1 Groups and consolidation: an overview

PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 
 
436
 
Workings
1 
Goodwill
$
$
Fair value of consideration transferred 
46,000 
Plus fair value of NCI at acquisition 
15,000 
Less net acquisition-date fair value of identifiable assets acquired 
and liabilities assumed: 
Share capital 
30,000 
Retained earnings 
10,000 
40,000 
Goodwill 
21,000 
2 
Provision for
unrealised profit
$
Sale price
125% 
20,000 
Cost price
100% 
(16,000)
Gross profit
25% 
4,000 
Unrealised profit (4,000 

50%) 
2,000 
Unrealised profit attributable to group (2,000 

75%) 
1,500 
Unrealised profit attributable to NCI (2,000 

25%) 
500 
3 
Retained earnings
 
 P Co 
 S Co 
$
$ 
Per 
question 
45,000 
22,000 
Adjustments (unrealised profit attributable to P (W2)) 
(1,500) 
– 
Pre-acquisition retained earnings 
(10,000)
12,000 
Group share of post-acq'n ret'd earnings: 
S Co (75% 

12,000) 
9,000 
Group retained earnings 
52,500 
 
4
 
NCI at reporting date
$ 
Fair value of NCI at acquisition 
15,000 
Plus NCI's share of post-acquisition retained earnings (25% 

12,000) 
3,000 
Less unrealised profit attributable to NCI (W2) 
(500) 
NCI at reporting date 
17,500 
 
5
Acquisition of a subsidiary part way through the year 
When a parent acquires a subsidiary part way through the year, the profits for the period need to be 
apportioned between pre- and post-acquisition. Only post-acquisition profits are included in the group's 
consolidated statement of financial position.
In the examples we have looked at already in this chapter, the subsidiary was conveniently purchased on 
the first day of the accounting period. However, in practice this will probably not be the case! 
If a parent purchases a subsidiary company during the year, as we have already seen, at the end of the 
accounting year it will be necessary to prepare consolidated accounts.
The subsidiary's accounts to be consolidated will show the subsidiary's profit or loss for the whole year. 
For consolidation purposes, however, it will be necessary to distinguish between: 
(a) 
Profits earned before acquisition – so that we can calculate goodwill 
(b) 
Profits earned after acquisition – so that we can calculate group retained earnings 
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CHAPTER 24
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THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION