1 Groups and consolidation: an overview

PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 
 
434
 
Workings
1 
Goodwill
$
$
Fair value of consideration transferred 
46,000 
Less net acquisition-date fair value of identifiable assets acquired 
and liabilities assumed: 
Share capital 
30,000 
Retained earnings at acquisition 
10,000 
40,000 
Goodwill 
6,000 
2 
Provision for
unrealised profit
$
Profit on intra-group sales (20% 

$50,000) 
10,000 
Unrealised profit (25% 

10,000)* 
2,500 
* 25% of the inventories from the intra-group sales remain in inventories at the year end, 
therefore the unrealised profit is 25% of the overall profit made on the intra-group sales. The rest 
of the profit from the intra-group sales is now realised as the inventories have been sold outside 
the group.
3 
Retained earnings
 
 
 P Co 
 S Co 
$ 
$ 
Per 
question 
45,000 22,000 
Adjustment (unrealised profit (W2)) 
 
(2,500)
Pre-acquisition retained earnings 
(10,000) 
9,500
Group share of post-acq'n ret'd earnings: 
S Co (12,000 × 100%) 
9,500 
Group retained earnings 
54,500 
 
4.2 NCIs and intra-group trading 
A further problem occurs where a subsidiary company which is 
not wholly owned is involved in intra-
group trading 
within the group.
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 
plus $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. From the group perspective the whole of the 
unrealised profit must be eliminated on consolidation. If the profit was made by the subsidiary, the NCI 
are charged with their share of the unrealised profit. 
To account for this in the group accounts, we remove the whole profit, charging the NCI with their 
proportion. 
DEBIT
Group retained earnings 
DEBIT
NCI 
CREDIT
Group inventory (statement of financial position)