1 Groups and consolidation: an overview

PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 
 
440
 

 
Basic consolidation consists of two procedures. 
– 
Cancelling out items which appear as an asset in one company and a liability in another 
– 
Then adding together all the uncancelled assets and liabilities on a line by line basis 

 
The asset 'investment in subsidiaries' in the parent company accounts always cancels with the share 
capital of the subsidiary companies. The only share capital in the consolidated accounts is that of the 
parent company. 

 
Goodwill arising on consolidation is recognised as an intangible asset in the consolidated statement of 
financial position. 

 
The non-controlling interest (NCI) shows the extent to which net assets controlled by the group are 
owned by other parties. 

 
A consolidation adjustment is required to remove 
unrealised profit
on intra-group trading. 

 
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. 
 
 1 
Fill in the blanks.

Goodwill is the excess of ……………. …….. plus fair value of ….-………….. ………….. over fair value 

of net assets acquired. It should be included in the consolidated statement of financial position as an 
………….. ……...
2
Pretty Co owns 80% of Ugly Co. Ugly Co sells goods to Pretty Co at cost plus 50%. The total invoiced 
sales to Pretty Co by Ugly Co in the year ended 31 December 20X9 were $120,000 and, of these sales, 
50% were held in inventory by Pretty Co at 31 December 20X9. What is the provision for unrealised 
profit? 
3
Major Co, which makes up its accounts to 31 December, has an 80% owned subsidiary Minor Co.
Minor Co sells goods to Major Co at a margin of 30%. At 31 December 20X8, Major had $12,000 of 
such goods in its inventory. What is the provision for unrealised profit? 
4
Complete the equation for calculating the NCI figure in the statement of financial position below.
Non-controlling interest
$ 
Fair value of NCI at acquisition 
X 
Plus …………………………………………………………….. 
X 
NCI at reporting date 
X 
5
The summarised statements of financial position of Falcon and Kestrel at 31 December 20X8 were as 
follows. 

Falcon 

Kestrel 
$m 
$m 
Net assets 
68 
25 
Share capital 
10 
10 
Reserves 
58 
15 
68 
25 
On 1 January 20X8 Falcon purchased 80% of the equity share capital of Kestrel for $28m. The fair 
value of the net assets of Kestrel was $30m at that date. The fair value of the NCI at the acquisition date 
was $5m.
Calculate the goodwill arising on consolidation.