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3.3 Basis of consolidation
(a) Subsidiaries
Subsidiaries are all entities (including structured entities) over which the group exercise control.
Control is achieved when the Group is exposed to, or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its power to direct the activities of the entity:
[i] power over the investee;
[ii] exposure, or rights, to variable returns from its involvement with the investee; and

[iii] the ability to use its power over the investee to affect the amount of the investor’s returns

The Group reassess periodically whether it controls an investee if facts and circumstances indicate that there are changes
to one or more of the three elements of control listed. The existence and effect of potential voting rights are considered
when assessing whether the group controls another entity.

The Group assesses existence of control where it does not have more than 50% of the voting power i.e when it holds
less than a majority of the voting rights of an investee. A group considers all relevant facts and circumstances in assessing
whether or not it’s voting rights are sufficient to give it power, including:
[i] A contractual arrangement between the group and other vote holders
[ii] Rights arising from other contractual arrangements
[iii] The group’s voting rights (including voting patterns at previous shareholders’ meetings)
[iv] Potential voting rights

The subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidat-
ed from the date that control ceases.

Subsidiaries are measured at cost less impairment in the separate financial statement.

(b) Business combinations

The Group applies IFRS 3 Business Combinations (revised) in accounting for business combinations.

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on
which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so
as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights.

The Group measures goodwill at the acquisition date as the total of:
• the fair value of the consideration transferred; plus
• the recognized amount of any non-controlling interests in the acquiree; plus if the business combination is achieved
in stages, the fair value of the pre-existing equity interest in the acquiree; less
• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When this total is negative, a gain from a bargain purchase is recognised immediately in statement of comprehensive
income.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such
amounts are generally recognised in in the income statement.

Transactions costs related to the acquisition, other than those associated with the issue of debt or equity securities, that
the Group incurs in connection with a business combination are expensed as incurred.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration
is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent
changes in the fair value of the contingent consideration are recognised in the income statement.

When share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s
employees (acquiree’s awards) and relate to past services, then all or a portion of the amount of the acquirer’s replace-
ment awards is included in measuring the consideration transferred in the business combination. This determination is
based on the market-based value of the replacement awards compared with the market-based value of the acquiree’s

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Annual Report & Accounts 2017