CONSOLIDATED

FINANCIAL STATEMENTS
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GROUPS
& CONSOLIDATION
 GROUPS AND CONSOLIDATION

- Consolidation means adding together

- Consolidation means cancellation of like items internal
to the group
- Consolidate as if you owed everything then show the
extend to which you do not own everything
THE RELEVANT IFRS FOR
CONSOLIDATION
✓ IAS 27 Separate financial
statements
✓ IAS 28 Investments in Associates
and Joint ventures
✓ IFRS 3 Business combinations
✓ IFRS 10 Consolidated financial
statements
Group A: A parent and all its subsidiaries

Non – controlling interest: The equity in

subsidiary not attribute, directly or
indirectly to a parent.
 EXAMPLE 1
There are two companies, Pleasant & Sweet
Pleasant owns 80% of the shares in Sweet
Pleasant has a head office building worth 100,000
Sweet has a factory worth 80,000

CONSOLIDATION → Present as if they were one

Group account (Land & Building) = 100,000 + 80,000 = 180,000

 EXAMPLE 2
There are two companies, Pleasant & Sweet
Pleasant has receivables of 40,000 and Sweet has receivables of 30,000
Included in the receivables of Pleasant is 5,000 owed by Sweet

CONSOLIDATION → Present as if they were one

Group account (Receivables) = 40,000 + 30,000 = 70,000

5,000 of the receivables is OWNED WITHIN THE GROUP

→ Eliminate 5,000 in Pleasant’s book

→ CONSOLIDATED receivables = 40,000+ 30,000 – 5,000

 EXAMPLE 3
There are two companies, Pleasant & Sweet
Pleasant has payables of 50,000 and Sweet has payables of 45,000
Included in the payables of Sweet is 5,000 owed to Sweet

CONSOLIDATION → Present as if they were one

Group account (payables) = 50,000 + 45,000 = 95,000

5,000 of the payables is OWNED WITHIN THE GROUP

→ Eliminate 5,000 in Sweet’s book

→ CONSOLIDATED payables = 50,000+ 45,000 – 5,000
 EXAMPLE 4
There are two companies, Pleasant & Sweet
Pleasant owns 80% of the shares in Sweet
Pleasant has a head office building worth 100,000
Sweet has a factory worth 80,000
CONSOLIDATION → as if you owned everything
Pleasant controls Sweet, its subsidiary
The directors (Pleasant) can visit all Sweet’s factory, not just 80%
(Group assets = 100,000 + 80,000)

The other owners (20%):

+ can not visit 20% the factory
+ have an interest in 20% of the net assets of Sweet
+ It is called “non-controlling interest”
 QUESTION 1 TRUE/FALSE???
Apple Co owns 60% of Pear Co.
Apple has NCA of 80,000
Pear has NCA of 50,000
→ Consolidated NCA = 80,000 + 60%*50,000 = 110,000

Correct calculation:
Apple 80,000
Pear 50,000
Total 130,000
 QUESTION 2 Calculation?
Apple Co owns 60% of Pear Co.
Apple has TR of 60,000
Pear has TR of 40,000, Pear owes Apple 10,000
→ Consolidated receivables?

Correct calculation:
Apple 60,000
Less: intra-group (10,000)
50,000
Pear 40,000
Consolidated 90,000
 QUESTION 3 Calculation?
Apple Co owns 60% of Pear Co.
Apple has Trade Payables of 120,000
Pear has Trade payables of 90,000, Pear owes Apple 10,000
→ Consolidated payables?

Correct calculation:
Apple 120,000
Pear 90,0000
Less intra-group (10,000) 80,000
Consolidated 200,000
 SUBSIDIARIES,
[Link]

ASSOCIATES & TRADE

INVESTMENT
DEFINITIONS

✓ Control: an investor controls an investee when the

investor is exposed, or has rights, to variable returns
from its involvement with the investee and has the
ability to affect those returns through its power over
the investee
✓ Power: existing right the give the current ability to
direct the relevant activities
✓ Subsidiary: An entity that is controlled by another
entity (known as parent)
✓ Parent: An entity that controls one or more entities
✓ Group: A parent and all its subsidiaries
✓ Consolidated financial statements:
the financial statements of a group in which the assets, liabilities,
equity, income, expenses and cash flows of the parents and its
subsidiaries are presented as those of a single economic entity
✓ Non-controlling interest:
is the equity in a subsidiary not attributable, directly or indirectly, to a
parent
✓ A trade (or “simple” investment):
is an investment in the shares of another entity, that is held for the
accretion of wealth, and is not an associate or a subsidiary
 INVESTMENTS IN SUBSIDIARIES AND
ACCOUNTING TREATMENT

