1 Groups and consolidation: an overview

 
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Notice the difference between this treatment and the 
consolidation 
of a subsidiary company's results. If
A Co were a 100% owned subsidiary, P Co would take credit for the whole of its sales revenue, cost of 
sales etc.
Under equity accounting, the associate's sales revenue, cost of sales and so on are 
not
 amalgamated 
with those of the group. Instead, only the group share of the associate's profit after tax is added to the 
group profit. 
3.2.2 Other comprehensive income 
The 'other comprehensive income' element of consolidated financial statements is not part of the FFA/FA 
syllabus. 
3.2.3 Consolidated statement of financial position 
A figure for 
investment in associates 
is shown in the consolidated statement of financial position which 
must be stated at cost at the time of the acquisition of the associate. This amount will increase (or 
decrease) each year by 
the amount of the group's share of the associated company's increase (or 
decrease) in post-acquisition retained reserves
. 
3.2.4 Example: equity accounting 
P Co acquires 25,000 of the 100,000 $1 ordinary shares in A Co for $60,000 on 1 January 20X8. In 
the year to 31 December 20X8, A Co earns profits after tax of $24,000, from which it pays a dividend of 
$6,000. 
How will A Co's results be accounted for in the individual and consolidated accounts of P Co for the year 
ended 31 December 20X8? 
Solution 
In the 
individual accounts 
of P Co, the investment can be recorded on 1 January 20X8 at cost. Unless 
there is an impairment in the value of the investment, this amount will remain in the individual 
statement of financial position of P Co permanently. The only entry in P Co's 
individual statement of 
profit or loss
will be to record dividends received. For the year ended 31 December 20X8, P Co will: 
DEBIT
Cash 
$1,500 
CREDIT
Dividends received (6,000 × 25%) 
$1,500 
Another option available for the individual accounts of P Co is to use the equity accounting method to 
account for the investment, as per 
Equity Method in Separate Financial Statements (Amendments to 
IAS 27)
, effective 1 January 2016. However, for this syllabus, we will only look at the equity method in 
the consolidated accounts. 
In the