside equity holders in the operating results and net assets of
subsidiaries.
2.3 JOINTLY CONTROLLED ENTITIES
A jointly controlled entity is an entity in which the Group and other parties undertake an economic activity
which is subject to joint control and none of the participating parties has unilateral control over the economic
activity.
The consolidated profit and loss account includes the Group’s share of the results of jointly controlled entities
for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the jointly
controlled entities and goodwill (net of any accumulated impairment loss) on acquisition.
2.4 ASSOCIATED COMPANIES
An associated company is a company, not being a subsidiary or jointly controlled entity, in which an equity
interest is held for the long-term and significant influence is exercised in its management.
The consolidated profit and loss account includes the Group’s share of the results of associated companies for
the year, and the consolidated balance sheet includes the Group’s share of the net assets of the associated
companies and goodwill (net of any accumulated impairment loss) on acquisition.
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