1 Groups and consolidation: an overview

 
453 

 
The consolidated statement of profit or loss is prepared by combining the statements of profit or loss of 
each group company on a line by line basis. 

 
Intra-group sales and purchases are eliminated from the consolidated statement of profit or loss. 

 
If a subsidiary is acquired during the year, only the post-acquisition element of statement of profit or loss 
balances are included on consolidation. 
 
 
1
Describe the preparation of a consolidated statement of profit or loss in its simplest form.
2
What adjustments are made to the consolidated statement of profit or loss in respect of intra-group 
trading?
The following information is relevant for questions 3 and 4 
Hardy has a 90% subsidiary, Lawrence. During the year ended 31 December 20X2 Lawrence sold goods 
to Hardy for $25,000, which was at a mark-up of 25%. At 31 December 20X2 $10,000 of these goods 
remained unsold. 
3
In the consolidated statement of profit or loss for the year ended 31 December 20X2, what will revenue 
be reduced by?
A $18,750
B $20,000 

C $22,500 

D $25,000 
4
In the consolidated statement of profit or loss for the year ended 31 December 20X2, what will gross 
profit be reduced by?
A $1,800
B $2,000 
C $2,250 
D $2,500
5
Fill in the blank. Intra-group sales and purchases are ………………. from the consolidated statement of 
profit or loss. 
QUICK QUIZ 
CHAPTER ROUNDUP 
BPP Tutor Toolkit Copy

---

PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 
 
454
 
1
The individual statements of profit or loss are totalled and certain adjustments made.