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aggregated with the parent company's retained earnings in the consolidated statement of financial 

position. The figure of consolidated retained earnings comprises the retained earnings of the parent 

company plus the post-acquisition retained earnings only of subsidiary companies. The post-acquisition 

retained earnings are simply retained earnings now less retained earnings at acquisition. 

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CHAPTER 24  

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  THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 

 

423 

Other reserves, such as the revaluation surplus, are treated in the same way as retained earnings. 

 

2.2.1 Example: goodwill and pre-acquisition profits 

Sing Co acquired the ordinary shares of Wing Co on 31 March 20X1 when the draft statements of 

financial position of each company were as follows. 

SING CO 

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 20X1 

 

 

$      

Assets 

Non-current assets 

   Investment in 50,000 shares of Wing Co at cost 

80,000 

Current assets 

 

  40,000 

Total assets 

 

120,000 

Equity and liabilities 

Equity 

   Ordinary shares 

75,000 

   Retained earnings 

 

  45,000 

Total equity and liabilities 

 

120,000 

 

WING CO  

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 20X1 

 

$      

Current assets 

 

60,000 

Equity 

   50,000 ordinary shares of $1 each 

50,000 

   Retained earnings 

 

10,000 

 

 

60,000 

Prepare the consolidated statement of financial position as at 31 March 20X1.

 

Solution 

The technique to adopt here is to produce a new working: Goodwill. A proforma working is set out below. 

Goodwill 

$ $ 

Consideration transferred 

 

X 

Less value of identifiable assets acquired and liabilities assumed*: 

 

 

 

Ordinary share capital 

X 

 

 Share 

premium 

X 

 

 

Retained earnings at acquisition 

   X 

 

 

  

(X) 

Goodwill  

 X 

* We use this wording because it best reflects the wording IFRS 3 uses. Don't let it confuse you; 

remember that that: assets – liabilities = capital, so the value of assets acquired and liabilities assumed 

is equal to the share capital and reserves of the company. 

 EXAM FOCUS POINT 

If you're confused by this, think of it another way, from the point of view of group reserves. Only the 

profits earned by the group should be consolidated. Profits earned by the subsidiary before it became 

part of the group are not group profits. They reflect what the parent company is getting for its money 

on acquisition.

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