• IFRS 10 requires that, when a parent issues

consolidated financial statements, it should
consolidate all subsidiaries, both foreign and
domestic, except in certain circumstances (this is
beyond the scope of our syllabus)
 EXAMPLE 5
Socket Co has 100,000 share of £1 each
Power Co acquired 45,000 of these shares
Power Co is able to appoint 4 out of 5 directors of Socket Co, thus
exercising control over their activities

Power holds < 50% (only 45%)

Socket will be treated as a subsidiary if any of the following apply:
(a) It holds more than 50% the voting power
(b) It has power over more than half the voting rights by virtue of an
agreement with other investors
(c) It has power to govern the financial & operating policies of the entity
under a statute or agreement
(d) It has power to appoint or remove the majority of the members of the
boards of directors
(e) It has power to cast the majority of votes at meetings of the board of
directors
 ASSOCIATION
& TRADE INVESTMENTS
 INVESTMENTS IN ASSOCIATES

✓ Associate:
An entity over which an investor has significant
influence
✓ Significant influence:
is the power to participate in the financial and operating
policy decisions of the investee but it is not control or
joint control of those policies
 INVESTMENTS IN ASSOCIATES

✓ IAS 28 states that if an investor holds 20% or more of the

voting power of the entity, it can be presumed that the
investor has significant influence over the entity, unless
it can be clearly shown that this is not the case

✓ Significant influence can be presumed not to exist if the

investor holds less than 20% of the voting power of the
entity, unless it can be demonstrated otherwise
 INVESTMENT IN ASSOCIATES

✓ The existence of significant influence is usually

evidenced in one or more of the following ways
- Representation on the board of directors (or
equivalent) of the investee
- Participation in the policy making decision
✓ Material transactions between investor and investee
✓ Interchange of management personnel
✓ Provision of essential technical information
EQUITY METHOD

IAS 28 requires the use of the equity method of accounting

for “equity accounting” for investments in associates
 EQUITY METHOD – CONSOLIDATED IS

✓ The associate’s sales revenue, cost of sales and so on

are not amalgamated with those of the group

✓ Instead the group share only of the associate’s profit

after tax is added to the group profit
 EQUITY METHOD
OTHER COMPREHENSIVE INCOME

The investing company should also include its

share of the associate’s other comprehensive income in
the other comprehensive income section of its
consolidated statement of profit or loss and other
comprehensive income or in its separate consolidated
statement of profit or loss and other comprehensive
income
EQUITY METHOD-CONSOLIDATED SOFP

✓ A figure for investment in associates is shown in the

consolidated SOFP which at the time of the acquisition
of the associate must be stated at cost
✓ This amount will increase (or decrease) each year by
the amount of the group’s share of the associated
company’s increase (or decrease) in post-acquisition
retained reserves
 NO CONSOLIDATED ACCOUNTS

✓ Equity accounting is only applied in the consolidated

accounts
✓ A company only has to prepare consolidated accounts if it
has one or more subsidiaries
✓ If a company has no subsidiaries, then it is not required to
prepare consolidated accounts and so any investments in
associates will be treated as a simple investment in the
parent company’s individual accounts
TRADE INVESTMENTS

✓ A trade investment is a simple

investment in the shares of another
entity that is not an associate or a
subsidiary

✓ Trade investments are simply shown

as investments under NCA in the
consolidated SOFP of the group
3 CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS

✓ An additional set of financial statements that

are produced
✓ They do not replace the individual financial
statements of the parent or its subsidiaries
✓ The group itself has no legal form, the group
accounts are produced to satisfy accounting
standards and/or legal requirements
✓ Are issued to the shareholders of the parent
and provide information to those shareholders
on all the companies controlled by the parent
 CONSOLIDATED FINANCIAL STATEMENTS

❖ Most parent companies represent their own individual accounts

and their group accounts in a single package.
❖ The package typically comprises the following:
+ Parent company financial statements
+ Consolidated statement of financial position
+ Consolidated statement of Profit or loss and other
comprehensive income
+ Consolidated statement of cash flows
 THE CONSOLIDATED
STATEMENT OF FINANCIAL
POSITION
1. BASIC CONSOLIDATION

