Chapter 12
Consolidated statements of financial performance
The following draft income statements and statements of changes in equity were prepared for the
year ended 31 March 20X9.
Statements of profit or loss Ethos Ltd Pathos Ltd
Revenue 303,000 215,000
Cost of sales -143,800 -102,200
Gross profit 159,200 0 112,800
Operating costs -71,200 -51,300
Profit from operations 88,000 0 61,500
Investment income 2,800 1,200
Profit before tax 90,800 0 62,700
Income tax expense -46,200 -32,600
Profit after tax 44,600 0 30,100
Statements of changes in equity (extracts)
Ethos Ltd Pathos Ltd
General Retained General Retained
Reserve earnings Reserve earnings
Balance brought forward 0 79,300 38,650
Total comprehensive income for the year 0 46,000 0 30,100
Transfer between reserves 15,000 -15,000 5,000 -5000
Dividends on ordinary shares -30,000
30,000 -30,000 0 5,000 63,750
On 30 November 20X8 Ethos Ltd acquired 75% of the issued ordinary capital of Pathos Ltd
for CU 130,000.
Pathos Ltd has in issue 100,000 CU1 ordinary shares. Ethos Ltd has CU1 500,000
ordinary shares in issue.
Ethos Ltd measures non-controlling interest at fair value. The fair value of the non- controlling
interest in Pathos Ltd at the date of acquisition was CU 40000
Profits of both companies accrue evenly over the year.
Requirements
(a) Prepare the consolidated statement of profit or loss and consolidated statement of changes in
equity for the year ended 31 March 20X9.
(b) Explain why only four months of Pathos Ltd’s profit or loss should be included in the
consolidated statement of profit or loss.
Solution: ETHOS LTD
(a) Consolidated income statement for the year ended 31 March 20X9
CU
Revenue (W2) 374,667
Cost of sales (W2) -177,867
Gross profit 196,800
Operating costs (W2) -88,300
Profit from operations 108,500
Investment income (W2) 3,200
Profit before tax 111,700
Income tax expense (W2) -57,067
Profit after tax 54,633
Attributable to
Owners of Ethos Ltd 52,125
Minority interest (W3) 2,508
Consolidated statement of changes in equity for the year ended 31 March 20X9
Attributable to equity holders of Ethos Ltd
Ordinary Non-
Share General Retained Controlling
Capital reserve earnings Total interest Total
CU CU CU CU CU CU
Balance brought 500,000 79,300 579300 579300
forward
Comprehensive
Income for
the year 52,125 52,125 2,508 54,633
Transfer between
reserves (W4) 16,250 -16,250 0 0
Added on
acquisition of
subsidiary 40000 40000
Dividend
on ordinary
shares -30,000 -30000 -30000
500000 16250 85175 601425 42508.333 643933.33
WORKINGS
(1) Group structure
Ethos Ltd
75% (acq 30 November 20X8 ∆ 4/12 in)
(2) Consolidation schedule (4/12)
Ethos Ltd Pathos Lt Adj Cons
CU CU CU CU
Revenue 303,000 71666.667 374,667
C of S -143,800 -34066.67 -177866.7
Op costs -71,200 -17100 -88,300
Inv income 2,800 400 3200
Income tax -46,200 -10866.67 -57066.67
PAT 10033.333
(3) Non- controlling interest in profit for the year
CU
25% x 10,033 (W2) 2508.3333
4) Transfer to general reserve CU
Ethos Ltd 15,000
Pathos Ltd (75% × 5,000 × 4/12) 1250
16,250
Point to note
1. The NCI in Pathos Ltd’s reserve transfer does not appear because the
two entries are cancelled out in the single NCI column
2. Alternative calculation for PAT of Pathos Ltd (W2)
PAT per question 30,100 × 4/12 10033.333
11 GREENFINGERS LTD
Greenfingers Ltd is a 40 year old company producing wooden furniture. 22 years ago it acquired a
100% interest in a timber import company, Arbre Ltd. In 20W9 it acquired a 40% interest in a
competitor, Water Features Ltd and on 1 January 20X7 it acquired a 75% interest in Garden Furniture
Designs Ltd. The draft consolidated accounts for the Greenfingers Group are as follows.
Draft consolidated income statement for the year ended 31 December 20X7
CU'000
Profit from operations 5,355
Share of profit of associates 1000
Dividends from long-term investments 450
Interest payable -450
PBT 6,355
Tax -1485
Profit for the year 4,870
Attributable to:
