1 Groups and consolidation: an overview

 EXAM FOCUS POINT 
You will probably have to calculate the unrealised profit given either a gross profit margin or a mark-up 
on cost. Remember that: 

Mark-up 
is the profit as a percentage of 
cost
.
 

Gross profit
margin
is the profit as a percentage of 
sales
.
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CHAPTER 24
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THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 
 
435 
Note that the adjustment to the NCI only occurs when the sale is from the subsidiary to the parent 
(where the unrealised profit is in the subsidiary). If the sale was from the parent to the subsidiary, then 
there is no adjustment to the NCI. 
4.3 Example: NCIs and intra-group trading 
P Co acquired 75% of the shares in S Co on 1 January 20X2 when the retained earnings of S Co stood 
at $10,000. The fair value of the NCI at the date of acquisition was $15,000. During the year to
31 December 20X2, S Co sold goods to P Co for $20,000 at a mark-up of 25%. 50% of these goods 
were still unsold by P Co at the end of the year. At the same date, P Co owed S Co $12,000 for goods 
bought and this debt is included in the trade payables of P Co and the trade receivables of S Co.
Draft statements of financial position of each company at 31 December 20X2 were as follows. 
 
P Co 
S Co 
$
$
$
$
Assets
Non-current assets 
Tangible assets 
80,000 
40,000 
Investment in S Co at cost 
46,000 
126,000 
Current assets 
Trade receivables 
30,000 
25,000 
Inventories 
10,000 
5,000 
 
40,000
30,000
Total assets
166,000 
70,000 
Equity and liabilities 
Equity 
Ordinary shares of $1 each 
100,000 
30,000 
Retained earnings 
45,000 
22,000 
145,000 
52,000 
Current liabilities 
Trade payables 
21,000
18,000
Total equity and liabilities
166,000 
70,000 
Required
Prepare a draft consolidated statement of financial position for P Co. 
Solution 
P CO 
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X2 
$
$
Assets 
Non-current assets 
Tangible assets (80,000 + 40,000) 
120,000 
Goodwill (W1) 
21,000 
Current assets 
Trade receivables (30,000 + 25,000 – 12,000) 
43,000 
Inventories (10,000 + 5,000 – 2,000 (W2)) 
13,000 
56,000 
Total assets 
197,000 
Equity and liabilities
Equity attributable to owners of the parent 
Ordinary shares of $1 each 
100,000 
Retained earnings (W3) 
52,500 
152,000 
NCI (W4) 
17,500
170,000
Current liabilities (21,000 + 18,000 – 12,000) 
27,000
Total equity and liabilities 
197,000 
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