✓ Cancel out items which appear as an asset in one company and

a liability in another (Parent & Subsidiary)

❑ Parents: The asset “investment in subsidiaries”

Subsidiaries: the liability “share capital”
❑ There may be intra-group trading within the group.
Subsidiary Co. sold goods to Parent Co on credit
Receivables Payables

✓ Add together all the uncancelled assets and liabilities

throughout the group on a line by line basis
1. BASIC CONSOLIDATION - NOTE

The share capital in the consolidated SOFP is the

share capital of the parent company alone. This must
always be the case, no matter how complex the
consolidation because the share capital of subsidiary
companies must always be a wholly cancelling item
1. BASIC CONSOLIDATION - NOTE
EXAMPLE 1- CANCELLATION
 EXAMPLE 1- CANCELLATION
Parent CO has just bought 100% of the shares of Subsidiary
CO. Below are the SOFP before consolidation:

PARENT CO SUBSIDIARY CO
STATEMENT OF FINANCIAL POSITION STATEMENT OF FINANCIAL POSITION
Assets Assets
- Investment in subsidiary(*) 50 - Receivables 20
- Receivables 30 - Cash 30
80 50
Equity and liabilities
Equity and liabilities
Share capital 80
Share capital (*) 50

(*) Cancelling items

 EXAMPLE 1- CANCELLATION
Parent CO has just bought 100% of the shares of
Subsidiary CO. Below are the SOFP before consolidation:

PARENT AND SUBSIDIARY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Assets
- Receivables (30+20) 50
- Cash 30
80
Equity and liabilities
Share capital 80
(*) Cancelling items
GOODWILL
 2. GOODWILL

✓ The parent company may have acquired shares in the

subsidiary at a price greater or less than their face/par value
✓ The asset will appear in the parent company’s account at
cost, while the equity will appear in the subsidiary’s
accounts at par value. This raises the issue of good will
✓ Goodwill arising on consolidation is recognized as an
intangible asset in the consolidated SOFP
 GOODWILL CALCULATION

- Consideration transferred
- Less value of identifiable assets acquired
and liabilities assumed
Ordinary share capital
Share premium
Retained earnings at acquisition
- Goodwill
 EXAMPLE 1 P Co. purchased all of the share capital (40,000 £1
Goodwill arising on shares) of S Co. for 60,000 in cash. The SOFP of P
Co & S Co prior to the acquisition are as follows:
consolidation
STATEMENT OF FINANCIAL POSITION
As at 31.12.X1
P Co S Co
Non Current assets £‘000 £‘000
PPE 100 40
Cash at bank 60 -
Total assets 160 40
Equity and liabilities

Share capital 160 40

Total equity and liabilities 160 40
 EXAMPLE 1 P Co. purchased all of the share capital (40,000 £1
Goodwill arising on shares) of S Co. for 60,000 in cash. The SOFP of P
Co & S Co prior to the acquisition are as follows:
consolidation

Pay 60,000 for a 100% investment in S Co (40,000 £1 shares)

→ Goodwill arising on consolidation (Premium on acquisition)→ £ 20,000

STATEMENT OF FINANCIAL POSITION CONSOLIDATED SOFP

As at 31.12.X1 As at 31.12.X1
P Co S Co P Group
Non Current assets £‘000 £‘000 Non Current assets £‘000
PPE 100 40 PPE 140
Investment (S Co) 60 - Intangibles 20
Total assets 160 40 Total assets 160
Equity and liabilities Equity and liabilities

Share capital 160 40 Share capital 160

Total equity and 160 40 Total equity and 160
liabilities liabilities
 GOODWILL AND PRE - ACQUISITION PROFITS