Equity holders of Greenfingers Ltd 3,670
Non Controlling interest 1200
4,870
Draft consolidated balance sheet as at 31 December
20X7 20X6
CU'000 CU'000 CU'000 CU'000
ASSETS
Non-current assets
Property, plant and equipment
Buildings at net book value 6000 6500
Machinery: Cost 9000 4200
Accumulated depreciation -3600 -3300
Carrying value 5400 900
11400 7400
Goodwill 500 0
Investments in associates 3500 3200
Avaiable for sale financial assets 1230 1230
16630 11830
Current assets
Inventories 5925 3000
Receivables 5550 3825
Cash and cash equivalents 12845 5460
24320 12285
Total assets 40950 24115
EQUITY AND LIABILITIES
Capital and liabilities
Euity attributable to owners of parent
Ordinary share capital (25p shares) 11820 6000
Share premium account 8649 6285
Retained earnings 10335 7500
30804 19785
Minority interest 345 0
Equity 31149 19785
Non-current liabilities
Finance lease liabilities 3000 1010
Loans 2985 1100
5985 2110
Current liabilities
Trade payables 1500 840
Finance lease liabilities 720 600
Income tax payable 1476 690
Accrued interest and finance charges 120 90
3816 2220
Total equity and liabilities 40950 24115
Additional information
1 There have been no acquisitions or disposals of buildings during the year.
Machinery costing CU1.5 million was sold for CU1.5 million resulting in a profit of CU300,000.
New machinery was acquired in 20X7, including additions of CU2.55 million acquired under
finance leases.
2 Information relating to the acquisition of Garden Furniture Designs Ltd is as follows:
CU'000
Property, plant and equipment 495
Inventories 96
Trade receivables 84
Cash 336
Trade payables -204
Income tax -51
756
Minority interest -189
567
Goodwill 500
1067
2,640,000 ordinary shares issued as part consideration 825
Balance of consideration paid in cash 242
1067
Requirement
Prepare a consolidated cash flow statement for the Greenfingers Group for the year ended
31 December 20X7 using the indirect method. The only note required is that reconciling profit before
tax to cash generated from operations.
GREENFINGERS LTD
Consolidated cash flow statement for the year ended 31 December 20X7
CU'000 CU'000
Cash flows from operating activities
Cash generated from operations (note 1) 2141
Interest paid (W2) -420
Income taxes paid (W3) -750
Net cash used in operating activities 971
Cash flows from investing activities
Acquisition of subsidiary Garden Furniture Designs Ltd, net of cash
acquired (W4) 94
Purchase of property, plant and equipment (W5) -3255
Proceeds from sale of property, plant and equipment 1500
Dividends received 450
Dividends received from associate (W6) 700
Net cash used in investing activities -511
Cash flows from financing activities
Proceeds from issue of ordinary share capital (W7) 7359
Proceeds from issue of loan notes (W8) 1885
Payments under finance leases (W10) -440
Dividends paid (3,670 + 7,500 – 10,335) -835
Dividends paid to minority interests (W9) -1044
Net cash from financing activities 6925
Net increase in cash and cash equivalents 7385
Cash and cash equivalents at beginning of year 5,460
Cash and cash equivalents at end of year 12845
Notes
(1) Reconciliation of profit before tax to cash generated from operations
CU'000
Profit before tax 6355
Adjustments for:
Depreciation (W1) 1100
Profit on sale of property, plant and equipment -300
Share of profits of associates -1,000
Investment income -450
Interest expense 450
6155
Increase in trade and other receivables (5,550 – 3,825 – 84) -1,641
Increase in inventories (5,925 – 3,000 – 96) -2,829
Increase in trade payables (1,500 – 840 – 204) 456
Cash generated from operations 2141
WORKINGS
[Link] DEPRECIATION – PLANT
CU'000 CU'000
Disposal 300 b/f (Machinery) 3300
c/f (Machinery) 3600 Depreciation charge (β) 600
3900 3900
Total depreciation: CU'000
Freehold buildings 6500-6000 500
Machinery 600
1100
2. INTEREST PAYABLE CU'000 CU'000
Cash paid (β) 420 b/f 90
c/f 120 CSPL 450
540 540
[Link]
Cash paid (β) 750 b/f 690
c/f 1476 CSPL 1485
On acquisition 51
2226 2226
(4) Purchase of subsidiary
CU'000
Cash received on acquisition 336
Less: Cash consideration -242
Net cash inflow 94
5. MACHINERY CU'000 CU'000
b/f 4200 Disposal 1500
On acquisition 495
Leased 2,550
Additions (β) 3,255 c/f 9000
10500 10500
6. INVESTMENTS IN ASSOCIATES
CU'000 CU'000
b/f 3200 Dividends received (β) 700
Share of profit (CIS) 1000 c/f 3500
4200 4200
7. SHARE CAPITAL AND PREMIUM
CU'000 CU'000
b/f 12285
Non-cash consideration (660 + 165) 825
Proceeds from issue (β) 7359
c/f 20469 20469
8. LOAN NOTES
CU'000 CU'000
b/f 1100
Proceeds from issue (β) 1885
c/f 2985
2985 2985
9. MINORITY INTERESTS
CU'000 CU'000
Dividends to NCI (β) 1044 b/f 0
Share of profits (CIS) 1200
c/f 345 On acquisition 189
1389 1389
10. OBLIGATIONS UNDER FINANCE LEASES
CU'000 CU'000
Capital repayment (β) 440 b/f Current 600
c/f Current 720 Long-term 1010
Long-term 3000 New lease commitment 2550
4160 4160
pared for the
controlling
changes in