CHAPTER 24
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THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION
441
1
Goodwill is the excess of consideration paid plus fair value of non-controlling interest over fair value of
net assets acquired. It should be included in the consolidated statement of financial position as an
intangible asset.
2
Provision for unrealised profit
$
Sale price
150% 120,000
Cost price
100% (80,000)
Gross profit
50%
40,000
Unrealised profit (40,000 50%)
20,000
3
Provision for unrealised profit
$
Sale price
100%
12,000
Cost price
70%
(8,400)
Gross profit
30%
3,600
Unrealised profit
3,600
4
Non-controlling interest
$
Fair value of NCI at acquisition
X
Plus
NCI's share of post-acquisition retained earnings (and other reserves)
X
NCI at reporting date
X
5
Goodwill
$ $
Fair value of consideration transferred
28
Fair value of NCI at acquisition
5
Less net acquisition-date fair value of identifiable assets acquired and
liabilities assumed:
Ordinary share capital
10
Retained earnings at acquisition
15
Fair value adjustments at acquisition
5
(30)
Goodwill
3
Now try ...
Attempt the questions below from the Practice Question Bank
Qs 90 – 93
ANSWERS TO QUICK QUIZ
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PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS
442
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443
C H A P T E R
TOPIC LIST
SYLLABUS
REFERENCE
1 Introduction to the consolidated statement of profit or loss
G1(e)
2 Intra-group trading
G1(e)
3 Acquisitions part way through the year
G1(e)
4 Summary: consolidated statement of profit or loss
G1(e)
The consolidated
statement of profit
or loss
This chapter introduces the basic procedures required to produce a
consolidated statement of profit or loss.
We begin by looking at a basic consolidated statement of profit or
loss, including the impact of a non-controlling interest. We then
move on to look at the effects of intra-group trading and
acquisitions of subsidiaries part way through the year.
There are plenty of questions and examples in this chapter – work
through all of them carefully.
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PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS
444
Study Guide
Intellectual level
G Preparing simple consolidated financial statements
1 Subsidiaries
(e) Describe the components of and prepare a consolidated
statement of profit or loss or extracts thereof, including:
(i) Elimination of intra-group trading balances (excluding
cash and goods in transit)
(ii) Removal of unrealised profit arising on intra-group
trading
(iii) Acquisition of subsidiaries part way through the financial
year
S
1
Introduction to the consolidated statement of profit or loss
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.
How are consolidated financial statements prepared? IFRS 10 lays out the basic procedures in paragraph
B86 and we will consider these in the rest of this chapter.
The consolidated statement of profit or loss summarises the revenue and expenses of the group as if it
was a
single entity. As with the consolidated statement of financial position, the source of the
consolidated statement of profit or loss is the individual accounts of the separate companies in the group.
The consolidation procedure is also the same: consolidate as if you owned everything, then show the
extent to which you do not.
Consider the following example.
EXAM FOCUS POINT
In the July to December 2014 ACCA examining team's report, the ACCA examining team provided the
following comments which may help students to improve their performance:
Know the format for a consolidated statement of profit or loss and understand consolidation
techniques. Some questions may require you to calculate key figures such as a profit figure when given
a mark-up percentage, before you can calculate unrealised profit.
Some of the common errors when preparing the consolidated statement of profit or loss include not:
Adjusting the revenue figure and cost of sales figure for the intra-group transactions
Adjusting the cost of sales for the goods remaining unsold at the year end
Clearly showing the profit attributable to the parent company and the non-controlling interest
Adjusting the subsidiary profit for unrealised profit
Showing workings for the calculation of the non-controlling interest
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CHAPTER 25
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THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS
445
1.1 Example: consolidated statement of profit or loss
P Co acquired 75% of the ordinary shares of S Co on that company's incorporation in 20X3. The
summarised statements of profit or loss of the two companies for the year ending 31 December 20X6 are
set out below.
P Co
S Co
$
$
Revenue
75,000
38,000
Cost of sales
30,000
20,000
Gross profit
45,000
18,000
Administrative expenses
14,000
8,000
Profit before taxation
31,000
10,000
Income taxes
10,000
2,000
Profit for the year
21,000
8,000
Note: Movement on retained earnings
Retained earnings brought forward
87,000
17,000
Profit for the year
21,000
8,000
Retained earnings carried forward
108,000
25,000
Required
Prepare the consolidated statement of profit or loss and movement on retained earnings for the group.
Solution
P CO
CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 20X6
$
Revenue (75 + 38)
113,000
Cost of sales (30 + 20)
50,000
Gross profit
63,000
Administrative expenses (14 + 8)
22,000
Profit before taxation
41,000
Income taxes (10 + 2)
12,000
Profit for the year
29,000
Profit attributable to:
Owners of the parent (bal. fig.)
27,000
Non-controlling interest (25% 8)
2,000
29,000
Movement on retained earnings
Group profit for year
27,000
Retained earnings brought forward (87 + (17 75%))
99,750
Retained earnings carried forward
126,750
Notice how the non-controlling interest (NCI) is dealt with.
(a)
Down to the line
'profit for the year' the
whole of S Co's results is included without reference to
group share or NCI share. Profit for the year is then split between the group and the NCI.
(b)
The NCI's share ($17,000 25% = $4,250) of S Co's retained earnings brought forward is
excluded from group retained earnings. This means that the carried forward figure of $126,750
is the figure which would appear in the statement of financial position for group retained earnings.
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