✓ The figure of consolidated retained earnings comprises the retained

earnings of the parent company plus the post-acquisition retained earnings
only of subsidiary companies
✓ The post-acquisition retained earnings at acquisition
✓ Other reserves, such as the revaluation surplus, are treated in the same
way as retained earnings
✓ Any earnings retained by the subsidiary prior to its acquisition by the
parent company must be incorporated in the cancellation process so as to
arrive at goodwill figure
✓ The uncancelled balance appears in the consolidated SOFP
✓ Any pre-acquisition retained earnings of a subsidiary company are not
aggregated with the parent company’s retained earnings in the
consolidated SOFP
 EXAMPLE 2 Sing Co acquired the ordinary shares
Goodwill and of Wing Co on 31 March, 20X1
pre-acquisition profits
STATEMENT OF FINANCIAL POSITION
As at 31.03.X1
Sing Co Wing Co
Non Current assets £‘000 £‘000
Investment (50,000 share of Wing at cost) 80 -
Current assets 40 60
Total 120 60
Equity and liabilities
Equity
Ordinary shares 75 50
Retained earnings 45 10
Total equity and liabilities 120 60
 GOODWILL CALCULATION
GOODWILL £ ‘000 £‘000
Consideration transferred 80
Less value of identifiable assets
acquired and liabilities assumed
- Ordinary share capital 50
- Retained earnings at acquisition 10
(60)

Goodwill 20 CONSOLIDATED SOFP

As at 31.03.X1
Sing Group
Non Current assets £‘000
Intangibles 20
Current assets 100
Total 120
Equity and liabilities
Ordinary shares 75
Retained earnings 45
Total equity and liabilities 120
 EXAMPLE 3 A YEAR PASSED, now 31 Mar, 20X2
Goodwill and pre-acquisition
profits continued
STATEMENT OF FINANCIAL POSITION
As at 31.03.X2

Sing Co Wing Co
Non Current assets £‘000 £‘000
Investment (50,000 share of Wing at cost) 80 -
Current assets 50 80
Total 130 80
Equity and liabilities
Equity
Ordinary shares 75 50
Retained earnings 55 30
Total equity and liabilities 130 80

→ Prepare the consolidated SOFP as at 31, Mar 20X2

 RETAINED EARNINGS
Sing Co Wing Co
Per question 55 30
Pre-acquisition RE (10)
20
Post-acqui RE of Wing Co 20

Group RE 75
CONSOLIDATED SOFP
As at 31.03.X2
Sing Group
Non Current assets £‘000
Intangibles 20
Current assets 130
Total 150
Equity and liabilities
Ordinary shares 75
Retained earnings 75
Total equity and liabilities 150
3. FAIR VALUE OF NET ASSETS AT ACQUISITION

✓ The land and buildings of the subsidiary may be worth

more than their carrying amount at acquisition.
✓ If this is the case:
- The subsidiary’s land and buildings must be included in
the consolidated SOFP at their fair value
- The difference between the FV of the subsidiary’s land
and buildings and the carrying value of those land and
buildings must be taken into account in the goodwill
calculation. This is known as a fair value adjustment
 P Co acquired 100% of the ordinary shares of
EXAMPLE 4 (p 426) S Co on 1, Sept, 20X5. Fair value: land and
Fair value of net asset at building £ 23,000 greater than CA.
acquisition RE = £ 21,000
STATEMENT OF FINANCIAL POSITION
As at 31.08.X6
ASSETS P Co S Co
Non Current assets £ £
Land and buildings 63,000 28,000
Investment (in S Co at cost) 67,000
Current assets 82,000 43,000
Total 212,000 71,000
EQUITY AND LIABILITIES
Equity
Ordinary shares of £1 80,000 20,000
Retained earnings 112,000 41,000
Current liabilities 20,000 10,000
Total equity and liabilities 212,000 71,000
→ Prepare the consolidated SOFP as at 31, Aug 20X6
 GOODWILL CALCULATION (W1)
GOODWILL £ £
Consideration transferred 67,000
- Less net acquisition-date fair value of identifiable assets
acquired and liabilities assumed:
+ Ordinary share capital 20,000
+ Share premium -
+ Retained earnings at acquisition 21,000
+ Fair value adjustments at acquisition 23,000 (64,000)
Goodwill 3,000

RETAINED EARNINGS (W2)

, P Co S Co
Per question 112,000 41,000
Pre-acquisition RE (21,000)
20,000
Post-acqui RE of S Co 20,000

