1 Groups and consolidation: an overview

Cancellation of like items 
To arrive at a fair picture we eliminate both the receivable of $5,000 in Pleasant's books and the payable 
of $5,000 in Sweet's books. Only then do we consolidate by adding together. 
Consolidated receivables = $40,000 + $30,000 – $5,000 
= 
$65,000 
Consolidated payables 
= $50,000 + $45,000 – $5,000 
= 
$90,000 
So far we have established that consolidation means adding together any items that are not eliminated as 
internal to the group. Going back to the example, however, we see that Pleasant only owns 80% of 
Sweet. Should we not then add Pleasant's assets and liabilities to 80% of Sweet's? 
Consolidate as if you owned everything 
The answer is no. Pleasant 
controls
Sweet, its subsidiary. The directors of Pleasant can visit 
all
of 
Sweet's factory, if they wish, not just 80% of it. So the figure for consolidated land and buildings is 
$100,000 plus $80,000 as stated above. 
Show the extent to which you do not own everything 
However, if we just add the figures together, we are not telling the whole story. There may well be one or 
more shareholders who own the remaining 20% of the shares in Sweet Ltd. These shareholders cannot 
visit 20% of the factory or tell 20% of the workforce what to do, but they do have an 
interest
in 20% of 
the net assets of Sweet. The answer is to show this 
non-controlling interest
separately in the equity 
section of the consolidated statement of financial position. 
Summary 

Consolidation 
means 
adding 
together (uncancelled items). 

Consolidation means cancellation of like items internal to the group.

Consolidate as if you owned everything then show the extent to which you do not. 
Keep these basic principles in mind as you work through the detailed techniques of consolidated financial 
statements. 
Now try the following questions.