1 Groups and consolidation: an overview

PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 
 
420
 
Required
Prepare the consolidated statement of financial position of P Co. 
1.4 Solution 
The cancelling items are as follows. 
(a) 
P Co's asset 'investment in shares of S Co' ($40,000) cancels with S Co's liability 'share capital' 
($40,000). 
(b) 
P Co's asset 'receivables: S Co' ($2,000) cancels with S Co's liability 'payables: P Co' ($2,000). 
The remaining assets and liabilities are added together to produce the following consolidated statement 
of financial position. 
P CO
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X6 
 
 
$
$
Assets
 
Non-current assets 
Property, plant and equipment (35 + 45) 
80,000 
Current assets 
Inventories (16 + 12) 
28,000 
Receivables (6 + 9) 
15,000 
Cash at bank
1,000 
44,000 
Total assets 
124,000 
Equity and liabilities 
Equity 
$1 ordinary shares (P Co only) 
70,000 
Retained earnings (16 + 19) 
35,000 
105,000 
Current liabilities 
Bank overdraft
3,000 
Payables (14 + 2) 
16,000 
19,000 
Total equity and liabilities 
 
 
124,000 
Notes
1 P 
Co's 
bank 
balance 
is 
not netted off 
with S Co's bank overdraft. To offset one against the other 
would be less informative and would conflict with the principle that assets and liabilities should 
not be netted off. 
2 
The share capital in the consolidated statement of financial position 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. 
1.5 Part cancellation
An item may appear in the statements of financial position of a parent company and its subsidiary, but 
not at the same amounts. 
(a) 
The parent company may have acquired