Group RE 132,000
 CONSOLIDATED SOFP
As at 31.08.X6
ASSETS £
Non Current assets
Land and buildings (63,000+28,000+23,000) 114,000
Goodwill (W1) 3,000
Current assets (82,000 + 43,000) 125,000
Total 242,000
EQUITY AND LIABILITIES
Equity
Ordinary shares of £1 each ( P Co only) 80,000
Retained earnings (W2) 132,000
Current liabilities (20,000 + 10,000) 30,000
Total equity and liabilities 242,000
The term 'full goodwill' is sometimes used to
refer to measuring NCI at fair value and the
term 'partial goodwill' is sometimes used when
referring to NCI at proportionate share of net
assets.
 4. NON-CONTROLLING INTERESTS
✓ The total assets and liabilities of subsidiary companies are
includes in the consolidated SOFP, even in the case of
subsidiaries which are only partly owned
✓ A proportion of the net assets of such subsidiaries in fact
belongs to investors from outside the group (non-controlling
interests – NCI)
✓ IFRS 10 defines NCI as the equity in a subsidiary not attributable,
directly or indirectly, to a parent
✓ NCI is shown in the equity section of the consolidated SOFP and is
included in the consolidated FSs a its fair value plus the NCI’s share
of post-acquisition retained earnings and other reserves
 CONSIDERATION TRANSFERRED

✓ The calculation of goodwill must be based on the fair value of

the consideration transferred
✓ For cash it is simply the amount of cash paid
✓ For shares, the fair value of shares is their market price on the
date of acquisition
3. FAIR VALUE OF NET ASSETS AT ACQUISITION
3. FAIR VALUE OF NET ASSETS AT ACQUISITION
 NON-CONTROLLING INTERETS
- Fair value of NCI at acquisition
- Plus NCI’s share of post-acquisition retained earnings (and other
reserves)
- NCI at reporting date
NON-CONTROLLING INTERETS
NON-CONTROLLING INTERETS
 NCI AND GROUP RETAINED EARNINGS

✓ The existence of a NCI also has an impact on the

calculation of group retained earnings
✓ Group retained earnings should only reflect the group’s
share of the post-acquisition retained earnings of the
subsidiary
 NCI and group retained earnings

Per question X
Pre-acquisition retained earnings X
Post-acquisition retained earnings of S Co X
Group share of post-acquisition retained earnings: X
S Co (Y x %)
Group retained earnings X
EXAMPLE 3.1 (p 429)
P Co acquire 90% of S Co for £ 10,000
Fair value of S Co’s net asset are £ 8,000 & NCI is £ 1,000

GOODWILL CALCULATION (W1)

GOODWILL £ £
Fair value of Consideration transferred 10,000
Fair value of NCI at acquisition 1,000
11,000
- Less net acquisition-date fair value of identifiable assets
acquired and liabilities assumed: (8,000)

Goodwill 3,000

Goodwill attributable to NCI

- Fair value of NCI 1,000
- NCI in net assets at acquisition (10% x 8,000) = (800)
- Goodwill = 200
EXAMPLE 3.2 (p 430)
P Co purchased 75% of the share capital of S Co on 1, Jan, 20X1 for
£60,000; RE of S Co were £5,000
The fair value of the NCI in S Co was £15,000
STATEMENT OF FINANCIAL POSITION
As at 31.12.X1
ASSETS P Co S Co
Non Current assets £ £
Tangible assets 50,000 35,000
30,000 £1 Investment (in S Co at cost) 60,000
Current assets 45,000 40,000
Total 155,000 75,000
EQUITY AND LIABILITIES
Equity
80,000 £1 ordinary share (P Co)/ 40,000 (S Co) 80,000 40,000
Retained earnings 55,000 15,000
Current liabilities 20,000 20,000
Total equity and liabilities 155,000 75,000
1. GOODWILL CALCULATION (W1)
GOODWILL £ £
Consideration transferred 60,000
Plus fair value of NCI at acquisition 15,000
- Less net acquisition-date fair value of identifiable assets
acquired and liabilities assumed:
+ Ordinary share capital 40,000
+ Retained earnings at acquisition 5,000 (45,000)
Goodwill 30,000

2. RETAINED EARNINGS (W2)

, P Co S Co
Per question 55,000 15,000
Pre-acquisition RE (5,000)
10,000
Group share of post-acquisition RE: S Co (75% x 10,000) 7,500
Group RE 62,500
 CONSOLIDATED SOFP as at 31.12.X1

ASSETS £ £
Non Current assets
Land and buildings (50,000+35,000) 85,000
Goodwill (W1) 30,000 115,000
Current assets (45,000 + 40,000) 85,000
Total 200,000
EQUITY AND LIABILITIES
Equity
Ordinary shares of £1 each ( P Co only) 80,000
Retained earnings (W2) 62,500
NCI (W3) 17,500 160,000
Current liabilities (20,000 + 20,000) 40,000
Total equity and liabilities 200,000

