I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

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)