1 Groups and consolidation: an overview

cancel out items
which appear as an asset in one company and a liability in another. 
(b) 
Add together
all the uncancelled assets and liabilities throughout the group on a line by line basis. 
Items requiring cancellation may include the following. 
(a) 
The asset 'investment in subsidiary companies' which appears in the parent company's accounts 
will be matched with the liability 'share capital' in the subsidiaries' accounts. 
(b) There may be intra-group trading within the group. For example, Subsidiary Co may sell goods on 
credit to Parent Co. Parent Co would then be a receivable in the accounts of Subsidiary Co, while 
Subsidiary Co would be a payable in the accounts of Parent Co. 
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CHAPTER 24
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THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 
 
419 
1.2 Example: cancellation
Parent Co has just bought 100% of the shares of Subsidiary Co. Below are the statements of financial 
position of both companies just before consolidation. 
PARENT CO 
SUBSIDIARY CO 
STATEMENT OF FINANCIAL POSITION 
STATEMENT OF FINANCIAL POSITION 
$'000 
$'000 
Assets
Investment in subsidiary* 
50 
Receivables 
20 
Receivables 
30 Cash 
30 
80 
50 
Equity and liabilities 
Share capital 
80 Share 
capital* 
50 
80 
50 
* Cancelling items
The consolidated statement of financial position will appear as follows. 
PARENT AND SUBSIDIARY 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION 
$'000 
Receivables (30 + 20) 
50 
Cash 
30 
80 
Share capital** 
80 
80 
**
Note
. This is the parent company's share capital only. The subsidiary's has been cancelled.
1.3 Example: cancellation with intra-group trading 
P Co regularly sells goods to its one subsidiary company, S Co. The statements of financial position of the 
two companies on 31 December 20X6 are given below. 
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 20X6 
P Co 
S Co 
$
$
Assets
Non-current assets
Property, plant and equipment 
35,000 
45,000 
Investment in 40,000 $1 shares in S Co at cost 
40,000 
– 
75,000 
45,000 
Current assets
Inventories 
16,000 
12,000 
Receivables: S Co 
2,000 – 
Other 
6,000 
9,000 
Cash at bank 
1,000 
– 
25,000 
21,000
Total assets 
100,000 
66,000 
Equity and liabilities
Equity 
$1 ordinary shares 
70,000 
40,000 
Retained earnings 
16,000 
19,000 
86,000 
59,000 
Current liabilities 
Bank overdraft 
– 
3,000
Payables: P Co – 
2,000 
Payables: other
 
14,000
2,000 
 
14,000 
7,000 
Total equity and liabilities 
100,000 
66,000 
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