3. NCI at reporting date:

Fair value of NCI at acquisition 15,000
Plus NCI’s share of post-acquisition RE 25%x10,000 = 2,500
NCI at reporting date 17,500
 NCI and Goodwill

✓ Where there is a non-controlling interest, the

consolidated accounts show 100% of goodwill even
though the group does not “own” all of it
✓ This is consistent with the treatment of other assets
and the concept of control
✓ So, we need to include the fair value of the NCI in
our goodwill calculation
 NCI and GOODWILL

✓ Consideration transferred
✓ Plus fair value of non-controlling interest at
acquisition
✓ Less net acquisition-date fair value of identifiable
assets acquired and liabilities assumed:
Ordinary share capital
Share premium
Retained earnings at acquisition
Fair value adjustment at acquisition
✓ Goodwill
Intra-group trading
 EXAMPLE 2 P Co. regularly sells goods to its one subsidiary
company, S Co. The SOFPs as follows:
Intra-group trading
P Co. S Co.
STATEMENT OF FINANCIAL POSITION
Assets Assets Assets
Non-current assets Non-current assets Non-current assets
PPE 35,000 45,000
Investment in 40,000 £1 shares in S Co at cost 40,000 -
75,000 45,000
Current assets Current assets Current assets
Inventories 16,000 12,000
Receivables: [Link] 2,000 -
Others 6,000 9,000
Cash 1,000 -
25,000 21,000
TOTAL 100,000 66,000
Equity and liabilities Equity and liabilities Equity and liabilities
Equity Equity Equity
£1 ordinary shares 70,000 40,000
Retained earnings 16,000 19,000
86,000 59,000
Current liabilities Current liabilities Current liabilities
Bank overdraft - 3,000
Payables: P Co - 2,000
Payables: other 14,000 2,000
14,000 7,000
TOTAL 100,000 66,000
 EXAMPLE 2
Intra-group trading
SOLUTIONS

✓ P Co’s asset “Investment” in shares of S Co’s (40,000)

cancels with S Co’s liability “share capital”

✓ P Co’s asset “receivables: S Co” (2,000) cancels with S

Co’s liability “Payables: P Co” (2,000)

✓ The remaining assets, liabilities are added together

 EXAMPLE 2 P Co. regularly sells goods to its one subsidiary
Intra-group trading company, S Co. The SOFPs as follows:
P Co. S Co.
CONSOLIDATED STATEMENT OF FS
Assets Assets ASSETS
Non-current assets Non-current assets Non-current assets
35,000 45,000 PPE (35+45) 80,000
40,000 - -
75,000 45,000
Current assets Current assets Current assets
16,000 12,000 Inventories 28,000
2,000 - Receivables: [Link] -
6,000 9,000 Others 15,000
1,000 - Cash 1,000
25,000 21,000 44,000
100,000 66,000 TOTAL 124,000
Equity and liabilities Equity and liabilities Equity and liabilities
Equity Equity Equity
70,000 40,000 £1 ordinary shares 70,000
16,000 19,000 Retained earnings 35,000
86,000 59,000 105,000
Current liabilities Current liabilities Current liabilities -
- 3,000 Bank overdraft 3,000
- 2,000 Payables: P Co -
14,000 2,000 Payables: other 16,000
14,000 7,000 19,000
100,000 66,000 TOTAL 124,000
5. INTRA-GROUP TRADING

✓ Each company in a group is a separate trading entity and

may wish to treat other group companies in the same way
as any other customer
✓ A company (A Co) may buy goods at one price and sell
them at a higher price to another group company (B Co)
✓ The accounts of A Co will include the profit earned on
sales to B Co
✓ B Co’s SOFP will include inventories at the amount at
which they were purchased from A Co
 INTRA-GROUP TRADING

✓ In a consolidated SOFP the only profits recognised

should be those earned by the group in providing
goods or services to outsiders
✓ Inventory in the consolidated statement of financial
position should be valued at cost to the group
EXAMPLE 4.1 (p 432)
INTRA-GROUP TRADING & UNREALISED PROFITS

