1 Groups and consolidation: an overview

PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 
 
432
 
ANSWER 
D 
$'000 
Fair value of consideration transferred 
10,000 
Fair value of NCI ($2 

1m) 
2,000 
12,000 
Less net acquisition-date fair value of identifiable assets 
acquired and liabilities assumed 
(7,500) 
Goodwill
4,500 
 
 
4
Intra-group trading 
A consolidation adjustment is required to remove 
unrealised profit
on intra-group trading (IFRS 10, 
para. B86(c)). 
We have already come across cases where one company in a group engages in trading with another 
group company. Any receivable/payable balances outstanding between the companies are cancelled on 
consolidation. No further problem arises if all such intra-group transactions are 
undertaken at cost
, 
without any mark-up for profit. 
However, 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. In this case, a company (say 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 
quite properly include the profit earned on sales to B Co. Similarly, B Co's statement of financial position 
will include inventories at their cost to B Co, ie at the amount at which they were purchased from A Co. 
This gives rise to two problems. 
(a) 
Although A Co makes a profit as soon as it sells goods to B Co, the group does not make a sale or 
achieve a profit until an outside customer buys the goods from B Co. 
(b) 
Any purchases from A Co which remain unsold by B Co at the year end will be included in B Co's 
inventory. Their statement of financial position value will be their cost to B Co, which is not the 
same as their cost to the group. 
The objective of consolidated accounts is to present the financial position of several connected 
companies as that of a