✓ Company P Co:
goods costing £ 1,600 & sold to a wholly owned
subsidiary S Co for £ 2,000 → Profit £ 400
✓ The goods are all still in S Co’s inventory at the
year end and
EXAMPLE 4.2 (p 433)
P Co acquired S Co wholly 1 year ago. RE = 10,000 at that time

STATEMENT OF FINANCIAL POSITION

As at 31.12.X1
✓ During the year,
ASSETS P Co S Co
S Co sold goods to P
Non Current assets £ £ Co 50,000, profit 20%
Tangible assets 80,000 40,000
Investment (in S Co at cost) 46,000
✓ At the period end, 25%
Current assets
Trade receivables 30,000 25,000 unsold in P Co inventories
Inventories 10,000 5,000
Total 166,000 70,000
✓ At the period end, P Co
EQUITY AND LIABILITIES
owed S Co 12,000
Equity
£1 ordinary share each 100,000 30,000 -> Trade payables of P Co
Retained earnings 45,000 22,000 -> Trade receivables of S Co
Current liabilities 21,000 18,000
Total equity and liabilities 166,000 70,000
 1. GOODWILL CALCULATION (W1)
GOODWILL £ £
Consideration transferred 46,000
- Less net acquisition-date fair value of identifiable assets
acquired and liabilities assumed:
+ Ordinary share capital 30,000
+ Retained earnings at acquisition 10,000 (40,000)
Goodwill 6,000

2. Unrealised Profít (W2): Profit on intra-group sales 20%*50,000 = 10,000

Unrealised profit 25% * 10,000 = 2,500
3. RETAINED EARNINGS (W3)
, P Co S Co
Per question 45,000 22,000
Adjustment (unrealized profit) (2,500)
Pre-acquisition RE (10,000)
9,500
Group share of post-acquisition RE: S Co (100% x 9,500) 9,500
Group RE 54,500
 CONSOLIDATED SOFP as at 31.12.X1

ASSETS £ £
Non Current assets
Land and buildings 120,000
Goodwill (W1) 6,000 126,000
Current assets
Trade receivables (30,000+25,000-12,000) 43,000
Inventories (10,000+5,000-2,500) W2 12,500 55,500
Total 181,500
EQUITY AND LIABILITIES
Equity
Ordinary shares of £1 each 100,000
Retained earnings (W3) 54,500
Current liabilities 154,500
Trade payables (21,000+18,000-12,000) 27,000
Total equity and liabilities 181,500
 NON-CONTROLLING INTERESTS
AND INTRA-GROUP TRADING

For example:
✓ P Co owns 75% of the equity of S Co
✓ S Co sells goods to P Co for £20,000 (£ 16,000 cost, £ 4,000 profit).
✓ If these items are unsold by P Co at the period end, then there will
be unrealised profit of £ 4,000 earned by S Co and charged to P Co
✓ However, P co only owns 75% of S Co, so this unrealised profit will
be partly owned by the NCI of S Co
✓ To account for this in the group accounts, we remove the whole
profit, charging the NCI with their proportion

Dr. Group retained earnings

Dr. NCI
Cr. Group inventory (SOFP)
 EXAMPLE 4.3 (p 435)
P Co acquired 75% of the shares in S Co on 1 Jan, 20X2 when RE of S
Co at £ 10,000
STATEMENT OF FINANCIAL POSITION
As at 31.12.X2 ✓ The FV of the NCI at
the date of acquisition
ASSETS P Co S Co
was 15,000
Non Current assets £ £
✓ During the year to 31, Dec,
Tangible assets 80,000 40,000
Investment (in S Co at cost) 46,000 X2, S Co sold goods to P
Current assets Co for 20,000 at a mark-up
Trade receivables 30,000 25,000
of 25%. 50% unsold by P
Inventories 10,000 5,000
Total 166,000 70,000 Co
EQUITY AND LIABILITIES ✓ At the period end, P Co
Equity owed S Co 12,000
£1 ordinary share each 100,000 30,000
Retained earnings 45,000 22,000
-> Trade payables of P Co
Current liabilities 21,000 18,000 -> Trade receivables of S Co
Total equity and liabilities 166,000 70,000
1. GOODWILL CALCULATION (W1)
GOODWILL £ £
Fair value of consideration transferred 46,000
Plus fair value of NCI at acquisition 15,000
- Less net acquisition-date fair value of identifiable assets
acquired and liabilities assumed:
+ Ordinary share capital 30,000
+ Retained earnings at acquisition (30,000-20,000) 10,000 (40,000)
Goodwill 21,000

2. Unrealised Profít (W2):

Sale price 125% = 20,000
Cost price 100% = 16,000
Gross profit 20% = 4,000

Profit on intra-group sales 50%*4,000 = 2,000

Unrealised profit attributable to group 75% * 2,000 = 1,500
Unrealised profit attributable to NCI 25% * 2,000 = 500
 3. RETAINED EARNINGS (W3)
, P Co S Co
Per question 45,000 22,000
Adjustment (unrealized profit) W2 (1,500) -
Pre-acquisition RE (10,000)
12,000
Group share of post-acquisition RE: S Co (75% x 12,000) 9,000
Group RE 52,500

3. NCI at reporting date:

Fair value of NCI at acquisition 15,000
Plus NCI’s share of post-acquisition RE 25%x12,000 = 3,000
Less unrealized profit attributatble to NCI (W2) (500)
NCI at reporting date 17,500
 CONSOLIDATED SOFP as at 31.12.X1

ASSETS £ £
Non Current assets
Land and buildings 120,000
Goodwill (W1) 21,000 141,000
Current assets
Trade receivables (30,000+25,000-12,000) 43,000
Inventories (10,000+5,000-2,000) W2 13,000 56,000
Total 197,000
EQUITY AND LIABILITIES
Equity
Ordinary shares of £1 each 100,000
Retained earnings (W3) 52,500 152,000
NCI (W4) 17,500
Current liabilities
Trade payables (21,000+18,000-12,000) 27,000
Total equity and liabilities 197,000
INTRA-GROUP TRADING
INTRA-GROUP TRADING
INTRA-GROUP TRADING
INTRA-GROUP TRADING
5. INTRA-GROUP TRADING
 6. ACQUISITION OF SUBSIDIARY PART WAY
THROUGH THE YEAR

• For consolidation purposes, it will be necessary to

distinguish between:
- Profits earned before acquisition – so that we can calculate
goodwill
- Profits earned after acquisition-so that we can calculate
group retained earnings
- To do this, assume that the subsidiary’s profits accrue
evenly over the year
- Then take the profit for the year and calculate the pre and
post-acquisition profits based on the number of months the
parent has owned the subsidiary
 THE CONSOLIDATED STATEMENT OF
PROFIT OR LOSS

✓ Summarises the revenue and expense of the group as if it

was a single entity
✓ The source of the consolidated SPL is the individual
accounts of the separate companies in the group
✓ Consolidate as if you owned everything, then show the
extent to which you do not
✓ The consolidated SPL is prepared by combing the
statement of profit or loss of each group company on a
line-by-line basis
INTRA-GROUP TRADING

✓ When one company in a group sells goods to another

an identical amount is added to the sales revenue of
the first company and to the cost of sales of the
second

✓ Yet as far as the entity’s dealings with outsiders are

concerned, no sale has taken place
 INTRA-GROUP TRADING

✓ The consolidated figures for sales revenue and cost of

sales should represent sales to, and purchases from
outsiders
✓ An adjustment is necessary to reduce the sales revenue
and cost of sales figures by the value of intra-group sales
during the year
✓ Calculate the unrealised profit on unsold inventories at
the year end and reduce consolidated gross profit by this
amout
✓ Cost of sales will be the balancing figure
ACQUISITIONS PART WAY THROUGH THE YEAR

✓ Only the post-acquisition element of the SPL

balances are included on consolidation
✓ Firstly split the entire SPL on the subsidiary between
pre-acquisition an post-acquisition proportions
✓ Only the post-acquisition figures are included in the
consolidated SPL
 THE CONSOLIDATED STATEMENT OF PROFIT OR
LOSS & OTHER COMPREHENSIVE INCOME

✓ The consolidated statement of profit or loss and other comprehensive income is

produced using the consolidated SPL as a basis

✓ The only item of other comprehensive income (our syllabus) is the revaluation of PPE
At 31 December 2024, Portus Co's current account with Sanus Co was $130,000 (credit). This
did not agree with the equivalent balance in Senc’s books due to cash in transit of $70,000
which was not received by Sanus Co until after the year end.
Required:
Prepare the consolidated statement of profit or loss and other comprehensive income for the
Portus Group for the year ended 31 December 2024.